Tasmanian Sandstone Quarries Pty Ltd v Tasmanian Sandstone Pty Ltd - [2009] SASC 111

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
TASMANIAN SANDSTONE QUARRIES PTY LTD v TASMANIAN SANDSTONE PTY LTD & ORS
[2009] SASC 111
Judgment of The Honourable Justice White
24 April 2009
PROFESSIONS AND TRADES - LAWYERS - DUTIES AND LIABILITIES - SOLICITOR AND CLIENT - NEGLIGENCE
PROFESSIONS AND TRADES - LAWYERS - DUTIES AND LIABILITIES - SOLICITOR AND CLIENT - RETAINER - EXISTENCE OF RETAINER
Plaintiff sues its former solicitor, the fourth defendant, for failure to advise or, alternatively, to arrange itself, a pre-settlement inspection of business assets which it had contracted to purchase - plaintiff did not seek an assessment of the damages on the judgment which it had obtained by default against first defendant - plaintiff settled its claims against the second and third defendants prior to trial.
Whether consent judgment obtained against second and third defendants prevented plaintiff recovering damages against fourth defendant. If not, manner in which account should be taken of the settlement monies received by plaintiff from second and third defendants - whether amendments to the plaintiff's statement of claim relating to the alleged breach of the common law duty of care should take effect from the date upon which it instituted proceedings - whether fourth defendant's omission to advise plaintiff to arrange a pre-settlement inspection amounted to a breach of the contractual or common law duty of care - whether fourth defendant breached its duty by not arranging its own inspection of the assets before settlement - whether plaintiff has suffered compensable loss or, alternately, loss of a commercial opportunity, as a result of the breaches it alleged against fourth defendant and if so, the quantum of damages which should be awarded - whether, had fourth defendant provided the advice which plaintiff claims, plaintiff would not have suffered the losses alleged - whether plaintiff has proved its claims of damage to and costs of repair of certain property - whether plaintiff contributed to its own loss.
Held: plaintiff's settlement with second and third defendants was not in full satisfaction of its overall claim of loss. Plaintiff not precluded from pursuing claim against fourth defendant - amendments to plaintiff's statement of claim to take effect from the date upon which it instituted proceedings - amended claim not statute barred - contractual relationship existed between plaintiff and fourth defendant - fourth defendant's omission to advise plaintiff to arrange its own pre-settlement inspection did not amount to a breach of contract, or a breach of its common law duty of care towards plaintiff - discussion of principles relating to the damages recoverable from a solicitor who gives negligent advice in relation to the purchase of property - plaintiff's claim against fourth defendant dismissed.
Corporations Law s 131, s 436A, s 439C, s 447A, s 447D; Misrepresentation Act 1971 (SA) ; Trade Practices Act 1974 (Cth) s 52, s 87; Limitation of Actions Act 1936 (SA) s 35; Supreme Court Rules 1987 r 40, r 53, referred to.
The Commonweath v Amann Aviation Pty Ltd (1991) 174 CLR 64; Baxter v Obacelo Pty Ltd (2001) 205 CLR 635; Brook v The Flinders University of South Australia (1988) 47 SASR 119; Mullett v Gabriel (1989) 52 SASR 330; Astley v Austrust Limited (1999) 197 CLR 1; Groom v Crocker [1939] 1 KB 194; Pegrum v Fatharly (1996) 14 WAR 92; Simmons v Story [2001] VSCA 187; Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89; Haseldine v State of South Australia (2007) SASR 530; Hawkins v Clayton (1988) 164 CLR 539; Orszulak v Hoy (1989) Aust Tort Reports 80-293; Amadio Pty Ltd v Henderson (1998) 81 FCR 149; Rogers v Whitaker (1992) 175 CLR 479; F v R (1983) 33 SASR 189; Kyriakou v Hughes (1984) Aust Torts Reports 80-646; Oates v Anthony Pitman & Co [1998] PNLR 683; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; Hall v Foong (1995) 65 SASR 281; Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607; Burns v M.A.N. Automotive (Aust) Pty Ltd (1986) 161 CLR 653, applied.
Lake v Bushby [1949] 2 All ER 964; Goody v Baring [1956] 2 All ER 11, distinguished.
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11, 110; Trust Co of Australia v Perpetual Trustees WA Ltd (1997) 42 NSWLR 237; Fox v Everingham and Howard (1983) 76 FLR 170; MacIndoe v Parbery (1994) Aust Torts Reports 81-290; Neagle v Power [1967] SASR 373; Banque Bruxelles SA v Eagle Star Insurance Co Ltd (1997) AC 191; Scarcella v Lettice (2000) 51 NSWLR 302; C Czarnikow Ltd v Koufos [1969] 1 AC 350; Henderson v Amadio Pty Ltd (No 1) (1995) 62 FCR 1; Midland Bank Trust Co v Hett, Stubbs & Kemp [1979] Ch 384, discussed.
Austrust Pty Ltd v Astley (1993) 60 SASR 354; Jennings v Zilahi-Kiss (1972) 2 SASR 493; Kyriacou v Kogarah Municipal Council (1995) 88 LGERA 110; Livingstone v Mitchell [2007] NSWSC 1477; Hendricks v McGeoch (2008) Aust Torts Reports 81-942; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; Hennan v Di Sisto (2008) Aust Torts Reports 81-941; Mann Judd v Paper Sales Australia (WA) Pty Ltd [1998] WASCA 268, considered.

TASMANIAN SANDSTONE QUARRIES PTY LTD v TASMANIAN SANDSTONE PTY LTD & ORS
[2009] SASC 111
Civil
WHITE J.
Table of Contents
Overview
Progression in the Articulation of TSQ’s Claim Against Legalcom
The Issues in the Trial
The Principal Witnesses
Mr Calabrese
Mr Goldberg
Ms Smithson
Events Before Settlement
The Operation of the Quarry by TSPL
Mr Calabrese’s Interest in TSPL
Attendance at Meetings of Creditors
The Retainer of Legalcom
Progress to Deed of Company Arrangement
Progress Towards Entry into the Sale Agreement
The Processing of Stone by Mr Calabrese
The Attendance of Mr Wood at the Quarry
The Wood-Dunn Stone Sale Agreement
Completion of the Sale Agreement
The Damage Found After Settlement
Was the Damage Caused Before Settlement?
The Visible Damage
Damage to the Operation of the Bridge Saw
Double Satisfaction
The Date upon which the Amendment of the Statement of Claim should Take Effect
A Contractual Relationship Between TSQ and Legalcom?
Did Legalcom Breach its Duty to TSQ?
Introduction
General Principles
Absence of Expert Evidence
Risk Factors and Notice
The Communications from Fred Williams
Conclusion on Alleged Breach in Failing to Advise Inspection
Should Legalcom Have Carried out Its Own Inspection?
Conclusion on the Breaches Alleged
TSQ’s Primary Claim of Loss
The Alternative Claim of Loss of Commercial Opportunity
The Loss of Opportunity Claimed
Loss of Opportunity - Principles
How Would TSQ have Responded to Advice about a Pre-Settlement Inspection?
The Assessment of Damages for the Loss of Opportunity
Would a Pre-Settlement Inspection have been Permitted?
Would an Inspection have Revealed the Damage found at Settlement?
Would TSQ have Proceeded to Settlement?
Possible Action by TSQ
The Claim for Loss of Profits
Assessment of the Loss of Profits
The Potential Market
Production Capacity
Conclusion on Damages for Loss of Opportunity
The Claim for Costs of Repair
Contributory Negligence
The Effect of the Consent Judgment Against the Administrators
Conclusion
TASMANIAN SANDSTONE QUARRIES PTY LTD v
TASMANIAN SANDSTONE PTY LTD & ORS

The plaintiff, Tasmanian Sandstone Quarries Pty Ltd (TSQ), sues its former solicitor (the fourth defendant, Legalcom Pty Ltd) for damages for an alleged omission to advise in a business transaction. It has compromised or abandoned its claims against the first, second and third defendants.
Overview
During the mid to late 1990s, the first defendant, Tasmanian Sandstone Pty Ltd (TSPL), operated a sandstone quarry on a property on Sand River Road near Buckland in south-east Tasmania. It quarried and processed sandstone at the property for building and landscaping uses. The stone was sold to users in Tasmania, Victoria, New South Wales and South Australia.
By January 2000, TSPL faced insolvency and on 24 January 2000 its directors (Peter and Marie Wood) appointed the second and third defendants as administrators.[1]
[1] Corporations Law s 436A(1).
At about the same time, Mr Wood contacted Mr Rito Calabrese, an Adelaide stonemason, who was a purchaser of sandstone from the quarry. He suggested that Mr Calabrese consider acquiring the assets of TSPL. Immediately, Mr Calabrese was interested in doing so. He told Mr Wood to inform the administrators that “Rito Calabrese is interested, so the quarry is sold”. He retained Legalcom to act as his solicitor in relation to the proposed purchase. Mr Goldberg was the principal of Legalcom at relevant times.
The principal assets of TSPL comprised part of the 37.55 hectares of land on which the quarry was conducted (the Property) and the plant and equipment used in the quarrying operations. The equipment included a Pelligrini Stationary Wire Saw, a Spielvogel Bridge Saw, a Morris Overhead Gantry Crane, three Caterpillar Excavators, a Caterpillar Wheel Loader and a forklift, as well as other vehicles. In addition, TSPL had a Caterpillar Bulldozer and a Komatsu Wheel Loader under hire purchase agreements with CBFC Ltd. I will refer to the land and equipment owned and used by TSPL in the quarry operations as “the quarry assets”. The remainder of the land on which the quarry was operated was owned by Mr and Mrs Wood personally. It adjoined the land of TSPL.
After some negotiation and two creditors’ meetings, the creditors of TSPL (acting under s 439C of the Corporations Law) resolved on 3 March 2000 that TSPL should enter into a deed of company arrangement. It was a condition precedent to the operation of the deed that Mr Calabrese enter into a binding contract to purchase TSPL’s land, plant and equipment, stock, debtors and work in progress for the sum of $200,000; that he accept an assignment of certain of TSPL’s debts; and that he take an assignment of the CBFC hire purchase agreements. It was a further condition precedent that Mr Calabrese settle on the contract by no later than 24 March 2000.
At the suggestion of Mr Goldberg, Mr Calabrese acquired a newly incorporated company, TSQ, of which he became a director, to be the purchaser.
After a number of delays and variations of the terms proposed, an agreement (the Sale Agreement) was finalised. It was executed by Mr Calabrese and Ms Lena Maselli (the other director of TSQ) on behalf of TSQ on 9 May 2000, and then re-executed by them on 19 May 2000 in order to accommodate a further variation. The parties to the Sale Agreement were TSQ as purchaser, TSPL as vendor of the assets, Mr and Mrs Wood as vendors of that part of the land owned by them on which the quarry was conducted, and the two administrators. Mr and Mrs Wood did not execute the Sale Agreement until 7 June 2000. Settlement of the Sale Agreement occurred on 19 June 2000.
At the end of April 2000, Mr Calabrese had worked at the quarry for about one week. He found that all of the plant and equipment used during the course of that week worked satisfactorily. This was the second, if not third, occasion on which Mr Calabrese had attended at the quarry. Mr Calabrese did not attend again at the quarry before settlement. Nor did he arrange an inspection by anyone else of the condition of the quarry, or of its plant and equipment, before settlement.
TSQ intended commencing operations at the quarry on the day after settlement (20 June 2000). Mr Calabrese arranged for workers to attend for that purpose. The workers found that certain equipment which was integral to the quarry operations had been damaged. In addition, they found that some items and records, including equipment manuals, were missing. At least some of the damage had been caused deliberately. Over the following days and weeks it became apparent that an attempt had been made by one or more persons, whose identities are unknown, to disable the quarry, or at least to render critical items of its equipment unusable. In particular the Spielvogel Bridge Saw (the Bridge Saw) and the Pelligrini Stationary Wire Saw (the Pelligrini Saw) had been damaged. The damage to the plant and equipment was such that it was not possible for operations at the quarry to be resumed in June 2000.
Although operations have been commenced subsequently and TSQ now operates profitably, it has not been able to achieve the production and profitability levels which it had anticipated at the time of the settlement of the Sale Agreement.
On 31 March 2004, TSQ commenced proceedings against TSPL, the administrators and Legalcom. It alleged that TSPL and the administrators had breached implied terms of the Sale Agreement by failing to maintain the plant and equipment in the same condition as it had been when operated by Mr Calabrese at the end of April 2000, and by failing at settlement to transfer the plant and equipment in the same state as it had been when inspected and operated by Mr Calabrese.
TSQ also claimed that TSPL and the administrators had made misrepresentations which were actionable under the Misrepresentation Act 1971 (SA) and that they had engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (TPA). The misrepresentations and misleading or deceptive conduct were said to comprise representations that those defendants would protect and preserve the assets until settlement; that they had placed security guards at the quarry premises in response to concerns raised by TSQ; and that when TSQ took possession, the plant and equipment would be in the same condition as it had been when inspected by Mr Calabrese.
TSPL has never appeared in these proceedings and has not filed a defence. On 28 May 2008, judgment by default was entered against it for damages to be assessed. However, part way through the trial TSQ expressly abandoned any claim for an assessment of the damages to which it may be entitled against TSPL.
On 18 July 2008 (a little over two weeks before the commencement of the trial), judgment was entered by consent in favour of TSQ against the administrators in the sum of $225,000. That sum was inclusive of interest, but in addition to costs. This meant that the trial of the action concerned only TSQ’s claim against Legalcom.
Progression in the Articulation of TSQ’s Claim Against Legalcom
TSQ’s claim against Legalcom, both in the causes of action relied upon and in the approach to the assessment of damages, developed somewhat during the course of the trial. The second further amended statement of claim (SFASC) alleged that Legalcom had breached implied terms of its contract of retainer with TSQ (essentially a breach of the implied term that Legalcom would provide its professional services with reasonable care and skill) and that it breached the common law duty of care. Although this suggested that TSQ relied upon both causes of action, the SFASC alleged only that loss resulted from Legalcom’s breach of contract. TSQ confirmed that it confined its claim to that of breach of contract in its written opening, provided some ten days before the commencement of the trial. It identified its cause of action against Legalcom as being that of breach of contract.
However, part way through his oral opening, Mr Heywood-Smith QC (counsel for TSQ) said that TSQ was not abandoning its claim in negligence. I then allowed TSQ to amend its SFASC so as to include a plea in paragraph 37 that its claimed losses resulted from a breach of the contract of retainer and, or in the alternative, from a breach of the common law duty of care. At the request of the parties, I reserved to the final submissions the question of the date upon which that amendment should be regarded as having taken effect.
In the course of the opening, counsel identified the breaches of contractual duty and of the common law duty of care upon which TSQ relied as being a failure by Legalcom to advise it to arrange an inspection of the plant and equipment prior to settlement so as to ensure that it would receive at settlement the plant and equipment which it had contracted to purchase, and a failure itself to arrange an inspection of the plant and equipment for that purpose. This articulation of the breaches was slightly different from that contained in the SFASC, but the trial was conducted on the basis that the breaches of duty relied upon were those articulated in the oral opening. In particular, TSQ did not press the plea made in paragraph 36.2 of the SFASC that Legalcom had breached its duty by failing to ensure that it (TSQ) received the plant and equipment in the condition inspected and operated by Mr Calabrese.
It was common ground that Legalcom had not, as a matter of fact, advised TSQ to arrange an inspection of the plant and equipment immediately before settlement, and that it had not itself arranged such an inspection.
TSQ claimed that if Legalcom had advised Mr Calabrese to arrange an inspection, he would have done so, and that his inspection would have revealed at least the damage which was observed almost immediately after the settlement. These matters were not pleaded. Nor did the SFASC contain a plea as to what TSQ would have done if it had learned shortly before settlement of the damaged and missing items which were discovered after settlement. However, in relation to the plea against TSPL and the administrators, TSQ pleaded that if it had known that the representations were untrue, false and misleading, it would not have entered into the Sale Agreement and, or in the alternative, would not have settled on it. As TSQ could not have had a different state of mind if it had known of the damage to the plant and equipment and of the missing items, this pleading was, in effect, a plea that if TSQ had known of the true state of affairs it would not have proceeded with the transaction.
In the plea of loss and damage, TSQ did not differentiate between the losses said to be attributable to the conduct and omissions for which TSPL and the administrators were said to be responsible, on the one hand, and the losses for which Legalcom was said to be responsible, on the other. The effect was that TSQ asserted that the measure of damages which it was entitled to recover in respect of the alleged failure by its solicitor to give proper advice, or to carry out an inspection of the plant and equipment, was the same measure as that of a vendor who breached a sale contract by delivering damaged goods. TSQ asserted that it was entitled to recover as damages from all defendants (including Legalcom) the costs of repair and replacement of the damaged and missing equipment and the amount of the profits which it could have earned from the quarry had the plant and equipment been intact and in an undamaged state at the time of settlement. That amount was said to be an additional $396,000 per annum over the period of eight years which has elapsed since June 2000.
This approach to the case involved a number of difficulties, including the conceptual difficulty of TSQ asserting an entitlement to recover a loss of the profits expected from a venture which it maintained that it would not have acquired at all had it known of the true facts.[2]
[2] Cf The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 81-82.
Faced with this difficulty, Mr Heywood-Smith QC said that the plea that TSQ would not have settled on the Sale Agreement if it had known of the damage to the plant and equipment was not to be equated with an assertion that the plaintiff would have abandoned all rights under it. Counsel submitted that it was possible that TSQ may have obtained an order from a court for specific performance or some other order requiring the damaged equipment to be repaired. Thus it seemed that counsel was suggesting that the plea that the plaintiff would not have settled on the Sale Agreement was really a plea that the plaintiff would not have settled on it at the time which was originally proposed or, alternatively, without some variation of its terms. Counsel seemed to be suggesting that if TSQ had been aware of the damage to the plant and equipment, it would still have completed the transaction but on different terms.

Counsel also said that TSQ’s claim was “consistent with the loss of commercial opportunity cases” and asserted that TSQ was entitled to recover the whole of the additional profits which it had been unable to obtain from the quarry. That is, TSQ maintained that the damages it claimed against Legalcom should be assessed in the same way as the damages against TSPL and the administrators, ie, the costs of repair or replacement of certain items of equipment and the loss of additional profits.
Immediately before closing its case, TSQ applied for, and over Legalcom’s opposition was granted, leave to amend its statement of claim still further. The amendment added a plea that as a result of the conduct alleged against Legalcom, TSQ had lost a “valuable commercial opportunity” of two alternative kinds. The first was the opportunity to acquire and exploit the assets which were the subject of the Sale Agreement. The second was the opportunity “to secure the full benefit of the Sale Agreement by securing an immediate or early replacement of the [Bridge] saw by renegotiation of the Sale Agreement with the Vendor Defendants or, alternatively, by exercise of all legal and equitable rights then available to the plaintiff at the time of inspection and discovery of the damage prior to settlement”. Despite the reference to “renegotiation” of the Sale Agreement, counsel expressly disavowed that TSQ, under the amendment, intended to pursue a “different transaction” claim and said that TSQ maintained its claim that its damages should be assessed by reference to the profits which it could have realised from the quarry.
The effect of the amendment was that TSQ now pursued a primary claim for damages comprising the cost of repair and replacement of the damaged and lost equipment and the loss of expected profits, with those damages to be assessed in the same way as they would have been in the actions against TSPL and the administrators. It pursued, in the alternative, a claim that its damages should be assessed by reference to the lost opportunity to realise the expected profits.
TSQ maintained this approach to the assessment of its damages in its written closing submissions. However, at the end of TSQ’s oral closing submissions, counsel said that TSQ now confined its claim to that of a loss of opportunity. That is, TSQ no longer pursued its principal claim as to the proper approach to the assessment.
I will return to the question of the proper approach to the assessment of damages in this case later in these reasons.
The Issues in the Trial
The pleadings and the evidence give rise to the following issues:
1.Do the principles against permitting double satisfaction have the effect that the judgment which TSQ has obtained against the administrators now precludes it altogether from pursuing its claim for damages against Legalcom in respect of the same losses?
2.Should the amendment to paragraph 37 of TSQ’s statement of claim be directed to have taken effect from the date of the institution of the proceedings?
3.Did Legalcom have a contractual relationship with TSQ so as to provide a basis for a claim for damages for breach of contract? Legalcom, while admitting that it acted on behalf of TSQ in the transaction, says that it did so pursuant to a contract of retainer with Mr Calabrese personally, and not with TSQ.
4.If there was a contract of retainer between TSQ and Legalcom, was the omission of Legalcom to advise TSQ to arrange an inspection of the plant and equipment immediately before settlement or, in the alternative, to arrange such an inspection itself, a breach of the implied contractual term that Legalcom would use reasonable care and skill in performing its retainer? Alternatively, was the omission a breach of Legalcom’s common law duty of care?
5.Has TSQ established that it has suffered any loss capable of being compensated in damages as a result of a breach of contract or negligence by Legalcom in failing to advise a pre-settlement inspection, or in failing itself to organise such an inspection?
6.Has TSQ suffered a loss of commercial opportunity? Insofar as TSQ’s claim depends upon the contention that Legalcom should have advised it to carry out an inspection of the plant and equipment immediately before, or contemporaneously with, settlement, this issue requires the Court to make an assessment of whether, had such advice been given, it would have been acted on. It also requires an assessment of whether an inspection (whether arranged by TSQ or by Legalcom) would have revealed the loss and damage detected shortly after settlement.
7.If TSQ did suffer a loss of commercial opportunity, what amount should be awarded by way of damages for its loss? This requires an assessment (amongst other things) of how TSQ may have proceeded if it had become aware before settlement of the loss and damage to the plant and equipment.
8.Has TSQ proven the damage and costs of repair which it claims in respect of specific items of equipment and are those costs recoverable from Legalcom?
9.Should TSQ’s damages be reduced on account of contributory negligence?
10.How should account be taken, in the assessment of any damages to which TSQ may be entitled, of the $225,000 which it recovered under the consent judgment obtained against the administrators?
Before addressing these issues, it is appropriate to make some findings concerning the principal witnesses, the events which occurred before 19 June 2000, and the damage which was found after settlement.
The Principal Witnesses
Mr Calabrese was the principal witness called by TSQ and Mr Goldberg the principal witness called by Legalcom.
Mr Calabrese
Mr Calabrese was born in Italy in 1947 and came to Australia when he was 20 years old. It was plain that English was not his first language.
Mr Calabrese is a stonemason, having learnt that trade from his father. He has considerable experience in stonemasonry, including the cutting, sawing and dressing of stone. That experience extends to the operation of quarries involving the mining of various kinds of stone. In particular, by reason of his operation from time to time of the Wistow and Willunga Slate Quarries, and his association with sandstone quarries in Queensland, he has experience with stone quarries of those kinds. Mr Calabrese has a general familiarity with many of the saws and other equipment used in quarrying and stonecutting.
From 1997 until some time in 2002, Complete Natural Stone Pty Ltd (CNS), a company with which Mr Calabrese was associated, operated a stone cutting business in Port Adelaide. That business supplied slate, bluestone and sandstone to the building industry in South Australia.
The evidence does not permit a finding as to Mr Calabrese’s success in the past as a businessman. He was declared bankrupt in 1996. He was discharged from that bankruptcy on 21 November 1999, only two months or so before speaking to Mr Wood about the purchase of the quarry assets. However, as I understand it, that bankruptcy did not arise out of any failure of a business of Mr Calabrese: instead it resulted from his having entered into an unhedged foreign currency loan. I note that CNS, of which Mr Calabrese was a director from August 2001, was liquidated in 2002 with a deficiency of assets over liabilities.
Mr Calabrese’s conduct in relation to the acquisition of the quarry assets indicates that he is capable of impetuous action involving commitments to large sums of money and that he is willing to engage in opportunistic, if not sharp, conduct in the pursuit of his own interests.
The subject matter of this litigation is obviously important to Mr Calabrese, and on several occasions during the course of his evidence his emotions overtook him. He gave his evidence without the benefit of notes. Although I was impressed by much of his evidence, I also considered that he had a good appreciation of where his interests lay and that, from time to time, he tailored his evidence so as to advance those interests better. That tailoring may on occasions have been the result of a process of unconscious rationalisation. I also considered that some of his evidence was reconstruction, ie, the way in which he now construes relevant events in the past, and that it was not a reliable recollection of those events.
It was very obvious that Mr Calabrese sought to enlarge Mr Goldberg’s role and participation in the transaction and to emphasise his own dependence on him while, at the same time, diminishing his own responsibility. Examples will be seen in my later findings.
Mr Calabrese claimed that he could not read English. I am not prepared to accept that that is literally true. Mr Goldberg, who had a number of dealings with Mr Calabrese, had not noticed such a difficulty. During the course of his evidence, Mr Calabrese was asked several questions by reference to documents, and he did not indicate a difficulty in reading them. I accept that Mr Calabrese may not find the reading of written English easy, but not that he is unable to do so altogether. I also accept that his understanding of written English may not be complete. I had the impression that Mr Calabrese referred to his limited grasp of English as a way of emphasising his reliance on Mr Goldberg.
Mr Goldberg
Mr Goldberg is a very experienced commercial solicitor. He conducted his own practice for approximately 28 years and now is a member of a larger firm. He has acted extensively for clients engaged in the buying and selling of businesses and of business assets.
Mr Goldberg gave his evidence by reference to the file which his office had maintained in 2000 and 2001. Some of the work in relation to the acquisition of TSPL’s assets was performed by a solicitor employed in his firm, Ms Smithson. The records on the file had, for the most part, been made either by Mr Goldberg or by Ms Smithson.
Mr Goldberg said that, without looking at the file, he had a general recollection of the transaction and of its features, but not of particular events or of the sequence in which they had occurred. His memory was refreshed to some degree by reading the file.
It seemed to me that there were aspects of Mr Goldberg’s evidence which amounted to reconstruction, eg, when he did not have a particular recollection but instead indicated what particular file entries indicated. On several occasions, he readily acknowledged that that was the case. I also considered that Mr Goldberg understood quickly the nuances involved in some of the propositions put to him and sought to address them in his answers. I did not regard this as evasiveness. It was in part a product of his training and in part a product of the content of some of the questions put to him. Mr Goldberg’s confidence that a file note had been made in relation to each communication to or from his office in relation to the transaction was proved to have been misplaced, but that did not cause me to doubt the honesty and reliability generally of his evidence.
I regard Mr Goldberg’s evidence generally as reliable for the findings concerning disputed facts. In particular, in the areas of conflict between the evidence of Mr Calabrese and Mr Goldberg, I prefer the evidence of the latter.
Ms Smithson
I considered Ms Smithson’s evidence to be reliable.
Events Before Settlement
The following findings are based on evidence which was, in the main, non‑contentious and, when it was contentious, upon the evidence which I accept.
The Operation of the Quarry by TSPL
TSPL quarried sandstone at the Property under a mining lease granted by the Tasmanian Government. TSPL had borrowed approximately $465,000 from the Tasmanian Department of State Development (Tasmanian State Development). That facility was secured by a mortgage debenture over the assets of TSPL. Mr and Mrs Wood also gave a guarantee to the Department, secured by a mortgage over other real estate owned by them. TSPL had also borrowed approximately $120,000 from a Mr Peter Jones. I understand that this loan was also secured by TSPL’s assets.
TSPL quarried and processed the sandstone into blocks of various dimensions before selling it in Tasmania, or packing it in containers or on wrapped pallets and then transporting it by sea to the mainland.
In very general terms, the process at the quarry involved the cutting out of large blocks of stone (2.7m long, 1.4m wide and 1.2m deep) at the quarry face. Mechanical saws were used for this purpose. The blocks were then transported to the processing plant on the Property (a covered but open-sided large shed). There, using the Pelligrini Saw, the large blocks were cut into slices of pre-determined and varying widths. Those slices, sometimes called biscuits or billets, were then cut into smaller sized blocks (of various dimensions) using the Bridge Saw. Once so cut, the stone was packed onto pallets and loaded into containers for shipment. Both the Pelligrini Saw and the Bridge Saw were integral to the processing of stone at the quarry.
In late April 2000, Mr Calabrese used a second way of processing the stone, using a guillotine and some bolsters. Stone processed in that way did not have to be cut by the Pelligrini Saw.
TSPL sold the sandstone in New South Wales through Elite Stone Pty Ltd and in South Australia through Allstone Pty Ltd, a company associated with Mr Wood.
TSPL operated the quarry using a substantial amount of plant and equipment. That plant and equipment was valued on 28 January 2000 on an existing use basis at $640,875, but of this amount some $290,000 - $300,000 was attributable to the two items of equipment leased from CBFC. The Bridge Saw, which had been purchased second-hand on 12 November 1998 for $42,000, was valued at $30,000.
Mr Calabrese’s Interest in TSPL
Prior to 2000, CNS had purchased sandstone mined at the quarry from Allstone, and Mr Calabrese was impressed by its qualities. Mr Calabrese knew Mr Wood and had had a number of dealings with him.
Mr Wood contacted Mr Calabrese even before TSPL went into administration to see if he was interested in acquiring the quarry. As noted earlier, Mr Calabrese expressed an immediate interest in doing so. The two men discussed a proposal under which Mr Calabrese would supply sandstone to Allstone which would then sell it in Adelaide on commission. Mr Calabrese was attracted to this proposal because he was not interested in the sales process and he regarded Mr Wood as a good salesman.
Attendance at Meetings of Creditors
Following the appointment of the administrators on 24 January 2000, the first meeting of creditors was held on 1 February 2000 in Hobart. Mr Calabrese attended the meeting as an observer. He was introduced to the meeting by Mr Wood as a person who was “interested in helping out”. The meeting was told that the directors were making “every effort to find a solution that will be in the interests of the creditors”. Contrary to the evidence of Mr Calabrese at one stage, Mr Goldberg did not attend the first meeting of creditors and did not speak on his behalf at that meeting.
Subsequent meetings of creditors (before the settlement on 19 June 2000) were held on 3 March 2000, 11 April 2000 and 30 May 2000.
Mr Calabrese claimed that Mr Goldberg attended two or three of the creditors’ meetings with him. Despite that evidence, I am satisfied that Mr Goldberg attended only one meeting, namely, the meeting held on 11 April 2000. Mr Calabrese’s evidence about Mr Goldberg’s attendances was contradicted by Mr Goldberg, whose evidence I accept. Mr Goldberg’s evidence was confirmed by the record of attendees contained in the minutes of the creditors’ meetings prepared by the administrators and also by Legalcom’s contemporaneous costs entries. I considered that this was one example of Mr Calabrese seeking to enlarge Mr Goldberg’s involvement in the transaction.
The Retainer of Legalcom
Mr Calabrese had retained Legalcom for “other deals” before 2000 and was familiar with Mr Goldberg. After telling Mr Wood in January 2000 that he would buy the quarry, he spoke to Mr Goldberg and asked him “to take care of the deal”. He claimed that he said to Mr Goldberg:
Something happened. I want to buy this quarry but I don’t understand anything, the man has gone broke and we got to deal with other people. It is not straight forward to me to negotiate. John, I want you to take care of the deal, you know, as a lawyer, you have got to do the dealing.
Mr Calabrese said that this conversation occurred before the first creditors’ meeting on 1 February 2000 and that Mr Goldberg had “sent” him alone to that meeting.
I am satisfied that Legalcom was first instructed in this matter on 7 February 2000 in a conference between Mr Goldberg and Mr Calabrese. That is the date of Mr Goldberg’s first file note; it is the date of Mr Goldberg’s memorandum requesting the opening of a new file; and it is also the date of his first costs entry. That finding does not of course preclude the possibility that Mr Calabrese had spoken to someone at Legalcom’s office (perhaps even Mr Goldberg himself) before 7 February 2000 for the purpose of arranging the appointment. It is possible that in such a conversation he may have said something about his plans. However, I reject Mr Calabrese’s evidence that Mr Goldberg had been instructed before the first creditors’ meeting and that he had been “sent” by Mr Goldberg to that meeting. I consider that Mr Calabrese’s evidence to the contrary was part of his attempt to emphasise Mr Goldberg’s role in the transaction.
Mr Goldberg said, and I accept, that when first retained he was asked to look into the possible acquisition of TSPL. He accepted however that the scope of the retainer changed as the circumstances unfolded and that Legalcom was retained, as a legal advisor, to assist Mr Calabrese to achieve his goal of acquiring the quarry. He denied that Mr Calabrese had ever requested him to assist in any way he could (ie, as a professional advisor generally). I accept Mr Goldberg’s evidence on this topic.
The identity of the person retaining Legalcom and the obligations which Legalcom had accepted under the retainer will be addressed later.
Progress to Deed of Company Arrangement
Mr Calabrese made an offer to the administrators for the purchase of the assets of TSPL on or before 23 February 2000. This offer was made by Mr Calabrese directly to the administrators and not through Mr Goldberg. In fact, Mr Goldberg was absent from Adelaide for most of the last week of February 2000. While he was away, Mr Calabrese reported to Ms Collum, a solicitor at Legalcom, that he had put a new offer to the administrators in conjunction with Mr Wood and that he (Mr Calabrese) was obtaining further information from his accountant which the administrators had requested. This was one of several occasions when Mr Calabrese communicated with the administrators on important matters concerning the transaction without the involvement of Mr Goldberg. These occasions too undermine his claims of complete reliance on Mr Goldberg.
At about the same time, Mr and Mrs Wood, as directors of TSPL, recommended that the company enter into a deed of company arrangement (DOCA), the elements of which were to be, first, that Mr Calabrese would enter into a binding contract to purchase TSPL’s land, plant and equipment, stock (with the exception of two sandstone blocks), debtors and work in progress; secondly, that Mr Calabrese would pay $200,000 for the assets; thirdly, that Mr Calabrese would take an assignment of the Tasmanian State Development debt (provided that the Tasmanian Government forgave one third of that debt), an assignment of the Peter Jones debt and an assignment of the CBFC hire purchase agreements; and, fourthly, that the sum of $200,000, together with the cash funds held by the administrators and the proceeds of sale of the two blocks of sandstone would be distributed to creditors in the same way as in a liquidation. Acceptance of the arrangement would mean that the unsecured priority creditors, such as the former employees, would receive their entitlements in full and that the remaining unsecured creditors would receive a partial payment of their debts. The proposal was that that partial payment would be a complete compromise of their entitlements.

The administrators recommended that the creditors accept the directors’ proposal, pointing out that if the company was liquidated, it was unlikely that the unsecured creditors would receive any payment at all. The fact that TSPL’s assets secured the advances made by Tasmanian State Development and by Mr Jones, in addition to the two CBFC hire purchase agreements, meant that, in the event of liquidation, it was unlikely that there would be any funds at all from which the liabilities to the unsecured creditors could be met.
Before Mr and Mrs Wood made their proposal to the creditors Mr Calabrese had agreed privately with Mr Wood to pay him an additional sum of money in relation to his purchase of the quarry assets. Some evidence suggested that the sum was to be $250,000 but Mr Calabrese maintained that it was $200,000. It seems that the agreement concerning the payment of the additional sum was not to be disclosed to the administrators nor to the creditors of TSPL. Because Mr Wood did not give evidence, and has therefore not had the opportunity to comment on this evidence, I am reluctant to make a firm finding to that effect. But I am satisfied that Mr Calabrese had agreed in either January or February 2000 to make a substantial payment to Mr Wood directly in relation to his purchase of the quarry assets and that he was negotiating a period over which that payment would be made.
The second meeting of creditors of TSPL held in Hobart on 3 March 2000 accepted the recommendation that the company enter into the DOCA proposed. The meeting contemplated that settlement of the agreement with Mr Calabrese would take place by no later than 24 March 2000.
Shortly after the second creditors’ meeting a solicitor instructed by the administrators (Mr Christie) prepared a draft asset sale agreement containing the terms contemplated at that meeting. A copy of the draft was provided to Legalcom. A revised draft was provided on 15 March 2000 by Piper Alderman, the solicitors retained by the administrators in lieu of Mr Christie. Each draft contemplated that Mr Calabrese personally would be the purchaser and each contemplated settlement by no later than 24 March 2000.
On 10 March 2000, Mr Goldberg took extensive instructions from Mr Calabrese regarding his circumstances, his plans with respect to the quarry, his expenses and income projections and his proposals for financing the purchase of the quarry.
The DOCA was executed on 20 March 2000. It contained the terms approved at the second creditors’ meeting and, in particular, the condition precedent requiring that the asset sale agreement involving Mr Calabrese be both executed and settled by no later than 24 March 2000 (but allowed for the possibility that that deadline may be varied by a court order).
Progress Towards Entry into the Sale Agreement
The Sale Agreement was not executed, let alone completed, by 24 March 2000.
There seem to have been two principal reasons for this. Tasmanian State Development required more financial detail before it would agree to an assignment and reduction of its debt than Mr Calabrese was able, or willing, to supply. Secondly, Mr Calabrese was finding it more difficult to raise the necessary finance than he had contemplated. This was due principally to his record of bankruptcy. In those circumstances, it seems that Mr Goldberg thought it inappropriate to engage in detailed negotiation concerning the terms of the Sale Agreement.
On 22 March 2000, Mr Goldberg wrote to the administrators requesting an extension of time of at least seven, and preferably 14, days. As any extension of time required a variation to the DOCA, the administrators called a third creditors’ meeting in Hobart on 11 April 2000.
A competitor for the purchase of TSPL’s assets then emerged. On 28 March, Dunn Stone Industries Pty Ltd (Dunn Stone), a Tasmanian company, made an offer to the administrators which was similar to, but not identical with, that made by Mr Calabrese.
This was not the first involvement of Dunn Stone. At the beginning of March 2000, Dunn Stone had proposed a 50:50 partnership to Mr Calabrese to buy the assets of TSPL as there was “little point in us both ‘bidding’ against each other”. Mr Calabrese had agreed to that proposal. He did so before the creditors’ meeting of 3 March 2000 in order to make sure that Dunn Stone did not bid against him at that meeting. But in reality, Mr Calabrese did not wish to be in partnership with Dunn Stone. He considered that it wished to engage in a form of asset stripping of TSPL and he did not, in any event, wish to be in business with it. In addition, Mr Wood, who was at that time supporting Mr Calabrese, did not want Mr Dunn, the principal of Dunn Stone, to be involved. Mr Calabrese did not tell the administrators, nor the creditors’ meeting held on 3 March 2000, of his agreement with Dunn Stone. Dunn Stone did not submit any separate bid at that meeting.
It is not clear how long the arrangement for a 50:50 partnership subsisted. It must have come to an end by the time Dunn Stone made its offer on 28 March 2000. Mr Calabrese’s conduct in relation to Dunn Stone at the beginning of March may well have precipitated some of the difficulties which Dunn Stone caused him later in May and June 2000.
In any event, on 28 March 2000 Mr Calabrese gave Mr Goldberg instructions for a revised proposal. The proposed changes were that TSQ (still at that stage to be incorporated) would be the purchaser, and not Mr Calabrese personally; that instead of an assignment of the (reduced) debt to Tasmanian State Development, it would be paid out in full; and that instead of an assignment of the CFBC hire purchase agreements, the liabilities under those agreements would either be paid out in full or re-financed. It was also proposed that completion take place within one month of the execution of the Sale Agreement. Mr Goldberg communicated the revised proposal to Piper Alderman on 31 March.
The evidence does not permit a finding to be made as to the source of the variations outlined above concerning the Tasmanian State Development debt and the CBFC hire purchase agreements. However, it was not suggested that Mr Goldberg had proposed them to Mr Calabrese.
The competing offers of Mr Calabrese and of Dunn Stone were considered at the third creditors’ meeting of TSPL, held on 11 April. Each of Mr Calabrese and Mr Goldberg attended and addressed that meeting, as did a Mr Sunstrup on behalf of Dunn Stone. Mr Goldberg told the meeting that he expected that Mr Calabrese could execute a sale agreement within three days and settle on the agreement one month later. Mr Wood also spoke at the meeting. He supported the proposal of Dunn Stone and disparaged that of Mr Calabrese. Mr Wood also disclosed his expectation of becoming a shareholder in Dunn Stone.
Ultimately, a majority of the creditors voted in favour of Mr Calabrese’s proposal. That included a requirement that completion of the Sale Agreement occur by 12 May 2000.
Despite the optimism expressed at the meeting, the Sale Agreement was not executed by Mr Calabrese, or TSQ, until 9 May 2000, and was not executed by the last of the other parties to it (Mr and Mrs Wood) until 7 June 2000.
A number of matters happened in the intervening period. TSQ was incorporated on 18 April 2000 and thereafter all drafts of the Sale Agreement identified it as the purchaser instead of Mr Calabrese. Mr Goldberg and Piper Alderman engaged in detailed correspondence to finalise the terms of the Sale Agreement. Mr Calabrese pursued attempts at raising the necessary finance but continued to experience difficulties. Mr Goldberg was involved in some of those attempts, in particular, by obtaining and communicating information required by finance brokers or financiers. Mr Calabrese was reluctant to sign the Sale Agreement without having finance in place because it required the payment, at the time of signature, of a non-refundable deposit of $20,000. Mr Calabrese attempted to raise some finance by obtaining Mr Wood’s agreement to him processing stone at the quarry in circumstances which will be described shortly. Mr Goldberg pursued the transfer of the mining leases, the obtaining of title searches to the land, and the preparation of the necessary transfers of the land.
The issue of settlement became more pressing as 12 May approached. All parties understood that if the Sale Agreement was not settled by that date, TSPL would, absent any court order varying the DOCA, proceed into liquidation. This constraint of time explains Mr Calabrese’s instruction to Mr Goldberg at the time to proceed to settlement even if the title searches and transfers of mining leases had not been completed.
Negotiations concerning the content of the Sale Agreement continued to 9 May, when it was executed by Mr Calabrese and Ms Maselli. That Sale Agreement provided for completion in two stages: by no later than 19 May in relation to all matters other than the CBFC hire purchase agreements, and by no later than 31 May in relation to those two agreements. That variation reflected the difficulty Mr Calabrese was experiencing in raising sufficient finance to pay out or re‑finance the two hire purchase agreements. Despite it being contemplated that final settlement may not occur until 31 May, the Sale Agreement as signed by Mr Calabrese and Ms Maselli contemplated that TSQ was to have possession of the Property as from 19 May.
The executed Sale Agreement and the deposit of $20,000 were delivered to Piper Alderman on 10 May 2000. On the same day, Mr Goldberg wrote to Piper Alderman informing it that “TSQ would not have all the funds required for settlement by Friday 12 May” and proposing the two stage settlement. That proposal was not acceptable to Mr and Mrs Wood. They declined to execute the Sale Agreement in that form. After further negotiation, it was agreed that completion in all aspects should occur by no later than 31 May 2000, and on 19 May 2000, Mr Calabrese and Ms Maselli executed a Sale Agreement which had been amended to reflect the revised completion date.
On 11 May 2000, Judge Burley, a Master of this Court, made an order varying the DOCA so as to provide that completion should occur by no later than 31 May 2000. A solicitor instructed by Mr Wood had initially opposed the making of that order, but later consented to it.
Two further complications then emerged. The first was that Mr Wood, who had not been at the quarry for some time, commenced some work there. The second was that on 16 May, TSPL, through its director Mr Wood, entered into an agreement with Dunn Stone for the sale of all the quarried stone located at the quarry. Before addressing those matters, it is appropriate to refer to the work of Mr Calabrese at the quarry at the end of April 2000.
The Processing of Stone by Mr Calabrese
Shortly after the creditors’ meeting held on 11 April, Mr Wood and Mr Calabrese entered into a written agreement bearing the date 14 April 2000 permitting Mr Calabrese to “immediately commence operation in the cutting plant (not the quarry) to limit the damage caused by the extended period of closure”. Under the agreement, Mr Calabrese was to be responsible for the expenses incurred, including the wages of employees, and he gave an indemnity in respect of any breakdowns or damage which his activities might cause.
Mr Goldberg was not involved in the drafting of this agreement. Nor was he asked to comment on its terms before Mr Calabrese signed it. It is another example of Mr Calabrese’s willingness to act independently of Mr Goldberg in relation to the transaction.
Although the agreement said that the purpose of Mr Calabrese commencing operations immediately was to “limit the damage caused by the extended period of closure”, Mr Calabrese acknowledged that his real purpose was to process and sell as much stone as he possibly could as a means of raising funds for his purchase of the quarry assets. It was to be a means of making good the shortfall in the funds which he had available for the settlement. In other words, Mr Calabrese contemplated selling stone belonging to TSPL as a means of funding his own purchase of the quarry assets.
Mr Calabrese worked at the quarry with a number of employees from at least 24 April (Easter Monday) to Saturday, 29 April. It is not necessary at this stage to make detailed findings about the work performed, the period over which it was performed, and the number of workers involved. It is sufficient for present purposes to note that during the period of operations in late April 2000, six containers of stone were produced. Three were shipped by Mr Calabrese: two to New South Wales to fill an existing TSPL order; and one to South Australia, apparently to CNS. Mr Calabrese said that Mr Wood agreed that he (Mr Calabrese) could retain the proceeds from the sale in New South Wales and that he could use the stone sent to South Australia in the business of CNS.
In addition, Mr Calabrese processed and sold an unspecified amount of stone to a Tasmanian company, Buckland Sandstone.
At about this stage, the relationship between Mr Wood and Mr Calabrese deteriorated. The evidence does not disclose the reasons for that deterioration. But what is plain is that from 26 April, Mr Wood complained to the administrators about Mr Calabrese’s presence and activities at the quarry, and his movement and selling of processed stone, in terms which became increasingly querulous. Mr Goldberg described the situation as turning into “World War III”. Mr Wood became increasingly obstructive of Mr Calabrese’s attempts to purchase the quarry assets. Because some of these events were relied upon as indicating the breach of the duty of care owed by Mr Goldberg, it is necessary to make findings about them.
On 26 April, having complained about the delay by Mr Calabrese in signing the Sale Agreement, Mr Wood wrote to the administrators “I understand R Calabrese is in Tasmania at the moment, what is the position of R Calabrese working at the quarry site?” On being told by the administrators that Mr Calabrese was working at the quarry “in accordance with the agreement that you have entered into with him”, Mr Wood responded on 28 April by saying that his agreement did not permit Mr Calabrese to move or sell stone. Mr Wood told the administrators that he had information that Mr Calabrese “may be selling stone and preparing for its transportation by arranging to move containers in the very near future” and requested a guarantee that this would not occur.
One of the administrators (Mr Heard) spoke to Mr Calabrese on 28 April, confirming that no stone was to be removed from the quarry until the Sale Agreement was signed and money received. I note that on the same occasion Mr Calabrese also spoke directly to Mr Heard about his readiness to complete the transaction. Mr Heard spoke to Mr Goldberg on 28 April 2000 concerning the same two subject matters. By a letter dated 1 May 2000 and in a telephone conversation on 2 May 2000, Mr Goldberg confirmed to Mr Calabrese that he was not permitted to remove stone from the quarry.
A Mr Barry Roberts was an employee of TSPL. During the administration he was employed as a caretaker at the quarry. He had also assisted Mr Calabrese at the end of April in the work then performed. On 7 May 2000, Mr Roberts informed the administrators that Mr Wood had withdrawn permission for Mr Calabrese to be on the site and that he (Mr Calabrese) was not to perform any further work until settlement occurred.
On 8 May 2000, Mr Wood wrote to the administrators following up “the issue of illegal removal and sale of stone”. Mr Wood asserted that Mr Calabrese had no entitlement to remove or sell any stone from the property. He asked the administrators to follow the matter up “as a criminal action”. The administrators took a number of actions in relation to the removal of the stone. In particular, they made contact with a transport company and informed it that stone should not be removed from the quarry. On learning that some stone had been removed and shipped to New South Wales, the administrators took steps to secure the stone at Newcastle.
On 9 May 2000, Mr Wood wrote to Mr Goldberg saying:
In view of the illegal removal of sandstone by your client Mr Rito Calabrese from the above quarry, I forthwith withdraw immediately approval for Mr Calabrese to perform further work and request he immediately vacate the site.
By facsimile dated 9 May 2000, Mr Wood referred to the stone shipped from the quarry site by Mr Calabrese as “the stolen goods”. On the same date, Mr Wood told the administrators:
I wish to advise that the actions of Rito Calabrese in illegally removing and selling stone from the Buckland site now cause me to withdraw permission granted for further works to be carried out. I reiterate our request that criminal charges be pressed and that the police be notified.
It is not necessary to recount the remaining communications relating to the movement and proposed sale of the stone processed by Mr Calabrese and the other workers at the end of April 2000. That which I have set out above is sufficient to indicate the tenor of Mr Wood’s attitude. I add that Mr Calabrese maintained throughout that he was doing no more than that which he and Mr Wood had agreed upon in their agreement dated 14 April 2000.
One effect of Mr Wood’s conduct was that Mr Calabrese was precluded from raising funds to assist in the purchase of the quarry assets by the sale of the stone which he had processed at the Property in the last week in April.
The Attendance of Mr Wood at the Quarry
As well as complaining on 11 May 2000 to the administrators about Mr Calabrese’s activities, Mr Wood informed them of his own intention to resume operations at the quarry:
We wish to inform you that Tasmanian Sandstone plans to continue limited operations at the quarry until settlement.
This will involve sales of stone, which will be at the usual commercial rates. The net funds generated by the operations will be paid to the Deed Administrators at settlement together with full accountancy of the trading.
The administrators consented to Mr Wood making “normal course of business sales” of stone from the quarry.
On Monday, 15 May 2000, Mr Wood and his brother attended at the home of Mr Roberts. A confrontation occurred which included demands by Mr Wood that Mr Roberts hand over the keys to the plant and to the quarry. Mr Roberts declined to do so unless authorised by the administrators.
On 16 May 2000, Mrs Wood, on behalf of her husband, raised a number of complaints with the administrators. These included complaints about Mr Roberts’ performance as caretaker, complaints about his refusal to hand over the keys, complaints about the use of heavy machinery at the quarry when Mr Calabrese was working there, and complaints that, despite their agreement, Mr Calabrese had carried out work at the quarry face. Later that same day, at the instigation of Mr Wood, the administrators terminated the employment of Mr Roberts. At the time of his termination, Mr Roberts handed over to Mr Wood a number of keys, including the keys to the office, to the plant, and to some of the containers which were on the Property.
Mr Wood and his brother remained at the site until 19 May. While they were there, they loaded three containers with processed stone. This included stone processed by Mr Calabrese at the end of April. Because of their concern that these containers of stone would be removed from the Property, the administrators employed a security firm. Security guards were at the Property continuously from Wednesday, 17 May 2000 to the settlement on 19 June 2000. They provided 24 hour security from 17 May 2000 to Sunday, 21 May 2000 inclusive. Thereafter, the security was from 8am to 5pm each day.
In addition to the loading of containers, Mr Wood and his brother were observed burning documentary material. I am satisfied that that material included operating manuals to equipment used in the quarry. The presence of Mr Wood and his brother at the Property in the period between 16 May 2000 and 19 May 2000 gave rise to a good deal of suspicion by Mr Calabrese (and others). In particular, there was suspicion that Mr Wood proposed moving from the site the stone which had been processed by Mr Calabrese during the last week of April.
The Wood-Dunn Stone Sale Agreement

The suspicions to which I have just referred were heightened by a handwritten agreement dated 16 May 2000 between Mr Wood, as director of TSPL, and Dunn Stone. By that agreement, Mr Wood, on behalf of TSPL, purported to sell to Dunn Stone “all acceptable quarried sandstone” located on the Property and on adjoining land which TSPL had quarried under licence, as well as “any sandstone illegally removed from the quarry since 14 April 2000”. The consideration for this purchase was said to be $50,860. Mr Wood purported to give Dunn Stone “free and uninterrupted access” to the Property for the purpose of removing the stone and permission to use the plant and equipment on the property to facilitate its removal. The contract sum of $50,860 was to be paid to the administrators upon the settlement of the agreement.
Both Mr Calabrese and the administrators objected to the sale of the quarried stone and disputed the efficacy of the Wood-Dunn Stone written agreement. The quarried sandstone located at the quarry was important to Mr Calabrese. He hoped to be able to sell quickly after settlement the stone which had been processed by him and the other workers in the last week of April. Further, he considered that it would be possible to prepare the remaining quarried stone for sale quite quickly, thereby obtaining access to funds soon after settlement. Mr Calabrese also considered that the agreed purchase price of $50,860 was considerably less than the market value of the stone. Mr Calabrese suspected that Mr Wood had entered into some form of collateral agreement with Dunn Stone under which he would receive personally some advantage from the contract. He voiced these suspicions to Mr Goldberg.
The administrators considered that the sale to Dunn Stone was not a sale in the ordinary course of business of TSPL and therefore that the purported sale was beyond the authority of Mr Wood.
The attempt by Mr Wood to sell sandstone was the subject of considerable disputation. It was in part the reason for the employment of security guards at the property from 17 May 2000. Considerable correspondence took place between the administrators (or their solicitors), Mr and Mrs Wood (and their solicitors), Mr Goldberg, and others, including Tasmanian State Development and Dunn Stone. During the time that the final terms of the Sale Agreement were being finalised, Mr Goldberg was at pains to have it understood that the stock which TSQ was purchasing included the whole of the stock of stone which was on the Property at the time of Mr Calabrese’s attendance in late April. Mr Calabrese was not prepared to settle on the Sale Agreement if the quarried stone was removed from the Property.
Because of the dispute about the Wood-Dunn Stone contract, Mr Wood sought to have the Sale Agreement terms altered so as to make it clear that the stone which had been sold to Dunn Stone was not stock which was subject to the Sale Agreement. As neither Mr Calabrese nor the administrators would agree to this, an impasse arose. It meant that settlement on the Sale Agreement (which remained unexecuted by the Woods) could not be achieved by 31 May 2000.
In those circumstances, the administrators called a fourth meeting of creditors on 30 May 2000. That meeting resolved to delete the provision in the DOCA requiring completion of the Sale Agreement by a specified date. Many of the creditors at the meeting voiced strong criticism of Mr Wood because of the delay by him and his wife in executing the Sale Agreement and for entering into the contract with Dunn Stone on 16 May 2000. Mr Wood was very critical of Mr Calabrese, at one stage describing him to the meeting as a “con person”, and at another stage accusing him, in effect, of a fraud.
Both before, and after, the creditors’ meeting, Mr Dunn from Dunn Stone and Mr Wood negotiated directly with Mr Calabrese seeking a compromise regarding the sale of the quarried stone. Mr Goldberg was not involved in those negotiations but he did advise Mr Calabrese not to agree to any variation of the Sale Agreement which would have the effect that he did not receive the whole of the quarried stone located on the Property in late April 2000. Mr Calabrese acted on that advice.
Eventually, Mr and Mrs Wood agreed to sign the Sale Agreement without there being any exclusion in relation to the stone which Mr Wood, on behalf of TSPL, had purported to sell to Dunn Stone. They executed the Sale Agreement on 7 June 2000. This was a significant backdown by Mr and Mrs Wood. It was influenced by their appreciation of their personal exposure to Tasmanian State Development in the event of a liquidation of TSPL, which seemed inevitable if the Sale Agreement was not completed.
Mr Goldberg was then concerned that if TSQ proceeded to settlement, it would be embroiled in a dispute with Dunn Stone about title to the stone which had been the subject of the Wood-Dunn Stone agreement. Mr Goldberg obtained instructions from Mr Calabrese to insist upon a warranty as to the title of the quarried sandstone. He wrote to Piper Alderman on 7 June 2000 saying:
Our client needs protection against any exposure to litigation or any dispute concerning the stone.
From a commercial perspective, our client wishes to ensure that it gets what it bargained for or alternatively it is financially protected.
The administrators refused to provide the warranty sought by TSQ. In their letter of 8 June 2000 to Mr Goldberg, Piper Alderman warned that TSPL may proceed into liquidation if the Sale Agreement was not settled by 13 June 2000. They said:
…The Deed Administrators are not in a position to provide you with the warranty which you seek. In fact, our clients expressly assert that no such warranty is provided by them.
The Asset Sale Agreement has been completed by the Company by its directors. The Agreement is able to proceed to settlement and our clients indicate that they will give possession of the stone to your client at settlement.
On our instructions, the matter is now ready to proceed to settlement and we request that a time for settlement be fixed on Tuesday 13 June 2000.
…
As you are aware, in the event that the matter has not settled by 13 June 2000, our clients have been directed by the creditors of the Company to convene a further meeting of creditors. It is anticipated that the creditors would vote for the termination of the Deed of Company Arrangement and for the Company to be placed in liquidation.
Mr Goldberg wrote again to Piper Alderman on 8 June 2000 saying:
In order to proceed to settlement our client requires a warranty as to title of the quarried sandstone on the surface of the land from the Administrators. This is imperative given our client’s knowledge of the purported sale to Dunn Stone Industries Pty Ltd and that there is a risk that this may be upheld by a Court. Our client will not insist on any indemnity.
It should be noted that our client is borrowing very heavily in order to fund this acquisition and if he does not get title to the stone on the surface of the land the transaction is commercially unacceptable.
The administrators again refused firmly to provide a warranty. Piper Alderman warned more strongly that if TSQ did not proceed to settlement it would be in breach of the agreement and that TSPL would proceed into liquidation. They said:
The Asset Sale Agreement executed by your client contains no warranty. In fact, various exclusions are made in relation to the Deed Administrators in relation to various aspects of the transaction.
The Asset Sale Agreement has now been executed by all parties and should proceed to settlement. If your client fails to settle on Tuesday 13 June 2000, then our clients will hold your client in breach of the Agreement. Our clients would then convene a meeting of the creditors of the Company and would seek resolutions to terminate the Deed of Company Arrangement and place the Company in liquidation. We anticipate that the Company will also be placed in receivership by the secured creditor of the Company in the event that settlement does not place by 13 June 2000.
At the last meeting of creditors held in Hobart on 30 May 2000, which your client attended, your client stated to the creditors present that upon the Company executing the Asset Sale Agreement, he would proceed to settlement. The request for a warranty, given that there has been no material change in the facts and circumstances known to your client, represents a departure from that stated position. Given the repeated failures of your client to settle in the past, the current position adopted by your client allows for no further extensions of the time for settlement.
The creditors of the Company have granted several adjournments to permit your client the opportunity of completing the Asset Sale Agreement. If settlement does not take place on Tuesday, 13 June 2000, then our clients will have no hesitation in recommending the termination of the Deed of Company Arrangement. A further adjournment would not be countenanced. (Emphasis added)
It can be seen that Piper Alderman, on the instructions of the administrators, indicated that TSQ was being held to the terms of the existing Sale Agreement. TSQ was also being warned of the consequences if it did not proceed to settlement in what was then four days’ time.
Also, on 9 June 2000, Tasmanian State Development pressed TSQ to proceed to settlement. By letter to Mr Goldberg it said:
I advise that this Agency has been extremely co-operative with all the parties in this most difficult of administrations. As the necessary documentation has now been executed by all parties as previously agreed it is now incumbent on your client to settle in terms of that contract.
Failure to do so would force this Agency to take appropriate action that may not result in your client being successful in any future sale process.
Again there was an impasse which prevented settlement occurring on 13 June. This impasse was eventually resolved by a letter from Dunn Stone on 13 June 2000 asserting that TSPL had repudiated its contractual obligations under the Wood-Dunn Stone contract; that it (Dunn Stone) accepted that repudiation; and that it was rescinding the contract. I am satisfied that Mr Wood was influential in Dunn Stone providing this letter as it was his solicitors who first proposed that Dunn Stone may act in that way, and who provided the Dunn Stone letter to Legalcom. TSQ accepted that this letter from Dunn Stone removed the threat of disputes after settlement as to the title to the quarried stone.
Completion of the Sale Agreement
Settlement on the Sale Agreement took place on 19 June 2000 at the office of Piper Alderman in Adelaide. At settlement, the principal payments made by TSQ were $465,891.96 to the Tasmanian Department of State Development and the sum of $180,000 to the administrators (being the sum of $200,000 provided for in the Sale Agreement less the $20,000 deposit). In addition, TSQ entered into a Deed of Novation with Mr Jones and TSPL in relation to the loan of $120,000 from Mr Jones, and paid to CBFC Ltd the full amount outstanding ($191,285.59) in respect of the two hire purchase agreements. TSQ received transfers of the land owned by TSPL and by Mr and Mrs Wood, TSPL’s debtors, stock, work in progress, plant and equipment, and TSPL’s interest in two mining leases.
Mr Calabrese obtained the finance with which to pay out the two CBFC hire purchase agreements from a financier of last resort, and at an extremely high interest rate. He negotiated this arrangement with the financier directly, and not through Legalcom.
The Damage Found After Settlement
Shortly after settlement, employees of TSQ found that a number of items of equipment at the quarry were damaged and that some equipment was missing. As they re-commenced operations more damage became apparent.
In the first few days after settlement the employees saw (amongst other things) that the computer control box to the Pelligrini Saw was damaged, that the computer control box to the Bridge Saw was missing, and that the wires attached to it were left dangling. They also observed that a number of items of office equipment were missing and that door and electrical fittings in the house on the Property had been stolen or, in some cases, vandalised.
As noted at the commencement of these reasons, I am satisfied that an attempt had been made by one or more persons to disable the quarry by rendering equipment which was integral to its operations unusable. The damage discovered by the workers resulted from that attempt, as did the thefts. In making this finding I am referring only to the damage which was observable by the workers. I will address later the damage to the Bridge Saw which was not apparent on a visual inspection but which nevertheless significantly impaired its efficient operation.
Was the Damage Caused Before Settlement?
I address first the damage and loss which was apparent to the workers in the first few days after settlement. Legalcom submitted that the evidence did not establish that this damage had been present at the time of settlement.
It is true that TSQ’s evidence about the early observations of the damage was not very precise or detailed. In part, this resulted from the fact that it did not call Mr Roberts, who was the senior employee at the quarry after 19 June and who made a number of the early observations, to give evidence. In part it resulted from the very poor memories of two of the witnesses (Mr O’Neill and Mr Leslie) who attended at the quarry on the day after settlement. In part it resulted from the fact that Mr Calabrese did not go to the quarry after settlement until January 2001 and much of his evidence was of a hearsay nature.
However, despite these limitations, there are a number of features which lead me to conclude that the damage observed after settlement had been caused before settlement.
TSQ called two of the security guards who had worked at the quarry in May and June 2000. Mr Reardon spent some 24 or 25 days in the period between 16 May and 17 June 2000 at the quarry. In the course of his work, he observed signs of forced entry into the house. He also observed dangling wires when walking through the processing plant and he was certain that a computer control box of the kind used on the Bridge Saw was not present at the time of his inspection.
Mr Harding, the other security guard, was less impressive as a witness but he too described seeing loose hanging wires in the area of what he thought was a major distribution board (but which I find was the control box to the Pelligrini Saw). He also noted that power points in the house had been stripped and that there were dangling wires at the Bridge Saw.
It is remarkable that neither Mr Reardon nor Mr Harding made any note of these observations in the security log. Nor did they report their observations to the administrators. Despite that, I am prepared to accept their evidence about these observations as reliable.
Relying in particular on the evidence of Mr Reardon, with the support it received from the evidence of Mr Harding, I find that the hanging wires were, when the plant and equipment was in an undamaged state, attached to the Bridge and Pelligrini Saws. The wires had been left dangling when the Bridge Saw computer control box was removed, and when damage was caused to the controls of the Pelligrini Saw. I am satisfied therefore that the damage to those Saws which was observed immediately after settlement had occurred at least during the period when the security guards were present at the site.
The second feature which I regard as significant is that the damage to the Saws was deliberately caused. It is likely that whoever was responsible would have caused the other damage observed at the Property after settlement at or about the same time. In other words, my finding that some damage was caused before settlement leads to the further inference that all the visible damage, at the least, was caused at about the same time.
The third feature is that, while it is possible that the damage was caused after settlement but before the attendance of the workers on 20 June, it does seem unlikely. The security guards left the quarry at 5.00pm on Monday, 19 June 2000, and there was no evidence of any other entry before the workers arrived on the following day.
The Visible Damage
I make the following findings as to the damage which occurred before settlement. These findings are based on the documentary evidence at trial.
All of the office records and a facsimile machine had been removed. Some of the removed documentation comprised the business records of TSPL which had not been the subject of the Sale Agreement. But some of the missing documents comprised the operation manuals, including service histories, relating to the plant and equipment which TSQ had purchased.
The front door to the house on the Property had been forced open and a number of light switches, light fittings and power points had been removed. The drawers to the cupboards in the kitchen and bathroom had been taken.
The door to the shed containing the control box for the Pelligrini Saw had been forced open and the cabling in the control box had been pulled out. That cabling had been either cut or torn from its connections. The cabling for the computer control box to the Bridge Saw had been removed, as had the control box itself.
The ignition switch to a Toyota Landcruiser had been damaged. A number of bolstering tools, hammers, bolt cutters, an angle grinder, some grinding wheels, a ladder and some power extension cords were missing.
There were some suggestions in the evidence that other items of equipment had also been damaged. However, the evidence concerning those items does not permit a finding to be made as to the existence, nature or extent of any damage. In particular, the evidence does not permit a finding that the Gantry Crane, the Caterpillar loader, or the Gemco Drill had been damaged at the time of settlement.
Damage to the Operation of the Bridge Saw
Mr Roberts arranged the purchase of a second-hand control box for the Bridge Saw. The total cost was $7,327. He also arranged the repair of the Pelligrini Saw. The evidence does not enable me to make any finding as to the cost of that repair. The quotation on which TSQ relied in relation to the cost of repair to the Pelligrini Saw related to the Bridge Saw.
When the workers used the Bridge Saw after its repair, other problems became manifest. The Bridge Saw operates by a saw blade rotating on a spindle forming part of a saw head suspended from a bridge. The Saw cuts when the revolving saw blade moves laterally across the stone placed on a table underneath the bridge. The bridge from which the saw head is suspended comprises a number of parts but, in particular, two horizontal steel beams called the main guide and the secondary guide respectively. The bridge is supported on either end by four columns. In the course of operations the saw head moves from one side of the bridge to the other. Wheels at the foot of each column enable the saw superstructure to be moved transversely. This enables the saw blade to be moved to the precise point on a block of stone where a cut is required. When operating normally, the computer controls allow the saw operation for a particular size of stone to be pre‑programmed.
An engineer, Dr Wallace, inspected the Bridge Saw on two occasions at the request of TSQ for the purpose of these proceedings. He found that when operated at slow speed, the Bridge Saw produced a cut with a two to three millimetre convex bow. However, when operated at a quicker speed, the Saw produced a cut with a deviation in the opposite direction. In other words, the Bridge Saw structure allowed the saw blade to twist during the course of a cut, with the direction of the twist being determined by the operating speed of the Saw.

In case this matter goes further, I add the following concerning TSQ’s claim for lost profits.
TSQ submitted that it was in the reasonable contemplation of each of Legalcom and itself that the probable result of a breach of duty by Legalcom was that it (TSQ) “would find itself in a position of being unable to exploit the benefits of its purchase, at least until replacement of the defective equipment”. It invoked the principle stated by Lord Reid in C. Czarnikow Ltd v Koufos[67] as follows:
The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.[68]
[67] [1969] 1 AC 350.
[68] Ibid at 385.
As I understood the steps of reasoning involved in the submission, they were as follows. It should reasonably have been contemplated by Legalcom that if it breached its duty by failing to advise a pre-settlement inspection of the plant and equipment, first, TSQ would proceed to settlement and may obtain damaged equipment; secondly, that the damage to the plant and equipment may prevent the quarry from being operated profitably or, alternatively, may reduce its profitability; thirdly, that TSQ may not be able to afford the repair or replacement of the damaged equipment straight away; and, fourthly, that it may accordingly suffer financial loss until the necessary repairs or replacements could be effected. In the fourth element, TSQ did not distinguish between losses which may be actually incurred and losses in the nature of expected profits which were not realised (expectation losses).
TSQ contended that as it has not been able to afford a replacement of the Bridge Saw, it is the profits which it could have achieved to date which constituted the loss which should be compensated in damages. In this way, TSQ sought to recover from Legalcom $396,000 for each of the eight years since settlement.
In relation to the third step outlined above, I am satisfied that Mr Goldberg knew that Mr Calabrese had extended himself considerably to finance the purchase of the quarry by TSQ. I am satisfied that it could have been reasonably contemplated at relevant times that TSQ would not be able to afford expensive repairs at the quarry for some time after the purchase. In this respect I note that in a letter to Tasmanian State Development dated 8 June 2000 concerning the Wood-Dunn Stone Agreement, Mr Goldberg said:
Our client’s position on this matter is that he most certainly cannot afford the risk that either a Court will uphold the sale from Wood to Dunn or, alternatively, that he is involved in expensive litigation with the possibility of a Court Order freezing the stone until the matter is determined. In either event, bearing in mind that our client has borrowed very heavily, he may not have the financial resources to last through a dispute such as this.
However, even if one accepts the first three steps outlined above, there are difficulties for TSQ with the fourth. TSQ has continued to operate the quarry for more than eight years. It does not appear to have made any attempt to sell the quarry or otherwise extract itself from the transaction. In that circumstance, there is a very real issue as to whether losses resulting from its decision to continue the operation of the quarry, after a reasonable time had elapsed, are too remote.
The position is similar to that considered in Burns v M.A.N. Automotive (Aust) Pty Ltd.[69]In that case, a vendor sold a prime mover with a warranty that its engine had been reconditioned. The purchaser, who was not affluent, intended to use the prime mover in interstate haulage. Because of faults with the engine which would not have been present if the engine had been reconditioned, the prime mover could not be used for that purpose. The damages awarded for the breach of warranty included a sum for loss of earnings in the period of four years after the purchase because that was the period during which the engine, if fully reconditioned, could have been expected to operate efficiently. That award was set aside.
[69] (1986) 161 CLR 653.
Wilson, Deane and Dawson JJ, who comprised the majority in the High Court, upheld the conclusion of the Queensland Court of Appeal that the purchaser should be confined to a loss of profits for only one year after he became aware of the defects. They regarded it as not reasonably foreseeable that the purchaser, once aware of the defects, would persist in using the prime mover for a more extended period. That being so, the loss of profits suffered after the first year was too remote. Their Honours said:
Furthermore, we think, with respect, that Connolly J was correct in saying that this was not a case of mitigation of damage at all. It called simply for a determination of that point in time, beyond which any damage suffered by the appellant could not be said to have been within the reasonable contemplation of the parties as flowing from the breach.[70]
[70] Ibid at 668.
The position may be different in those cases in which the purchaser is “locked into a situation from which he [cannot] escape”[71] or in which, for some other reason, the continuation of the business is justifiable (as for example in the case of a purchaser who has reasonable grounds for thinking that, with time, the business can be made profitable).[72] Neither of those considerations applies in this case. TSQ adduced no evidence at all that it was “locked in”. TSQ’s own case was that it could not repair the Bridge Saw unless it recovered damages in these proceedings, and they were not commenced until 31 March 2004.
[71] Ibid.
[72] Cf Mann Judd v Paper Sales Australia (WA) Pty Ltd [1998] WASCA 268.
When TSQ became aware of the damage shortly after settlement it sought, with the assistance of Legalcom and the administrators, to recover its losses through a claim made by the administrators on TSPL’s insurance policy. It was reasonable for it to do so. Negotiations concerning the pursuit of that claim were protracted and it was not until 29 March 2001 that the insurer denied indemnity. Mr Calabrese was informed of that denial under cover of a letter dated 6 April 2001. Until receiving that letter, he had hoped to receive some recompense under TSPL’s insurance policy.
By the time he learnt of the insurer’s denial of indemnity, Mr Calabrese knew that the Bridge Saw was beyond repair. He first went to the quarry after settlement in January 2001. He was then able to inspect personally the impaired operation of the Bridge Saw. I am satisfied that he appreciated at that time that the Bridge Saw was ruined and would have to be replaced. He reported as much to Mr Goldberg on 17 January 2001. Mr Goldberg’s note of the telephone conversation of that day includes the following:
Bridge Saw is ruined. Will take $100K to replace. Should be subject of insurance claim. Cannot afford to replace. Can we pursue?
Made numerous attempts to fix saw. Now satisfied saw deliberately damaged beyond repair.
In the light of that appreciation, I consider that it was reasonable for Mr Calabrese to have awaited the determination of the insurance claim. He should also be allowed a reasonable period after 6 April 2001 during which to have assessed TSQ’s position. However, after such a reasonable period had elapsed, any continuation of the losses was attributable to his decision to persist with the business. As in Burns v M.A.N. Automotive, I consider that any losses incurred after that reasonable period are too remote. Again, as in Burns v M.A.N. Automotive, I do not consider that this involves an issue of mitigation of damages. It is an issue of remoteness only.
In considering the length of a reasonable period during which Mr Calabrese could have considered his options, there is much to support the view that the period to 31 December 2001 was sufficient. I note, for example, that TSQ’s solicitors gave notice to Legalcom of a potential claim by TSQ by letter dated 22 January 2002. However, taking a view which is perhaps favourable to TSQ, I would extend that period to 30 June 2002. This is just on three months after Mr Calabrese was told by his finance broker, Mr Mele, that he was unable to find finance for the purchase of a replacement Bridge Saw.
I conclude therefore that any losses suffered after 30 June 2002 should be regarded as too remote.
Assessment of the Loss of Profits
I will address briefly TSQ’s claim for loss of profits.
On my findings, if TSQ was entitled to damages for lost profits, it would have been confined to the losses it suffered in the financial years ending on 30 June 2001 and 30 June 2002.
In the year ending 30 June 2001, TSQ made a net loss of $58,520. In the following year it made a net profit of $44,352. The net loss over the two years is therefore $14,168. That amount is the amount which I would have allowed on a claim for the losses actually suffered in the financial years ending 30 June 2001 and 30 June 2002.
TSQ claimed separately the costs of repairs to the plant and equipment. If it had been entitled to damages, I would not have allowed those costs of repair as account was taken of them in the determination of the net profit and loss figures to which I have just referred.
TSQ’s claim for expectation losses relied very much on the evidence of Mr Ellery, an accountant. Mr Ellery offered an opinion as to the losses suffered by TSQ “as a result of damage to equipment of the business of [TSPL] prior to settlement on its purchase in June 2000”. When preparing his reports, Mr Ellery was not asked to, and did not, address separately the losses said to result from any breach of duty by Legalcom.
The loss of profits resulting from damage to the plant and equipment depended upon the processing capacity of the quarry, on the one hand, and the potential to sell the processed stone, on the other. As to the processing capacity of the quarry, Mr Ellery assumed that the quarry had the potential to produce four shipping containers of stone each week. Four shipping containers of stone per week equated to 16,000 m² or 1,800 m³of stone per year. Mr Ellery also assumed that the processed stone would have realised an average sale price of $160 per m².
The Potential Market
As to the potential market for stone from the quarry, Mr Ellery assumed that the stone could have been sold in all states of Australia apart from Western Australia. He reached an assessment of the amount of stone which TSQ could have sold by two means. First, Mr Ellery surmised that TSQ could have sold four containers of stone each week for 50 weeks in each year by the following steps:
(i)He identified the claims made by some interstate suppliers of quarried sandstone on their websites as to their annual outputs.
(ii)Aggregating the amount of those claims and making some estimates, he estimated the Australian market for quarried stone at 20,000 m³per year.
(iii)He assumed that market remained constant for each year since 2000.
(iv)At 1,800 m³the assumed annual output of TSQ’s quarry was less than 10 percent of the estimated Australian market.
(v)It was reasonable to surmise therefore that all of TSQ’s production could have been sold.
There a number of difficulties with the process of reasoning contained in these steps. The means by which the total Australian market was identified was, with respect, unreliable. But even if it be correct, it is another step altogether to conclude that it was that market which was available to TSQ, a relatively small stone producer in Tasmania. It was another step again to assume that TSQ could have sold all its quarried stone in that market. Those assumptions take no account of the transport and distribution costs which would have been incurred by TSQ in getting its stone to the mainland market; customer purchasing preferences and purchasing patterns; and the competitive response of other participants in the market. There was also evidence that some sandstone is imported into Australia from China and sold at much cheaper prices than those charged by Australian producers. This process of reasoning took no account of the impact of imports.
But I accept, in a very general way, that there is a market for quarried stone, in particular quarried sandstone, in Australia and that TSQ was able to sell stone in that market in at least a limited way.
The second approach to the potential sales adopted by Mr Ellery was based on information given to him of actual sales of stone from the quarry. The steps involved in this second path were these:
(i)Sales of stone to the value of $75,000 had been made by TSPL in 1999 to Rock Around The Block (RATB), a Sydney company.
(ii)Between June 2000 and October 2000, four containers at a value of $56,000 had been delivered to RATB, but were rejected on quality grounds (attributable to the poor quality of the cut made by the Bridge Saw).
(iii)On this basis, annual sales of approximately $200,000 could have been expected to RATB.
(iv)Sales of stone to the value of $40,000 were made to Sydney Stone Company in the period between June 2001 and March 2002. More could have been sold if there had not been difficulties with the quality of the stone cuts.
(v)It is reasonable to assume that sales of $250,000 per year could have been made to Sydney Stone Company.
(vi)There were numerous purchasers in Adelaide whom TSQ had been unable to supply.
(vii)It was reasonable to surmise therefore that additional annual sales could have been made as follows:
NSW $450,000
Victoria $300,000
Queensland$200,000
South Australia $200,000
Total:$1,150,000
(viii)Additional sales of $1,150,000 per year represented approximately 90 additional containers of stone each year.
(ix)As in each of the years 2001 and 2002, 23 containers were actually dispatched from the quarry, 90 additional containers represented less than three containers of stone each week. (It is to be remembered that some stone would be sold in Tasmania and not shipped in containers).
Mr Ellery then made some calculations of the extra production costs which would have been incurred in producing an additional three containers of stone each week. Using the assumed sale price of $160 per square metre, he calculated an ongoing annual net loss of $396,000.
There are difficulties with this process of assessment as well. On its face, it does appear to draw some support from the evidence of TSPL’s transport contractor, Mr Hurst. He produced documentation indicating that in the five months from July to November 1999 inclusive, 45 containers of stone were shipped from the quarry. That figure can be extrapolated to 108 containers per year. However, for much, if not all, of that period the quarry was operating with two shifts, each of twelve hours. That prevents a direct comparison with TSQ’s operations at the quarry. TSQ could of course also have operated with two shifts but, in that event, its operating costs would have substantially increased.
In the first six months of 1999, Mr Hurst shipped 28 containers of stone from the quarry. That is equivalent to 56 containers per year. As I understand it, TSPL operated only one shift in this period (or at least for much of this period). That is much more than TSQ was able to achieve with the damaged Bridge Saw, but much less than that assessed by Mr Ellery.
TSQ did not lead any evidence from RATB. It did tender a document showing the payments made by it to CNS in the period 5 February 1999 to 10 February 2000. However, on its face, those payments related to supplies of Wistow slate, and not sandstone, by CNS. Mr Ellery wrongly assumed that the payments related to supplies of sandstone from the quarry. His assumption with respect to the sale of sandstone to RATB was therefore not established by the evidence.
TSQ did lead evidence from Mr Potter. His company had conducted the business of the Sydney Stone Company (SSC) between 1997 and 2005. It traded in sandstone purchased from a number of quarries including Gosford, Meteor Stone, Cummerford Sandstone (based in Helidon, Queensland) as well as from the quarry of TSPL and TSQ in Tasmania. I regarded Mr Potter’s evidence as generally reliable.
Mr Potter said that SSC had commenced purchasing Tasmanian sandstone in about 1998. Over the whole period during which it had operated, SSC had purchased some $300,000 – $400,000 worth of sandstone. Of that amount, some $235,000 had been purchased for one job at Kirribilli.
Mr Potter visited the quarry in Tasmania (probably in 1999). He saw the potential to take three or four containers of stone each month to sell into the Sydney market. Mr Potter also said that, even allowing for the additional transport and distribution costs, the price of the Tasmanian sandstone compared favourably with the price of Gosford sandstone. However, building owners and builders in Sydney had a preference for Gosford stone. After TSQ purchased the quarry, SSC customers became dissatisfied with the excessive saw marks on the face of the stone and the irregularities in the dimensions.
Mr Potter accepted that it may have taken months, and even years, before he could have developed a demand in Sydney for three or four containers each month. He wished to promote the Tasmanian sandstone because of the higher margins available to him as a retailer from that stone.
SSC did not place any orders for sandstone from TSQ until June 2001. Because of the complaints from builders and customers about the saw marks, it ceased placing those orders after a few months.
In summary, Mr Potter’s evidence provided some support for Mr Ellery’s assessment about the New South Wales market, but not to the extent of sales of the value of $450,000 each year. I add that I was not prepared to attach any weight at all to the contents of a letter from Mr Potter to Mr Calabrese dated 9 May 2003. Both its date and the circumstances in which it was written made it inappropriate to do so.
TSQ led no evidence of its potential market in either Victoria or Queensland. Despite some evidence of sales having been made to a Geelong entity by TSPL, Mr Ellery’s estimate of the sales which could have been made in Queensland and in Victoria was not supported by other evidence.
In relation to South Australia, TSQ’s evidence was limited. In addition to Mr Calabrese, it called a stonemason (Mr Castleman) and two builders (Mr Swenson and Mr Mikulic). Mr Swenson’s evidence did not indicate that the quality of the saw cuts on the Tasmanian sandstone was unsatisfactory. Nor did he give evidence of a demand for Tasmanian sandstone which TSQ was unable to meet. Mr Mikulic gave evidence of one job on which the delivery of the Tasmanian sandstone had been unreliable and on which the stone had had to be re-cut. Mr Mikulic was not a regular user of sandstone on his jobs.
Mr Castleman operates on a supply and fix basis. That is to say, he both supplies sandstone when that is the material required, and also erects it. He did say that there had been complaints from his builder clients from time to time about the quality of the sandstone which he had supplied and he had been required to take action to replace it.
The evidence adduced by TSQ did not provide a sound factual basis for the assumptions upon which Mr Ellery had acted in determining that additional sales of $1,150,000 were available in each year since 2000 and, in particular, in each of the years ending on 30 June in 2001 and 2002.
On the other hand, I do think it likely that if the quarry had been able to produce more stone, efforts would have been made to market it. As already seen, Mr Potter was interested in promoting the stone in Sydney. Mr Calabrese said that at one stage he had contemplated employing a marketing manager to promote sales of the stone. Such an appointment is likely to have enhanced sales.

As noted earlier, TSPL had been able to find markets for over 70 containers of stone in 1999. It is true that a large amount of that stone went to a single project in Sydney, the Kirribilli project, and that the purchaser of much of the remainder had defaulted in its payments. Nevertheless, Mr Hurst’s evidence does provide some evidence that there was the potential to sell much more than the 23 containers of stone which TSQ did in each of the years 2001 and 2002.
Production Capacity
Turning to the production capacity of the quarry, I am not prepared to find that, had the Bridge Saw operated efficiently, the quarry had the capacity to produce four containers of sandstone each week. It had never produced at those levels when operated by TSPL, even when using two twelve hour shifts each day.
Mr Calabrese had some confidence that he could improve the productivity of the quarry. He considered (with some justification in my opinion) that TSPL’s operation of the quarry had been wasteful. In particular, by not following the seam or grain of the stone, and by inappropriate cutting techniques, TSPL had wasted considerable amounts of stone.
TSQ referred to the production at the quarry in the last week of April when Mr Calabrese had attended and had instructed the workers in appropriate techniques. There was considerable debate about the quarry’s output during that week. I am satisfied that Mr Calabrese, with a workforce similar in relevant respects to that which he contemplated employing on a long term basis, produced at least six containers of stone in that period. I base the finding of six containers on the transport records of Mr Hurst. Those records show that three containers had been shipped in each of May and June 2000. I am satisfied that those containers comprised the stone produced during operations in the last week of April.
However, I am not prepared to find that the quarry had the potential to produce six containers a week for 50 weeks in a year. First, during the last week of April the stone which was processed was stone which had already been quarried and much of it had previously been discarded as waste. The period at the end of April therefore cannot be regarded as a trial of the productivity of the quarry when in ordinary operation.
Secondly, I think it likely that the presence of Mr Calabrese, as the prospective proprietor, is likely to have led to greater productivity in that week. I rather doubt that the levels of productivity obtained in that week would have been realised later when Mr Calabrese was not present.
Thirdly, I find that work was performed at the quarry for more than five days at the end of April. The evidence does not enable a precise finding to be made, but I am satisfied that it was at least seven. This is a further reason why the period at the end of April cannot be regarded as typical as Mr Calabrese contemplated operating the quarry for eight hours per day, five days each week.
Fourthly, it is quite apparent that the processing of stone through the Pelligrini Saw (if that was necessary for all the stone) would have inhibited productivity at the quarry. Mr Calabrese gave evidence that, in ordinary operations, each cut of the large blocks of stone using the Pelligrini Saw took 45 minutes. If one allows for the time involved in putting a large block of stone in place in the Pelligrini Saw, and later in removing the cut biscuits or billets, it is unlikely that more than 10 cuts of the Pelligrini Saw could be made in an eight hour day. Perhaps the Pelligrini Saw could have been operated for more than eight hours per day but that would have involved an increase in production costs not allowed for by Mr Ellery. An increased use of the guillotine may also have ameliorated this limitation on the quarry’s productivity.
Finally, once the stone previously discarded by TSPL had been reprocessed using Mr Calabrese’s more efficient techniques, the productivity at the quarry would have depended upon the rate at which the large blocks could be produced at the quarry face and the rate at which they could be cut using the Pelligrini Saw, or using the guillotine.
There were of course of a number of other contingencies which may have affected the production capacity at the quarry. Much would have depended upon the quality of the local management (as Mr Calabrese did not intend to work permanently at the quarry) and on the quality of the workforce. Not all the contingencies would have been unfavourable. I accept that the impaired operation of the Bridge Saw must have significantly inhibited production, as after the purchase of the quarry, it could be worked at approximately only one tenth of its previous rate.
The evidence does not permit any precise finding as to the increased production which may have been possible if the Bridge Saw had operated efficiently. Nor did TSQ provide evidence which would enable an assessment of the net lost profits varying according to the range of additional containers per week which it may have been able to produce.
In these circumstances, a broad judgment only can be exercised. I work on the basis that TSQ would, at the least, have been able to double its production of 23 containers in each of the two financial years and perhaps triple it. I reach that conclusion by reference to the production at the quarry by TSPL in the first half of 1999, and by accepting that the techniques introduced by Mr Calabrese would have increased that output.
Proceeding on what is admittedly not much more than a pro-rata basis, I consider therefore that if TSQ had been able to operate the Bridge Saw efficiently, it could have produced additional sales in each of the financial years ending on 30 June 2001 and 30 June 2002 of $200,000. In doing so, I have accepted, without analysis, the average sale price of $160 per square metre used by Mr Ellery, and, in a general way, his assessment of the additional expenses which would have been incurred with higher production levels.
That is to say, if TSQ had been entitled to damages for lost profits, I would have assessed those lost profits for the 2001 and 2002 financial years in the sum of $400,000.
Conclusion on Damages for Loss of Opportunity
I summarise my conclusions regarding the claim for damages for loss of opportunity as follows. If TSQ had been advised to carry out a pre-settlement inspection it would have sought to act on that advice. However, I consider that the prospects of such an inspection being permitted by the administrators and Mr and Mrs Wood were less than 50 percent. I have assessed the probability of such an inspection being permitted at 40 percent.
I am satisfied that even a cursory inspection, if it had been permitted, would have detected at least sufficient damage to put Mr Calabrese and Legalcom on notice. I think it likely that a more detailed inspection then would have been organised. However, I accept Mr Calabrese’s evidence that once aware of the damage he would not have proceeded to settlement. In that event, TSQ would never have been in the position to earn the profits which it now claims.
If, contrary to that conclusion, TSQ had wished to proceed to settlement, after first obtaining an order for specific performance or an order under s 87 of the TPA, it would not have been able to obtain any order for the repair of the plant and equipment. At best, it could have negotiated a reduction of the sum of $200,000 payable under the Sale Agreement. It is highly likely that that reduction would not have exceeded $35,000 - $40,000, and may have been as low as $10,000.
If, contrary to that conclusion, TSQ was able to pursue a claim for loss of profits, I would assess TSQ’s losses in that respect at $14,168 (being the actual losses incurred in the two years ending on 30 June 2001 and 2002) and its expectation losses at $400,000.
However, for the reasons given earlier, I conclude that TSQ is not entitled to any damages for loss of profits on the basis of a lost commercial opportunity. The most that TSQ could recover under a loss of opportunity claim is the $20,000 deposit which it had paid.
The Claim for Costs of Repair
As noted earlier, if damages were allowed for the actual losses incurred by TSQ in the two years ending on 30 June 2001 and 2002, I would not allow any additional amount for the cost of repairs. Those costs were taken into account in the calculation of the net losses.
Contributory Negligence
Contributory negligence was not available as a defence to the claim for damages for breach of contract.[73]
[73] Astley v Austrust Ltd [1999] HCA 6; (1999) 197 CLR 1.
In case it should be found that TSQ was not party to any contract with Legalcom, I will state my findings as to the defence of contributory negligence in relation to TSQ’s common law claim. I have to do so on a hypothetical basis. If, despite my findings, Legalcom was found to have been in breach of duty, what has to be compared is the extent of its breach, and the extent to which TSQ, through its director Mr Calabrese, failed to exercise reasonable care in its own interest.
On the hypothesis upon which I am proceeding, Legalcom should bear a greater share of the responsibility. However I do consider that TSQ should also bear some responsibility. For the reasons given earlier, it knew as much about the risks as did Mr Goldberg. It was in a better position than Mr Goldberg to make an assessment of those risks.
If contributory negligence had been a live issue, I would have portioned 25 percent of the responsibility to TSQ.
The Effect of the Consent Judgment Against the Administrators
On my findings, had TSQ been entitled to damages for lost profits, it would have been entitled to $14,168 (being its net loss for the two years ending on 30 June 2001 and 2002). In addition, it would have been entitled to interest on that sum. I calculate the interest at $6,500. That means that the plaintiff would have been entitled to damages in the sum of $20,668.
Had it not been for the payment which TSQ received from the administrators, I would have entered judgment for it in that sum.
However, TSQ acknowledged that any assessment of damages in its favour had to be reduced by the sum of $225,000 which it received from the administrators. As that sum exceeds the award which I would have allowed, it follows that TSQ would not have been entitled to any damages against Legalcom.
The result would be the same even if TSQ had pursued a claim for the lost opportunity to seek the recovery of its deposit.
Conclusion
For the reasons given above, I dismiss TSQ’s claim against Legalcom. There will be no order on TSQ’s claim against TSPL.