Sydney Local Health District v Macquarie International Health Clinic Pty Ltd

Case •

[2020] NSWCA 274

•

02 November 2020

No judgment structure available for this case.

Court of Appeal


Supreme Court


New South Wales

  • Summary available
  • Amendment notes
Medium Neutral Citation: Sydney Local Health District v Macquarie International Health Clinic Pty Ltd [2020] NSWCA 274
Hearing dates: 25–29 May 2020
Date of orders: 02 November 2020
Decision date: 02 November 2020
Before: Bell P; Gleeson JA; Payne JA
Decision:

(1)      Appeal allowed.

(2)      Cross-appeal dismissed.

(3)      Set aside orders 1-7 and 9 of the orders made by Kunc J on 29 November 2019, and, in their place, make the following orders:

(a)   Judgment for Macquarie as follows:

(i) mesne profits of $14,530,510 (comprising $9,486,564 in damages and $5,043,946 in interest) in relation to the Car Park Site together with interest under s 100 of the Civil Procedure Act 2005 (NSW) on that total amount from 4 May 2017;

(ii)      $1,048,800 in damages for additional building and consultancy costs; and

(iii)     $301,990 (excluding GST) in damages for remediation and excavation work.

(4)      Macquarie pay SLHD’s costs of, and incidental to, the appeal.

(5)      By 9 November 2020, SLHD to file submissions not exceeding 15 pages about the question of costs and such additional orders, if any, it is submitted that Court should make (including the amount of interest to be awarded since 4 May 2017 referred to order 3(a)(i) and whether any order for restitution should be made).

(6)      By 16 November 2020, Macquarie to file submissions not exceeding 15 pages about the question of costs and such additional orders, if any, it is submitted that Court should make (including the amount of interest to be awarded since 4 May 2017 referred to order 3(a)(i) and whether any order for restitution should be made).

(7)      By 20 November 2020, SLHD to file submissions in reply not exceeding 5 pages.

Catchwords:

TORT – trespass – trespass on two different sites subject to long term leases – one site comprising an undeveloped block of land on which lessee was to construct and operate a private hospital – one site comprising an established car park – inquiry as to damages – initial claim for damages for loss of opportunity to earn profits from hospital site and car park site – damages for mesne profits – user principle – whether damages by way of mesne profits assessed by reference to actual usage and existing state of premises.

TORT – trespass – period of trespass – manner of assessment – where order for possession made but orders stayed – whether trespass continued – whether trespass continued on refusal by High Court of application for special leave to appeal from Court of Appeal decision – whether stay order terminated on refusal of special leave application.

DAMAGES – damages for trespass to land – various measures of damages – damages sought by way of mesne profits – history of mesne profits – mesne profits and the user principle – manner of assessment – assessment by reference to market rental of land trespassed upon – whether damages by way of mesne profits assessed by reference to actual usage and existing state of premises.

DAMAGES – taxation – grossing up for taxation of damages for mesne profits – where damages calculated were in effect compensation for a lost commercial opportunity – whether it would have been unjust not to take into account identifiable and quantifiable taxation impacts on damages, in line with fourth principle enunciated in Daniels v Anderson (1995) 37 NSWLR 438; (1995) 118 FLR 248.

PROCEDURE – where orders for possession made pending further order – consequence of refusal of special leave application – whether refusal of application for special leave had the effect of lifting stay of orders made by Court of Appeal – whether stay of orders needed to be expressly lifted by Court of Appeal.

Legislation Cited:

Civil Procedure Act 2005 (NSW) s 100

Income Tax Assessment Act 1997 (Cth) ss 20-20, 118-37

Uniform Civil Procedure Rules 2005 (NSW) r 36.4

Cases Cited:

Allsop v Federal Commissioner of Taxation (1965) 113 CLR 341; [1965] HCA 48

Anderson v Bowles (1951) 84 CLR 310; [1951] HCA 61

Aslin v Parkin [1758] 96 ER 1215; [1758] 97 ER 501

Atlas Tiles Ltd v Briers (1978) 144 CLR 202; [1978] HCA 37

Attorney-General v Blake [2001] AC 268

Bailey & Bailey v Director-General Department of Energy Climate Change and Water [2010] NSWSC 979

Batchelor v Burke (1981) 148 CLR 448; [1981] HCA 30

Bilambil–Terranora Pty Ltd v Tweed Shire Council [1980] 1 NSWLR 465

Bocardo SA v Star Energy UK Onshore Ltd [2011] AC 380

Boensch v Pascoe (2019) 94 ALJR 112; [2019] HCA 49

British Transport Commission v Gourley [1956] AC 185

Bunnings Group Limited v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342

Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185; [1966] HCA 38

Commonwealth Bank of Australia v Clune [2008] NSWSC 1125

Cullen v Trappell (1980) 146 CLR 1; [1980] HCA 10

Daniels v Anderson (1995) 37 NSWLR 438; (1995) 118 FLR 248

Darley Main Colliery Company v Mitchell (1886) 11 App Cas 127

Doe v Hare [1833] 97 ER 709; [1833] 3 LJ Ex 17

Eaton Mansions (Westminster) Ltd v Stinger Compania De Inversion SA [2012] EWHC 3354

Eaton Mansions (Westminster) Ltd v Stinger Compania De Inversion SA [2013] EWCA Civ 1308

Entick v Carrington (1765) 19 St Tr 1029

Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323

Fink v Fink (1946) 74 CLR 127; [1946] HCA 54

Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175

Gill v Australian Wheat Board [1980] 2 NSWLR 795

Goodtitle v Tombs [1770] 95 ER 965

Green v Biddle, 21 US 1 (1823)

Hackett v Inverugie Investments Ltd [1993] BHS J 126

Haines v Bendall (1991) 172 CLR 60; [1991] HCA 15

Halliday v Nevill (1984) 155 CLR 1; [1984] HCA 80

Hampton v BHP Billiton Minerals Pty Ltd (No 2) [2012] WASC 285

Hardy v Ryle (1829) 109 ER 224; (1829) 9 B & C 603

Hocking v Director-General of the National Archives of Australia (2020) 94 ALJR 569; [2020] HCA 19

Horsford v Bird [2006] UKPC 3; [2006] 1 EGLR 75

House v The King (1936) 55 CLR 499; [1931] HCA 40

Inverugie Investments Ltd v Hackett [1995] 1 WLR 713

Jackson v Abram (No 3) (District Court (SA), 24 September 2014, unrep)

Jackson v Abram (2015) 124 SASR 339; [2015] SASCFC 175

Jegon v Vivian (1871) LR 6 Ch App 742

Johnson v Perez (1988) 166 CLR 351; [1988] HCA 64

Klewer v Official Trustee in Bankruptcy (No 2) [2010] NSWCA 258

Knott Investments Pty Ltd v Winnebago Industries, Inc (No 2) (2013) 305 ALR 387; [2013] FCAFC 117

Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26

Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432

Laris v Lin [2017] NSWSC 279

Macquarie International Health Clinic Pty Limited v Sydney Local Health Network [2011] NSWCA 231

Macquarie International Health Clinic Pty Ltd v Central Sydney Area Health Service (Supreme Court (NSW), Windeyer J, 28 March 2000, unrep)

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 6) [2014] NSWSC 1549

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 9) [2016] NSWSC 155; (2016) 215 LGERA 137

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 10) [2016] NSWSC 1587

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 11) [2017] NSWSC 1249

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 12) [2019] NSWSC 916

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 13) [2019] NSWSC 1590

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District [2020] NSWCA 161

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District [2019] NSWSC 1199

Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738

Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268

Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 348

Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2015] NSWCA 323

Martin v Porter (1839) 5 M & W 351

Mayfair Ltd v Pears [1987] 1 NZLR 459

MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657; [1991] HCA 3

McLaurin v Federal Commissioner of Taxation (1961) 104 CLR 381; [1961] HCA 9

Ministry of Defence v Ashman (1993) 25 HLR 513

Ministry of Defence v Thompson [1993] 2 EG 107

Montreuil v The Ontario Asphalt Company and the Caldwell Sand and Gravel Company (1922) 63 SCR 401

Mulvaney Holdings Pty Ltd v Thorne (No 2) [2012] QSC 146

New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68

Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394; [1989] HCA 11

Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116; [2001] NSWCA 346

Penarth Dock Engineering Co Ltd v Pounds [1963] 1 Lloyd’s Rep 359

Perre v Apand Pty Limited (1999) 198 CLR 180; [1999] HCA 36

Phillips v Homfray (1871) LR 6 Ch App 770

Plenty v Dillon (1991) 171 CLR 635; [1991] HCA 5

Port Stephens Shire Council v Tellamist Pty Ltd [2004] NSWCA 353; (2004) 135 LGERA 98

Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14

Roberts v Rodney District Council [2001] 2 NZLR 402

Smith Kline & French Laboratories (Aust) Ltd v Commonwealth (1991) 173 CLR 194; [1991] HCA 43

Southwell v Bennett [2010] NSWSC 1372

Stoke-on-Trent City Council v W. & J. Wass Ltd [1988] 1 WLR 1406

Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246

Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35

Swordheath Properties Ltd v Tabet [1979] 1 WLR 285

Sydney South West Area Health Service v Macquarie International Health Clinic Pty Ltd [2011] HCATrans 155

Taylor v Beere [1982] 1 NZLR 81

Tepko Pty Limited v Water Board (2001) 206 CLR 1; [2001] HCA 19

Tilly v Bridges (1667–1744) 2 Eq Ca Abr 588; 22 ER 495

Turner v Minister of Public Instruction (1956) 95 CLR 245; [1956] HCA 7

Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 2

Waugh v Attorney General [2006] 2 NZLR 812

Westpac v Jamieson [2016] 1 Qd R 495; [2015] QCA 50

Whisprun Pty Ltd v Dixon (2003) 77 ALJR 1598; [2003] HCA 48

Whitaker v Commissioner of Taxation (1996) 63 FCR 1; [1996] FCA 1716

Whitaker v Commissioner of Taxation (1998) 82 FCR 261; [1998] FCA 262

White v Overland [2001] FCA 1333

Whitwham v Westminster Brymbo Coal and Coke Co [1896] 1 Ch 894

Whitwham v Westminster Brymbo Coal and Coke Co [1896] 2 Ch 538

Winnebago Industries Inc v Knott Investments Pty Ltd (No 4) (2015) 241 FCR 271; [2015] FCA 1327

Yakamia Dairy Pty Ltd v Wood [1976] WAR 57

Texts Cited:

C Sappideen and P Vines (eds), Fleming’s The Law of Torts (10th ed, Thomson Reuters, 2011)

Commonwealth Taxation Review Committee, Full Report (January 1975)

DM Walker, The Oxford Companion to Law (Oxford University Press, 1980)

E Bullen and SM Leake, Precedents of Pleadings in Actions in the King’s Bench Division of the High Court of Justice (3rd ed, Stevens, 1868)

E Cooke, “Trespass, Mesne Profits and Restitution” (1994) 110 LQR 420

JD Heydon, Heydon on Contract (Thomson Reuters, 2019)

JD Heydon, MJ Leeming and PG Turner, Meagher Gummow & Lehane’s Equity: Doctrines and Remedies (5th ed, LexisNexis Butterworths, 2015)

JJ Edelman (ed), McGregor on Damages (20th ed, Sweet & Maxwell, 2018)

MA Jones, AM Dugdale and M Simpson, Clerk & Lindsell on Torts (22nd ed, Sweet & Maxwell, 2017)

RJ Sharpe and SM Waddams, “Damages for Lost Opportunity to Bargain” (1982) 2 Oxford J Legal Stud 290

Sir William Blackstone, Commentaries on the Laws of England (JB Lippincott Co, 1893)

SM Waddams, The Law of Damages (5th ed, Canada Law Book, 2012)

WR Cole, The Law and Practice in Ejectment

(H Sweet, 1857)

WS Holdsworth, A History of English Law (2nd ed, Methuen, 1937)

Category:Principal judgment
Parties: Sydney Local Health District (Appellant)
Macquarie International Health Clinic Pty Limited (Respondent)
Representation:

Counsel:

D L Williams SC, B D Kaplan, S Scott (Appellant)
N C Hutley SC, R E Dubler SC, S Philips,
S Kanagaratnam (Respondent)

Solicitors:

Clayton Utz (Appellant)
S Moran & Co (Respondent)
File Number(s): 2019/404200
 Decision under appeal 
Court or tribunal:
Supreme Court of New South Wales
Jurisdiction:
Equity Division
Citation:

[2016] NSWSC 1587; [2017] NSWSC 1249;

[2019] NSWSC 916; [2019] NSWSC 1590

Date of Decision:
10 November 2016
Before:
Kunc J
File Number(s):
2000/34949; 2010/90340

HEADNOTE

[This headnote is not to be read as part of the judgment]

In 1996, Macquarie International Health Clinic Pty Ltd (Macquarie) entered into a series of agreements with Sydney Local Health District (SLHD) in relation to the development of a private hospital and car park on two lots of land (the Hospital Site and the Car Park Site) in Camperdown, NSW. On 17 March 2000, SLHD purported to terminate the Construction Deed, the Car Park Sublease and the Hospital Lease, and re-entered and took possession of the Hospital Site and the Car Park Site. At this time, Stage 1 of a Car Park had been built, although planning approval to occupy the Car Park had not been obtained. No private hospital had been constructed on the Hospital Site.

On 14 October 2010, this Court upheld a claim by Macquarie that, on or about 17 March 2000, SLHD committed a trespass by retaking possession of the Hospital Site and the Car Park Site.

Following the dismissal of an application for special leave to appeal to the High Court, Macquarie elected for an inquiry as to damages in respect of the trespass to the two sites. Macquarie initially sought compensation by way of damages for loss of commercial opportunity to develop the Hospital Site and loss of profits in respect of the Car Park Site.

After some 40 days of the hearing of the inquiry as to damages, Macquarie amended its claim, abandoning the claim for damages for loss of commercial opportunity and consequent loss of profits and instead sought damages by way of mesne profits as a result of the trespass to both the Hospital Site and the Car Park Site.

After a hearing over a number of years resulting in multiple judgments, the primary judge awarded Macquarie approximately $55 million (including interest) by way of mesne profits for the trespass to the Hospital Site, and approximately $30 million (including interest) in relation to the trespass to the Car Park Site.

The principal issues which arose on appeal were:

  1. In relation to the Hospital Site:

  1. whether the primary judge erred in his approach to the assessment of mesne profits;

  2. whether SLHD had argued at first instance that mesne profits were available only in respect of the actual use of the trespassed upon site in its existing condition at the time of trespass (the Existing State/Actual User Argument).

  1. If the approach of the primary judge to mesne profits for the Hospital Site was appropriate:

  1. whether the primary judge was correct to discard matters going to the likelihood and risk that the private hospital (the Hypothetical Hospital) would have been built upon the Hospital Site had Macquarie remained in occupation, in his use and consideration of the financial model relied upon by Macquarie for the assessment of damages;

  2. whether the primary judge erred in the equity beta used and the resultant discount rate which was applied to the cashflows used in the financial model, which formed a critical part of the Residual Land Value methodology followed by the primary judge;

  3. whether the primary judge erred in his selection of an earnings margin used to derive the net revenue of the Hypothetical Hospital in his calculation of damages;

  4. whether the primary judge erred in his estimate of the capital cost of fixtures, fittings and equipment (FFE) required for the Hypothetical Hospital.

  1. In relation to the Car Park Site:

  1. whether the primary judge erred in his assessment of damages for trespass to this site, in calculating the market rent on the basis of 100% occupancy of the car park by RPAH staff on weekends.

  1. Generally:

  1. in relation to the duration of the trespass, whether the trespass ended when the High Court refused special leave to appeal from the 2010 decision this Court, or only ended in 2015 when this Court formally lifted a stay which had been made by it in 2010 in relation to the orders it had made, including an order permitting Macquarie to retake possession of the Hospital Site and the Car Park Site (the Duration Issue);

  2. whether or not the damages awarded by way of mesne profits for the Hospital Site should be grossed up for taxation purposes (the Taxation Issue).

  1. In relation to Macquarie’s cross-appeal:

  1. whether the primary judge erred in calculating Macquarie’s damages by way of mesne profits for the reasonable letting value of the Hospital Site for the first 15 years of a hypothetical lease for a term of 103 years by discounting the aggregate notional market rental of the Hospital Site for the first 15 years back to the date the cause of action arose;

  2. whether the damages award should be “grossed up” for tax on the interest component of damages.

The Court held (Bell P, Gleeson JA, Payne JA) allowing the appeal:

  1. In relation to the Hospital Site:

  1. The primary judge erred in his approach to the assessment of mesne profits, resulting in a significant overcompensation to Macquarie. By assessing damages for trespass with respect to a hypothetical, operating private hospital which had not yet come into existence, the primary judge failed to focus on the actual use of the land by SLHD in its existing state as an unimproved block of land, and significantly departed from the principle that mesne profits is a remedy for trespass to the right to immediate possession of land. The primary judge erred by seeking to value contractual rights (namely, Macquarie’s right to operate a private hospital on the Hospital Site), which was not an assessment of mesne profits for trespass to the land: [216]–[238].

  2. Discussion by the Court of the history of and principles relating to mesne profits ([79]–[137]):

Ashman and Ministry of Defence v Thompson [1993] 2 EG 107; Attorney-General v Blake [2001] AC 268; Bunnings Group Limited v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342; Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1993) 32 NSWLR 175; Inverugie Investments Ltd v Hackett [1995] 1 WLR 713; Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432; Penarth Dock Engineering Co Ltd v Pounds [1963] 1 Lloyd's Rep 359; Roberts v Rodney District Council [2001] 2 NZLR 402; Stoke-on-Trent City Council v W.& J. Wass Ltd [1988] 1 WLR 1406; Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246; Turner v Minister of Public Instruction (1956) 95 CLR 245 at 268; [1956] HCA 7; Waugh v Attorney-General [2006] 2 NZLR 812; Whitwham v Westminster Brymbo Coal and Coke Co [1896] 2 Ch 538, considered.

  1. Mesne profits are damages for the defendant’s actual use or usage of the plaintiff’s real or personal property: [128]–[131].

  2. Mesne profits are damages for the defendant’s use of the property in its existing state at the time of the commencement of the trespass: [132].

  3. The usual measure of damages for or by way of mesne profits will be the market rent for the premises or for the hire of the goods in their state during the period of the trespass. The calculation of the market rent must have regard to the particular context of the case and characteristics of the property or goods in question: [134].

  4. Whilst the usual measure of damages for or by way of mesne profits will be the market rent for the premises in their state during the period of the trespass, there may be special circumstances associated with the defendant which warrant a departure from that yardstick: [135].

  5. The market rent may be conceptualised or influenced by reference to the particular characteristics of the trespasser or the plaintiff: [136].

  6. The particular circumstances of the parties and the property in question may be especially relevant in a case where there is no usual or standard market for the rental or hire of the property in question: [137].

  7. The primary judge erred in concluding that SLHD had not made the Existing State/Actual User Argument at first instance. By reference to the history and record of the proceedings, particularly the parties’ closing written submissions and the transcript of closing oral submissions, it was clear that not only was this argument made but that it was understood by Macquarie to have been made: [160]–[196].

  1. On the alternative basis that the primary judge was correct to follow the methodology he did in his assessment of the market rental for the Hospital Site:

  1. The primary judge erred by characterising as irrelevant evidence and submissions relating to the likelihood and risk that the Hypothetical Hospital would have been built had Macquarie remained in occupation. Matters the primary judge deemed “irrelevant” went directly to the likelihood of the obligation to construct the hospital being fulfilled and, by not taking those risks into account, the primary judge awarded mesne profits for the loss of a commercial opportunity without engaging in an analysis of whether the commercial opportunity ever existed and, if so, the contingencies affecting the market value of that lost commercial opportunity: [261]–[271].

  2. The primary judge erred in the equity beta and discount rate he adopted. By accepting the evidence of Macquarie’s expert, whose lower assessment of risk informed his lower beta figure, the primary judge proceeded on an unrealistic assessment of risk to the project, and did not address the fact that this expert’s identification of key risks was made in the context of his instructed assumption that the Hypothetical Hospital would be built: [278]–[281].

  3. The primary judge erred in his selection of an EBIT margin figure for use as part of his damages calculation. His Honour did not accept the 17% or 13% EBITDA margin figures as propounded by Macquarie’s and SLHD’s experts respectively; rather, he selected an EBIT margin figure of 15% based on a model prepared by an expert called by SLHD in 2007 for a different purpose, without addressing the other aspects of that expert’s reasoning, thereby falling into error. By adopting a 15% EBIT figure, the primary judge failed properly to take into account the risks to the Hypothetical Hospital Project: [282]–[286], [317]–[328].

  4. The primary judge erred in his assumption as to the FFE costs for the initial construction period of the Hypothetical Hospital. Although his Honour was entitled to adopt a “broad brush” approach and select a figure between the “too low” figure propounded by Macquarie’s expert and the “too high” figure propounded by SLHD’s expert, the primary judge erred in commencing his analysis using the experts’ estimates following the first conclave, as opposed to the final conclave report. In so doing, the primary judge overlooked the significance of the various concessions and adjustments made by the experts: [348]–[357], [377]–[380].

Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394; [1989] HCA 11; Fink v Fink (1946) 74 CLR 127; [1946] HCA 54, considered.

  1. In relation to the Car Park Site:

  1. The primary judge erred in his assessment of damages for trespass to the Car Park Site. Although the relevant experts agreed that in calculating a market rent for SLHD’s use of the Car Park Site a figure of 22.5% was the appropriate figure for weekend occupancy of the Car Park Site, the primary judge instead assessed market rental on the basis of 100% occupancy on weekends. By disregarding critical evidence about the market for the Car Park Site during the period of the trespass, the primary judge misapplied the user principle, with his calculation resulting in a significant overcompensation for Macquarie: [421]–[432], [449]–[452].

Bunnings Group Limited v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342; Inverugie Investments Ltd v Hackett [1995] 1 WLR 713, considered.

  1. Generally:

  1. In relation to the Duration Issue, the primary judge was correct to conclude that the trespass only ended on 2 November 2015, when this Court formally lifted a stay which had been made by it in 2010 in relation to the orders it had made, including an order permitting Macquarie to retake possession of the Hospital Site and the Car Park Site. The primary judge was correct in holding that the refusal of special leave by the High Court did not have the effect of “lifting” the stay, and that the stay was only “lifted” upon the giving of effect to the order by this Court in 2015: [462]–[468].

Klewer v Official Trustee in Bankruptcy (No 2) [2010] NSWCA 258; Smith Kline v French Laboratories (Aust) Ltd v Commonwealth (1991) 173 CLR 194 at 218; [1991] HCA 43;

  1. In relation to the Taxation Issue, the Court held that if it was incorrect in its earlier conclusion with respect to the assessment of mesne profits relating to the Hospital Site, and the exercise undertaken by the primary judge was appropriate, the primary judge was correct to “gross up” the damages award for taxation. The cashflows used by the damages model for the Hospital Site were post-tax cashflows; that is, the experts calculated the cashflows on the basis that Macquarie derived those cashflows and paid tax on them at the time they were derived. The Court held that it would have been unjust not to take into account identifiable and quantifiable taxation impacts on the damages, which were in truth compensation for a lost commercial opportunity: [483]–[488].

Allsop v Federal Commissioner of Taxation (1965) 113 CLR 34; Atlas Tiles Ltd v Briers (1978) 144 CLR 202; British Transport Commission v Gourley [1956] AC 185; Cullen v Trappell (1980) 146 CLR 1; [1980] HCA 10; Daniels v Anderson (1995) 37 NSWLR 438; (1995) 118 FLR 248; Gill v Australian Wheat Board [1980] 2 NSWLR 795; Haines v Bendall (1991) 172 CLR 60; [1991] HCA 15; Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26; McLaurin v Federal Commissioner of Taxation (1961) 104 CLR 381; [1961] HCA 9; New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68; (1992) 44 IR 1;

  1. In relation to the cross-appeal, if it were necessary to decide:

  1. The primary judge did not err in calculating Macquarie’s damages by way of mesne profits by discounting the aggregate notional market rental of the Hospital Site for the first 15 years of a hypothetical lease for a term of 103 years back to the date the cause of action arose.

  2. The primary judge did not err in refusing to gross up for taxation the award of interest.

Judgment

  1. THE COURT: By final orders made on 29 November 2019, after an inquiry as to damages which commenced in 2013, Kunc J (the primary judge) ordered Sydney Local Health District (SLHD) (formerly Central Sydney Area Health Service and then Sydney South West Area Health Service) to pay Macquarie International Health Clinic Pty Limited (Macquarie) damages in the sum of $84,242,994.15 including interest. Of this amount, some $55 million was awarded as damages for trespass to what is described in this judgment as the Hospital Site. The balance was awarded in respect of trespass to what is referred to in this judgment as the Car Park Site.

  2. The damages awarded were damages by way of mesne profits, an ancient but relatively rarely used measure of damages. This appeal principally relates to the correctness of the primary judge’s assessment of mesne profits. For the reasons which follow, we would reduce the damages awarded by way of mesne profits in respect of trespass to the Hospital Site to nil. We would also significantly reduce the damages awarded in respect of trespass to the Car Park Site.

  3. The reasons for judgment are organised in accordance with the following table of contents:

Introduction and background

[4] – [22]

The inquiry as to damages

[23] – [46]

Overview of issues on appeal

[47] – [57]

The Hospital and Car Park Leases and the Construction Deed

[58] – [68]

Applicable legal principles

• Damages for trespass

• Mesne profits

• Mesne profits — characterisation issues

• Mesne profits — some history

• Mesne profits and the “user principle”

• Assessment of mesne profits

• Summary of principles

[69] – [138]

Appeal grounds 1–4: Overview

[139] – [155]

Summary of conclusions on appeal grounds 1–4

[156] – [159]

Appeal ground 2 — was the Existing State/Actual User Argument run at first instance?

[160] – [197]

Appeal ground 3 — if the Existing State/Actual User Argument had not been made in July 2015, should it still have been permitted to be raised in July 2019?

[198] – [202]

Appeal ground 1 — correctness of approach to assessment of mesne profits

• Consideration of primary judge’s approach to the assessment of mesne profits in respect of the Hospital Site

• Conclusion in relation to appeal ground 1

[203] – [238]

Appeal grounds 4 and 11–14

• Equity beta/discount rate

• Project cashflows — EBITDA/EBIT margins

[239] – [287]

Appeal grounds 11–14: Hypothetical Hospital calculations

[288] – [290]

Appeal ground 11 — EBIT or EBITDA margins

[291] – [328]

Appeal grounds 12 and 13 — Fixtures, Fittings and Equipment (FFE)

[329] – [357]

Appeal ground 14 — FFE lifecycle replacement escalation

[358] – [376]

Conclusion on appeal grounds 4 and 11–14

[377] – [381]

Appeal grounds 5 and 6 — the Car Park Use Issue

[382] – [448]

Appeal grounds 7 and 8 — the Duration Issue

[449] – [464]

Appeal grounds 9 and 10 — the Taxation Issue

[465] – [484]

Conclusion on the notice of appeal

[485]

Ground 1 of the cross appeal — the Discount Issue

[486] – [530]

Ground 2 of the cross-appeal — the Interest Grossing-Up Issue

[531] – [547]

Conclusion and orders

[548] – [550]

Introduction and background

  1. These proceedings have their origin almost 25 years ago. On 2 December 1996, SLHD and Macquarie entered into six agreements (the Transaction Documents), being:

  1. a construction deed for the design and construction by Macquarie of a car park (the Car Park) and a private hospital (the Private Hospital) at what will be referred to as the Car Park Site and the Hospital Site, respectively (the Construction Deed). (The Car Park Site and the Hospital Site are two separate lots in the one deposited plan);

  2. a lease granted to Macquarie over the Hospital Site for a term of 103 years (Hospital Lease);

  3. a lease granted to SLHD and Macquarie as tenants-in-common in equal shares over the Car Park Site for a term of 103 years (Car Park Lease);

  4. a sublease granted by SLHD (as co-lessee under the Car Park Lease) to Macquarie for a term of 28 years (Car Park Sublease);

  5. a Car Park Management Agreement (the Car Park Management Agreement) under which Macquarie agreed to manage and operate the Car Park which was to be erected; and

  6. a co-ownership deed which regulated the rights and obligations of SLHD and Macquarie between themselves as co-owners concerning the Car Park.

    1. The Transaction Documents have spawned substantial and lengthy litigation in this Court over the last two decades, including most recently, this Court’s decision in Macquarie International Health Clinic Pty Ltd v Sydney Local Health District [2020] NSWCA 161. The issues the subject of that decision relate to events post-dating the matters under consideration in the current appeal.

    2. On 19 June 1997, the Land and Environment Court granted development consent D1997/154 (the Consent) to demolish two buildings and erect a 7–9 storey private hospital and medical centre including ancillary facilities at 35–43 Carillon Avenue, Camperdown, adjacent to the site of the Royal Prince Alfred Hospital. The first condition of the Consent was that the development was to be generally in accordance with plans DA97.01B-24B, dated February 1997: see Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 9) [2016] NSWSC 155; (2016) 215 LGERA 137 at [12].

    3. Although the first stage of the Car Park was substantially completed by 7 June 1999, and a certificate of practical completion was issued on 15 June 1999, Macquarie failed to obtain an occupation certificate to operate the Car Park. No hospital has ever been built on the Hospital Site.

    4. The current appeal has its origins in the service by SLHD on Macquarie of notices of termination under the Construction Deed, the Car Park Sublease and the Hospital Lease on 17 March 2000 (notices of default having been served in September 1999).

    5. On 17 March 2000, SLHD re-entered and took possession of the Car Park Site and the Hospital Site. Some 10 days later, on 27 March 2000, Macquarie commenced proceedings in the Supreme Court of New South Wales seeking interlocutory and final relief.

    6. On the following day, Windeyer J dismissed the application for interlocutory relief: see Macquarie International Health Clinic Pty Ltd v Central Sydney Area Health Service (Supreme Court (NSW), Windeyer J, 28 March 2000, unrep). In those proceedings, his Honour recorded (at 2–4) that:

    “The original development plan was for a private hospital for 400 beds. Development approval for this was obtained. It has never been built, on Macquarie's case, because investment in private hospitals became less attractive after the heads of agreement were signed. For this and other reasons it was decided that the development should be reduced to a private hospital of 200 beds and it is accepted that Macquarie has no intention of building that hospital.

    …

    By [17 March 2000] … Macquarie had determined it could not go ahead with the proposed hospital. It was claiming that it had rights to seek a change of user by reason of changes to the legislation preventing the operation of the business or making it impossible to run it economically. It is perfectly clear that Macquarie could not, and will not proceed with the private hospital.”

    1. The proceedings were heard on a final basis by Nicholas J, resulting in a judgment delivered on 23 July 2008: see Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738.

    2. In the Fifth Further Amended Statement of Claim (FFASOC) filed on 2 May 2007, which was the final iteration of the pleading in the proceedings before Nicholas J, Macquarie claimed, inter alia, that SLHD’s conduct in retaking possession of the Car Park and Hospital Sites in March 2000 amounted to an unlawful trespass and that, by reason thereof, it suffered loss and damage and continued to suffer loss and damage. The pleading of trespass was as follows:

    “As at 17 March 2000 the Plaintiff was in lawful, peaceful and undisturbed exclusive possession, to which it was and is entitled, of the land described in folio identifier 11/809663 and 12/809663 ("the land") on which there is constructed, inter alia, a carpark pursuant to the following instruments between it and the Defendant …

    On 17 March 2000 the Defendant unlawfully and wrongfully entered upon the land and the carpark and dispossessed the Plaintiff of its possession and continues to dispossess the Plaintiff therefrom.

    On 17 March 2000 the Defendant unlawfully and wrongfully excluded the Plaintiff from the land and continues to do so.

    The Defendant's conduct amounted to an unlawful trespass and the trespass is continuing.

    By the conduct of the Defendant the Plaintiff has suffered loss and damage and continues to suffer loss and damage.”

    1. Nicholas J dismissed Macquarie’s various claims in the FFASOC, including the claim for trespass. His Honour held, at [515], that:

    “… by 30 June 1999, Macquarie had failed to complete construction of the car park. It was accepted that Macquarie had also failed to substantially commence construction of the hospital by that date. Accordingly, I find that there were breaches of cl 2.1 construction deed by Macquarie which were events of default under cl 16(4)(b) car park lease.”

    1. Consistent with what Windeyer J had observed in his decision of 28 March 2000, at [368]–[369] Nicholas J held that:

    “368   In its submissions (reply ch 7) Macquarie contended that from at least November 1998 changes in the industry meant that MPH [Macquarie Private Hospital] was no longer economically viable, with the consequence that obtaining external finance or partners was virtually impossible. Macquarie accepted that the evidence supported the conclusion that declining operating margins from 1998 caused the MPH project to cease to be economically viable. It was put that, on Mr Sinclair’s evidence, from 17 November MPH, with its current development application for a 200 bed hospital, was not a viable proposition which made it virtually impossible for Macquarie to obtain external finance or partners. Macquarie asked the court to find (reply ch 7, pars 68, 73) that from November 1998 MPH as a 200 bed hospital on the site with its current design was no longer economically viable or bankable. The view was held that the industry crisis with declining operating margins in 1998 rendered unviable the building of a 200 bed hospital in accordance with the project documents.

    369   I accept these submissions. The weight of evidence supports the finding that the hospital did not proceed because Macquarie decided it would not have been viable.” (Emphasis added.)

See also [437] and [657] where his Honour held in terms that “[b]y about November 1998 MPH was no longer economically viable. Later attempts to raise funding were unsuccessful.”

  1. At [606] of his judgment, Nicholas J extracted portions of a letter that Macquarie’s solicitors had sent to SLHD’s solicitors on 25 October 1999 which included the following:

“As CSAHS would be aware, health insurers (registered organisations for the purposes of the NHA) have used these hospital purchaser provider agreements to limit the amount of any payment from a health insurer to a hospital. The practical consequence of these agreements has been to virtually eliminate the profitability of private hospitals. We are aware of instances of private hospitals achieving high occupancy levels without generating a profit.

On the basis of these changes to the NHA we submit that it is reasonable for our client to conclude that the operation of the tenant’s business is no longer economically viable even if operated in a proper and efficient manner.” (Emphasis added.)

Macquarie was, of course, the tenant.

  1. Nicholas J had earlier observed at [515] of his judgment that it was accepted that Macquarie had failed to substantially commence construction of the Private Hospital by 30 June 1999 and that this entailed a breach of cl 2.1 of the Construction Deed.

  2. The judgments of both Windeyer J and Nicholas J were incorporated by reference into the reasons of one of the judgments the subject of the current appeal: see Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 10) [2016] NSWSC 1587 at [5] (the Principal Judgment or PJ).

  3. Macquarie successfully appealed from part of the decision of Nicholas J (see Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 (the 2010 Appeal Judgment)) although it did not challenge his Honour’s findings that have been set out at [13]–[14] above. This was scarcely surprising as those findings entailed the acceptance of a submission that had been made by Macquarie and correspondence that its solicitors had sent on its behalf to SLHD. Indeed, in the 2010 Appeal Judgment at [259], Hodgson JA (with whom Allsop P and Macfarlan JA agreed) held that “the evidence does not support a finding that finance would have been available or that the Macquarie Group would have been able to finance the private hospital project itself ” in the period December 1996 to September 1998.

  4. On 13 December 2010, although making a declaration that, as at 30 June 1999, Macquarie was in default in respect of each of the Leases, the Construction Deed and the Car Park Sublease in its failure to commence construction of the private hospital and its failure to complete the car park, the Court of Appeal pronounced other orders consequent upon Macquarie’s successful appeal: see Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 348.

  5. Relevantly for the purposes of the current appeal, order 4 of those orders was as follows:

“(1)   Judgment and an order for possession by [Macquarie] of Lot 11 in DP 809663 (‘the car park site’) and Lot 12 in DP 809663 (‘the hospital site’);

…

(5)    A declaration that, as at 30 June 1999, [Macquarie] was in default of each of the leases, construction deed, and car park sub-lease dated 2 December 1996 (‘the transaction documents’) in its failure to commence the private hospital and its failure to complete the car park.

…

(11) A declaration that by virtue of s 129 of the Conveyancing Act 1919 (NSW) [SLHD] was precluded from taking possession of the hospital and car park sites on 17 March 2000 and [SLHD’s] eviction of [Macquarie] was a trespass against [Macquarie].

(12)   A declaration that the Car Park Lease, Hospital Lease, Sub-Lease and Construction Deed continue to operate and bind both [Macquarie] and [SLHD].

(13)   Order that there be an enquiry before a Judge or Associate Judge other than Nicholas J as to the amount of damages which are payable by [SLHD] to [Macquarie], or an account of moneys received by [SLHD] (which account would include both revenue received and reasonable expenses incurred and rental from 1 December 1999), at [Macquarie’s] election, in respect of being kept out of possession of the car park site and the hospital site between 17 March 2000 and the date of being restored to possession.”

  1. By order 7, the Court of Appeal stayed the operation of the orders:

“(1)   for 28 days after date of making of these orders unless within that time an application for special leave to appeal to the High Court of Australia is filed;

(2)   until further order, but subject to any order of the High Court of Australia, if within 28 days after the date of making of these orders an application for special leave to the High Court of Australia is filed;

provided that, for the purposes of the enquiry, the date of being restored to possession shall not operate until any stay of the order for possession in order 3(1) above has been lifted.”

It was common ground that the reference to “order 3(1)” was intended to be a reference to order 4(1).

  1. An application for special leave to the High Court was dismissed on 10 June 2011: see Sydney South West Area Health Service v Macquarie International Health Clinic Pty Ltd [2011] HCA Trans 155. Shortly thereafter, following a further brief hearing before Hodgson JA (see Macquarie International Health Clinic Pty Limited v Sydney Local Health Network [2011] NSWCA 231), Macquarie elected for an inquiry as to damages as opposed to an account of moneys received by SLHD from its occupation of the Car Park Site and the Hospital Site during the period of the trespass. This election was contemplated by order 4(13): see [20] above.

The inquiry as to damages

  1. The inquiry contemplated by order 13 of the Court of Appeal’s orders was undertaken by the primary judge over a number of years, the matter first being listed before his Honour in 2013, and the hearing commencing on 10 February 2014 (PJ [40]). It related to the trespass to both the Hospital Site and the Car Park Site.

  2. By a judgment delivered on 6 November 2014, reflecting orders indicatively made on 19 September 2014, some 40 days into the hearing of the inquiry as to damages, the primary judge permitted an amendment to be made by Macquarie in relation to the way it put its case: see Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 6) [2014] NSWSC 1549 (the Amendment Judgment). This entailed the abandonment of what hitherto had been Macquarie’s case which was a claim for loss of profits or for damages for the loss of opportunity to develop the Private Hospital on the Hospital Site, and the introduction of a claim for mesne profits in respect of that site.

  3. Mesne profits were similarly sought in respect of the Car Park Site and a claim for lost profits in respect of the trespass to that site was also abandoned.

  4. The Amendment Judgment resulted in the claim for mesne profits in respect of the Hospital Site being formulated in the following way:

“The plaintiff claims damages for trespass, being a claim for mesne profits measured by applying a reasonable rate of return per annum on the market value of the Hospital Site over the period 17 March 2000 to the date possession is restored, or alternatively, measured by the market rent for the Hospital Site over the same period or alternatively, measured in the manner pleaded at paragraph 2(2) (c) (ii) of the Reply.”

  1. As at the date of the Amendment Judgment, the particulars to the claim were expressed as follows:

“To be supplied by way of an expert report or joint expert report from Mr Coleman and/or Mr Lonergan and a separate expert report from Mr Lister and the Plaintiff relies upon the matters pleaded at paragraph 2(2) (c) (ii) of the Reply.”

The claim, insofar as reliance was placed upon the matters pleaded at paragraph 2(2) (c) (ii) of the Reply, has no continuing relevance for the purposes of this appeal.

  1. The joint expert report referred to in the particulars to the amended claim in respect of the Hospital Site (the Coleman/Lonergan Report), when ultimately served on or soon after 1 September 2014, relevantly purported to value not the market value of the “Hospital Site” but, rather the “reasonable market value for the Hospital Lease” from certain dates and on various assumptions. Critically, [96] of the Coleman/Lonergan Report, under the heading “Assumptions”, was in the following terms:

“Had Macquarie Health not been evicted from the car park and hospital site on 17 March 2000, we have been instructed to assume that it would have, or an incoming transferee or assignee could have:

(a)   built Stage 1 of the private hospital and Stage 2 of the car park

(b)   substantially completed construction of a 220 bed private hospital (being Stage 1 of the private hospital development)

(c)   opened the private hospital, and admitted its first patient

(d)   completed construction of Stage 2 of the private hospital, having regard to market conditions then prevailing.” (Emphasis added.)

  1. The amendment that saw the mesne profits claim introduced in respect of the Hospital Site in late 2014 was granted on various conditions. One was that Macquarie’s amended case was “based on and limited to” the factual assumptions contained in the Coleman/Lonergan Report (together with a number of other assumptions which were set out in an exhibit reproduced at PJ [355]: see Order 5(3) of the orders made on 26 September 2014 contained in schedule 1 to the Amendment Judgment).

  2. As will be seen, mesne profits were awarded on the basis of a model which was built on the assumption reproduced in [28] above, viz a hypothetical Private Hospital (Hypothetical Hospital), stage 1 of which would have been built by Macquarie or which could have been built by a transferee of Macquarie’s leasehold interest in the Hospital Site. This assumption (and the Hypothetical Hospital to which it gave rise) was sought to be vigorously contested by SLHD in the hearing subsequent to the amendment to introduce the mesne profits claim but was never scrutinised by the primary judge who, as shall be seen, treated matters going to the likelihood of the assumption eventuating as “irrelevant” to his task. That issue and the correctness of the primary judge’s treatment of extensive evidence and submissions as “irrelevant” is considered in addressing appeal ground 4: see [239]–[286] below.

  3. In October 2015, after what were thought at the time to be closing submissions in the inquiry as to damages had been made but whilst the primary judge was still reserved, SLHD made an application to the Court of Appeal for orders formally discharging the stay order that had been made by the Court of Appeal in December 2010. This application was granted by Gleeson JA: see Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2015] NSWCA 323 and [22] above. This procedural step is of particular significance to an aspect of the present appeal addressed in relation to appeal grounds 7 and 8: see [449]–[464] below.

  4. On 10 November 2016, the primary judge delivered the Principal Judgment, indicating his conclusions in relation to Macquarie’s claim for damages by way of mesne profits in respect of the Car Park Site and the Hospital Site at [19] and [20] respectively. These were as follows:

“19   In relation to the Car Park Site, the Court has concluded that Macquarie is entitled to mesne profits calculated by reference to the ‘user principle’ (see paragraphs 111 to 118 below) on the basis of the following integers:

(1)   Period of damage: 17 March 2000 up to 9 am on 2 November 2015

(2)   Number of car spaces: 1,026

(3)   Users: Staff only

(4)   Rate: Staff rate of $3.00 per day as at 17 March 2000 adjusted annually for CPI with effect on and from 1 July in each year.

(5)   Daily turnover per space to reflect ‘100%’ occupancy: 1.45 times per day.

(6)   Deductions in favour of the Health District: All proven expenses incurred by the Health District in each year in relation to the maintenance and operation of the car park and the annual rental that would have been payable by Macquarie to the Health District.

(7)   Interest: At Court rates on the annual net amount, assuming that amount is positive.

20   In relation to the Hospital Site the Court has concluded that Macquarie is entitled to damages in the form of mesne profits calculated by the residual land value method and by reference to the user principle by the application of the following integers:

(1)   The cost of building the hypothetical private hospital (excluding fixtures, fittings and equipment) (‘FFE’) is to be calculated as follows:

(a)   Net construction costs of $48,000,000 (June 2001 prices);

(b)   Subtract $1,737,000 for work already done;

(c)   Add $6,289,000 for preliminaries;

(d)   Add $4,138,470 for contingencies;

(e)   Add 5% builder’s allowance;

(f)   Add $6,524,988 for design fees and subtract $2,000,000 for fees already incurred;

(g)   Add $1,053,410 for costs escalations; and

(h)   Insofar as amounts have to be escalated to present day values, such costs escalations should be done using the published NSW Building Price Index.

(2)   An Earnings Before Interest and Taxes (‘EBIT’) margin of 15%.

(3)   For the purposes of determining the revenue rate for the hypothetical private hospital, the Court adopts expert witness Mr Greg Anderson’s approach, however he should recalculate his figures on the assumption of there being two catheterisation laboratories.

(4)   FFE costs for the initial construction period of the hypothetical private hospital of $19,000,000 (in 2003 dollars).

(5)   A discount rate when valuing the Private Hospital Lease as at 17 March 2000 of 8.94% (after tax).

(6)   No capital replacement in relation to the hypothetical private hospital building in years 1 to 5.

(7)   A factor of 0.5% of total capital value should be applied for capital replacement in years 6 to 10.

(8)   A factor of 1.5% of total capital value should be applied for capital replacement in years 11-20.

(9)   For the first 20 years, building capital expenditure should be escalated at 1.5% each year, compounding. Thereafter the full inflation rate should be applied.

(10)   FFE life cycle replacement costs should be calculated by reference to expert witness Mr Tim Staker’s life cycle period for replacement. Furthermore, the calculation should be made in accordance with the annual costs set out in Mr Staker’s report pro-rated upwards by a figure of 1.2257.

(11)   FFE replacement costs should be escalated by 1% simple interest in years 1 to 20 and thereafter a value of 2.5% for inflation should be applied.

(12)   For the purpose of determining the market rental of the Hospital Site, what must be considered is the period of the trespass (approximately 15 years) out of the 103 year life of the Hospital Lease and not a notional 15 year lease or sub-lease.”

  1. As the primary judge’s orders made clear, certain questions relating to the calculation of Macquarie’s damages in relation to the Hospital Site and, to a certain extent, the Car Park Site, were left unresolved. In relation to the Hospital Site, it may immediately be seen that the method of calculation of damages contemplated that the hospital would be built by Macquarie or an assignee of its leasehold interest for the costs, excluding FFE, set out in PJ [20(1)]. So much was consistent with the assumptions set out in [96] of the Coleman/Lonergan Report referred to at [28] above.

  2. In relation to the statement at PJ [20(12)], this reflected the primary judge’s conclusion at PJ [548] that:

“In my view, the assessment of mesne profits must be done by reference to the 103 year life of the Hospital Lease. The Court accepts as legally and commercially correct Macquarie’s submission that it is to be compensated for 15 years of a 103 year lease and not 15 years of a 15 year lease (or sub-lease). It is unsurprising that the Hospital District’s valuation based on a lease for the term of the trespass produced a negative outcome, given that such a lease took in the entire burden of the construction and set up costs of PAPH in the first few years without being able to take into account the amortisation of those costs and the benefit to be derived over a much longer period from that initial investment.”

This conclusion, too, assumed that the private hospital could and would be financed and built. It also disclosed that the methodology adopted by the primary judge was directed not to an assessment of damages merely for a trespass to a right to exclusive possession of a particular parcel of land, but far more, namely damages for trespass to land upon which Macquarie was entitled to erect and operate a private hospital for a 103-year period. But a claim based upon the loss of opportunity to operate such a hospital was precisely the claim that had been abandoned by Macquarie after 40 days of the inquiry as to damages: see [24] above. This observation is to anticipate one of the principal complaints made by SLHD on appeal. This complaint, moreover, was accompanied by an allied critique of the way in which the methodology in question was applied in any event.

  1. One striking contrast between the primary judge’s summary conclusions with regard to the assessment of damages contained in PJ [19]–[20] was that the Car Park Site contained a constructed car park at the time of the commencement of the trespass, hence none of the integers detailed by his Honour went towards its construction or construction costs. The damages were to be calculated by reference to the Car Park Site in its state as at the commencement of the trespass. That site had already been improved. This was quite unlike the Hospital Site which was in an essentially unimproved state as at 17 March 2000 when the trespass commenced.

  2. Following delivery of the Principal Judgment, a directions hearing was held on 9 December 2016 and a further substantive hearing in respect of outstanding calculation issues was held on 14 February 2017. Certain issues were resolved on that occasion but others remained or emerged during that hearing, leading in turn to a further hearing on 9, 10 and 11 May 2017 which resulted in a further judgment on 18 September 2017: see Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 11) [2017] NSWSC 1249 (it is convenient to refer to this as the Tax Judgment although it dealt with a number of other issues as well as taxation).

  3. At a further directions hearing on 4 October 2017, following delivery of the Tax Judgment, certain issues remained in dispute between the experts in relation to the damages calculation for the Hospital Site. This resulted in directions for further evidence, submissions and calculations, and the fixing of a still further hearing on 16 and 17 November 2017.

  4. Resolution of these issues came on 17 July 2019 with the delivery of a further judgment: see Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 12) [2019] NSWSC 916 (the Supplementary Judgment or SJ).

  5. The Supplementary Judgment also dealt with an interlocutory application which had been made by SLHD in May 2019 and which is relevant to appeal grounds 2 and 3: see at [160]–[201] below. By this point in time, SLHD had changed its legal team. On 6 May 2019, SLHD sought to have the proceedings relisted for reasons explained in a letter to the primary judge’s Associate which was relevantly in these terms:

“1.   The Trial Judge does not appear to have given any consideration to the Threshold Issue raised by the defendant as to the applicability of the user principle to vacant land.

2. It was, and remains, the defendant’s case that the user principle applied to the Hospital Site involved an amount of the market rental of the land in its existing state or use (i.e. in vacant condition without the existence of a hypothetical hospital): see, e.g., defendant’s conspectus dated 30 June 2015 at [5]-[6], [8], [21.1]-[21.2], [22], [36], [43]-[44]; defendant’s submissions on issue 2 dated 30 June 2015 at pp 44-45 [30]-[36]; defendant’s submissions dated 22 July 2015 at p 57 [5]; and defendant’s submissions on issue 2 dated 14 August 2015 at [4].

3.   It may be that the Court took the view that the Threshold Issue had been abandoned. The defendant did not, and does not, abandon its position on that Threshold Issue. The defendant will seek that his Honour clarify his intentions in relation to that matter and, to the extent that his Honour thinks appropriate, to address that Threshold Issue.”

  1. SLHD filed an Outline of Submissions on 9 May 2019 fleshing out its arguments as foreshadowed in the 6 May 2019 letter. What was described as the Threshold Issue, a somewhat unfortunate label which seems to have infected some of the primary judge’s ultimate analysis, was as follows:

“The Court has not, as yet, determined the issue raised by SLHD's written and oral submissions that, to the extent that the user principle is applicable to the assessment of the damages to be awarded to the plaintiff, Macquarie International Health Clinic Pty Ltd (Macquarie), in respect of the Hospital Site, it required the Court to treat the land upon which SLHD trespassed on the basis of its existing state and/or use during the period of the trespass.
SLHD's argument to that effect was not, and has not been, abandoned.”

  1. The primary judge directed a Notice of Motion to be filed to formulate precisely what was being sought. This was done on 13 May 2019 with the relief being sought articulated as follows:

“1.   Leave be granted to the defendant in Proceedings 2000/34949 and 2010/90340 to advance submissions:


(a)   the subject of its written submissions dated 9 May 2019;

(b)   (in particular) that the Court has not, as yet, determined the issue raised by the defendant's written and oral submissions that, to the extent that the user principle is applicable to the assessment of the damages to be awarded to the plaintiff in respect of the Hospital Site, it required the Court to treat the land upon which the defendant trespassed on the basis of its existing state and/or use during the period of the trespass;

(c)   (in particular) that the defendant's argument to that effect was not, and has not been, abandoned.

2.   Irrespective of the answer to paragraph 1(c) above, the Court rule as to the Threshold Issue as described in the defendant's submissions dated 9 May 2019.

3.   The Court determine the plaintiffs entitlement to damages on the Threshold Issue.

4.   To the extent necessary, leave be granted to the defendant to re-open Proceedings 2000/34949 and 2010/90340 to argue the issues the subject of paragraphs 1-3 above.

5.   The Court review, revise, recall or supplement its reasons for judgment dated 10 November 2016 for the purposes of determining the issues the subject of paragraphs 1-3 above.”

  1. The course taken by SLHD in seeking to relist the matter was said, on appeal, to be consistent with the course which Latham CJ, Williams and Fullagar JJ had said in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; [1950] HCA 35 (Suttor) should be followed if an issue had not been dealt with after delivery of reasons but before the making of final orders, namely to ask the primary judge to “restore the suit to the list and hear argument upon the effect of [his] findings and if necessary to re-open the case and hear further evidence”. Unlike the observation in Suttor, however, SLHD was not seeking to lead any new evidence but rather was concerned: (i) to direct the primary judge’s attention to a legal argument which it contended had not been addressed in the Principal Judgment despite being the subject of submissions; and (ii) to seek to have that argument addressed prior to the making of final orders in circumstances where outstanding issues remained to be determined.

  1. In Batchelor v Burke (1981) 148 CLR 448; [1981] HCA 30, Gibbs CJ described the purpose of an award of interest as being to compensate the plaintiff for the detriment that he or she had been suffered by being kept out of his or her money: at 455.

  2. In MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657; [1991] HCA 3, seven judges of the High Court described the “detriment” suffered for which interest is awarded as not being part of the loss occasioned by the tort but, rather, as a loss due entirely to delay in the payment of money ultimately held to be due and not recoverable as part of the damages.

  3. Whilst the damages awarded to Macquarie as mesne profits were, relevantly, paid to compensate Macquarie for its lost commercial opportunity, the award of interest had a different purpose; namely to make good the loss due entirely to delay in the payment of money ultimately held to be due. The interest component was not recoverable as part of Macquarie’s damages.

  4. As we have explained, on the contingent basis, contrary to our principal conclusion, that the primary judge did not err in his assessment of damages in respect of the Hospital Site, it was appropriate to “gross up” for tax the damages award here as the cash flows forming the basis of the model which calculated Macquarie’s damages were after tax cash flows, calculated on the basis that tax had been paid as those cash flows were derived. It makes sense in those circumstances to “gross up” the award of damages to put Macquarie in the position it otherwise would have been in by compensating it for tax notionally paid as part of the discounted cash flow model.

  5. The interest awarded in this case, however, was not calculated on the same basis. It was an amount added to the award of damages. It was an amount paid to compensate Macquarie for the detriment that it had suffered by being kept out of its money. Although it may be accepted that in assessing tax the award of pre-judgment interest took its character from the award of mesne profits to which it was applied, the amount of pre-judgment interest was a gross award, and not an award net of tax. In those circumstances Macquarie failed to prove that it was unjust not to take account of identifiable and quantifiable taxation impacts on the pre-judgment interest component of the damages it was awarded.

  6. On the contingent basis we are addressing ground 2 of the cross-appeal, it too should be dismissed.

Conclusion and orders

  1. We have concluded that the following orders should be made:

  1. Appeal allowed;

  2. Cross-appeal dismissed;

  3. Set aside orders 1-7 and 9 of the orders made by Kunc J on 29 November 2019, and, in their place, make the following orders:

  1. Judgment for Macquarie as follows:

  1. mesne profits of $14,530,510 (comprising $9,486,564 in damages and $5,043,946 in interest) in relation to the Car Park Site together with interest under s 100 of the Civil Procedure Act 2005 (NSW) on that total amount from 4 May 2017;

  2. $1,048,800 in damages for additional building and consultancy costs; and

  3. $301,990 (excluding GST) in damages for remediation and excavation work.

  1. Macquarie pay SLHD’s costs of, and incidental to, the appeal.

  1. It was agreed at the hearing of the appeal that the parties would be given an opportunity to make submissions about the costs of the trial after these reasons had been delivered. In order to resolve any disputes about those issues, the following orders are made:

  1. By 9 November 2020, SLHD to file submissions not exceeding 15 pages about the question of costs and such additional orders, if any, it is submitted that Court should make (including the amount of interest to be awarded since 4 May 2017 referred to order 3(a)(i) and whether any order for restitution should be made);

  2. By 16 November 2020, Macquarie to file submissions not exceeding 15 pages about the question of costs and such additional orders, if any, it is submitted that Court should make (including the amount of interest to be awarded since 4 May 2017 referred to order 3(a)(i) and whether any order for restitution should be made);

  3. By 20 November 2020, SLHD to file submissions in reply not exceeding 5 pages.

  1. The present intention of the Court is to deal with those issues on the papers and any application for further oral hearing should be addressed in the written submissions.

**********

Amendments

08 December 2020 - Errata to coversheet in decision section as follows:

in order (5):
"... costs and such additional orders, in any, ... " is changed to "... costs and such additional orders, if any, ..."; and
"... since 4 May 2017 referred to order 3(a)(ii) ..." is changed to "... since 4 May 2017 referred to order 3(a)(i) ..."

in order (6):
"... costs and such additional orders, in any, ... " is changed to "... costs and such additional orders, if any, ..."; and

"... since 4 May 2017 referred to order 3(a)(ii) ..." is changed to "... since 4 May 2017 referred to order 3(a)(i) ...".

In the judgment at [549], the above changes are also made to subparagraphs (1) and (2).

Decision last updated: 08 December 2020

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Cases Citing This Decision

29

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Cases Cited

69

Statutory Material Cited

3

Astley v AusTrust Ltd [1999] HCA 6
Astley v AusTrust Ltd [1999] HCA 6
Allsop v Federal Commissioner of Taxation [1965] HCA 48