The Stuart Park (D580060) Reserve Trust v Peedoms Lawyers Pty Limited
[2012] NSWSC 1133
•21 September 2012
Supreme Court
New South Wales
- Amendment notes
Medium Neutral Citation: The Stuart Park (D580060) Reserve Trust v Peedoms Lawyers Pty Limited [2012] NSWSC 1133 Hearing dates: 13-17, 20-23 August 2012 Decision date: 21 September 2012 Before: Grove AJ Decision: 1) There should be verdict and judgment for the plaintiffs in the action.
2) By reason of contributory negligence, there should be a reduction of 25 per cent against damages assessed.
3) The plaintiffs are not entitled to recover the costs referable to the failed suit for rectification and such costs are to be excluded from any assessment of damages.
4) Both parties have leave to make submissions limited to the claims for damage and costs listed hereunder in accordance with directions which will be given forthwith after hearing from the representatives in respect of a suitable timetable:
a) The legal costs paid by the Council to the defendant and Kells Lawyers.
b) The costs of reinstating the defendant's registration.
c) The assessment of damages for lost rent on the part of the Council on the basis that the building destroyed by fire has been rebuilt and let, as against what has and will be received from Emibarb pursuant to its lease whereby, because of the error, rent is initially calculated as ground rent only.
d) The legal costs of this action.
SUPPLEMENTARY JUDGMENT
1) There should be judgment for the plaintiffs in the action for damages for a sum assessed by addition of the following ingredients:
(a) $7,642 (invoices for fees paid less 25 per cent);
(b) Interest on the components of $7,642 from the respective dates of payment (in accordance with published rates or as agreed);
(c) $450,000 plus GST for lost rental to date ($600,000 less 25 per cent);
(d) Interest on past loss of rental as it accumulated from 2006 to 2012;
(e) $720,000 plus GST ($960,000 less 25 per cent)
2) The defendant ordered to pay the plaintiffs' $29,278.77 for the costs of the restoration of the defendant to the register.
3) Subject to the specific order for payment of the costs of restoration of the defendant to the register and subject to any successful application pursuant to liberty granted, the defendant is to pay 80 per cent of the platintiffs' costs of the action as agreed or assessed.
4) Liberty to apply forthwith in relation to variation of the costs order, cause to be shown.
5) The plaintiffs are directed to bring in and file a minute of judgment in accordance with the foregoing including any order amending the order for costs in the event of successful application to vary pursuant to the liberty to apply.
TERMS OF JUDGMENT MADE BY COURT
1. Judgment for the Plaintiffs against the Defendant.
2. The Defendant is to pay the Plaintiffs the following amounts:
a) $450,000.00 (being $600,000.00 less 25%) on account of damages for lost past rent;
b) $45,000 for GST (if payable) on the amount in sub-paragraph (a) above, but subject to the regime set out in Order 4 below;
c) $144,478.00 on account of interest upon damages for lost past rent;
d) $720,000.00 (being $960,000.00 less 25%) on account of damages for lost future rent;
e) $72,000.00 for GST (if payable) on the amount in sub-paragraph (d) above, but subject to the regime set out in Order 4 below;
f) $7,642.00 on account of damages for legal fees thrown away; and
g) $6,129.00 on account of interest upon damages for legal fees thrown away.
3. The Defendant is to pay to the Plaintiffs the amount of $29,278.77 on account of the costs of the proceedings to restore the Defendant's registration as a corporation.
4. Further to Order 2 above (and specifically in relation to the items set out at sub-paragraphs 2(b) and 2(e)):
a) Within 30 days of these orders, the Plaintiffs are to render a taxation invoice to the Defendant in relation to the damages component of the final orders which bears or possibly bears Goods & Services Tax ("GST");
b) The obligation on the part of the Defendant to pay the GST component of the award of damages is subject to the orders set out in sub-paragraphs (i) to (v) below:
i) If, within 6 months of the date of these orders, the parties agree that GST is not payable upon the Court's award of damages in favour of the Plaintiffs, the Plaintiffs are to notify the Defendant in writing of their position in that respect, at which point the Plaintiffs are to refund to the Defendant the GST component received by the Plaintiffs;
ii) If, within 6 months of the date of these orders, the parties agree in writing that GST is payable, the Plaintiffs will be entitled to retain the GST component received from the Defendant;
iii) If, at any time prior to the expiry of the 6 month period, the Plaintiffs obtain a ruling from the Australian Taxation Office (ATO), which ruling indicates that the Plaintiffs will be liable to remit GST to the Commissioner of Taxation in relation to the damages award against the Defendant, the Plaintiffs are to provide a copy of that ruling to the Defendant and the Plaintiffs will be entitled to retain the GST component received from the Defendant;
iv) If, after the expiry of the 6 month period following these orders in these proceedings, the parties have not agreed on the GST position and if the Plaintiffs have not obtained a ruling from the ATO indicating an obligation on their part to remit GST or if any such ruling indicates that GST is not payable, the Plaintiffs are immediately to refund to the Defendant such of the amount received under any final orders, which related to a GST component on the award of damages for lost rent; and
v) Each party is to bear their own costs and expenses of negotiating the above issues and/or seeking any ruling from the ATO.
5. The Defendant is to pay 80% of the Plaintiffs' costs of the action as agreed or assessed up to 10 June 2011.
6. The Plaintiffs are to pay the Defendant's costs of the action on a full indemnity basis from 11 June 2011.
7. Notwithstanding Order 6 above, there is no order as to costs, with the intent that each of the parties bear their own costs, of and incidental to the listing of the matter before the Court on 26 September 2012, including in relation to the costs of the Defendant's Notice of Motion filed on 26 September 2012 of the Plaintiffs' Notice of Motion filed on 26 September 2012.
Catchwords: NEGLIGENCE - solicitor - preparation of lease - mistake in formula for rent calculation - restaurant on crown land administered by local council - destruction of building by fire - different premises rebuilt - tenant advantaged by paying lower rent as a result of mistake - whether agreement on rental would not have been reached having regard to stances in negotiation - significant loss demonstrated but not amenable to precision in calculation - informed estimation - rulings on isolated other heads of damage - reasonableness of plaintiffs incurring large costs in pursuit of rectification suit when was destined to fail - damages assessed Cases Cited: Austotel Management Pty Limited v Jamieson (1995) 57 FCR 411
Fink v Fink [1946] HCA 54; (1946) 74 CLR 127
Hayden Theatres Pty Limited v Penrith City Council [1998] NSWLEC 50
Jacfun Pty Limited v Sydney Harbour Foreshore Authority [2012] NSWCA 218
NSW v Moss [2000] NSWCA 133; (2000) 54 NSWLR 536
Paino v Paino [2008] NSWCA 276
Permanent Trustee Company v FAI General Insurance Co Ltd [2001] NSWCA 20; (2001) 50 NSWLR 679
Placer (Granny Smith) v Thiess Contractors [2003] HCA 10; (2003) 196 ALR 257
Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332
Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603
Uszok v Henley Properties (NSW) Pty Ltd [2007] NSWCA 31Category: Principal judgment Parties: The Stuart Park (D580060) Reserve Trust (First Plaintiff)
Wollongong City Council (Second Plaintiff)
Peedoms Lawyers Pty Limited (Defendant)Representation: Mr J Gormly SC with Mr V Bedrossian of counsel (First & Second Plaintiffs)
Dr A Bell SC with Mr N Owens of counsel (Defendant)
FCB Workplace Law (First & Second Plaintiffs)
Yeldham Price O'Brien Lusk (Defendant)
File Number(s): 2009/297413
Judgment
This is an action seeking damages for breach of retainer or negligence brought against what was an incorporated solicitors' practice. It will suffice to refer to the defendant as Mr Peedom out of whose conduct the claim arises. The client, Wollongong City Council for whom he had acted as a solicitor for many years, retained him in connection with an agreement for lease and the lease of premises known as the Lagoon Restaurant, which was operated by Emibarb Pty Ltd.
In the course of document preparation, Mr Peedom dealt principally with Mr Williams, the Legal and Risk Manager of the Council. In a draft letter prepared by Mr Peedom (21 February 2003) it was proposed that, for the purposes of a valuation upon which rent would be calculated, there would be taken into account both tenant's and landlord's fixtures and fittings. Mr Williams notified Mr Peedom that it was intended only that the landlord's fixtures and fittings be taken into account for this purpose.
To accommodate this, Mr Peedom advised insertion of a changed preamble to the clause in the lease reading: "For the removal of doubt the value of the following fixtures and fittings are to be ignored" following which was a subclause describing the tenant's items. This subclause concluded with the word "and" but the following subclause referring to the landlord's items appeared on the following page of the document. Mr Peedom did not, after changing the preamble, turn the page to read the clause as a whole either when advising Mr Williams or thereafter. Thus both landlord's and tenant's fixtures and fittings were to be ignored.
It is this occurrence, conveniently referred to as the "mistake", which is at the heart of the claim. Consequent upon the execution of the agreement and lease, Emibarb became liable to pay calculated ground rent, subject to discounts which I will later describe, rather than rent on the improved property. The losses occasioned thereby as well as some other items are sought as damages in the action.
Despite the simplicity of the description of the mistake, it is necessary to understand the claims to have regard to some complexities in the background events and circumstances, which I will attempt to sketch as economically as practicable.
Background
The first plaintiff (Stuart Park Reserve Trust) is the landholder of Crown land which it holds in trust pursuant to applicable statute, in the terms of which it appointed the second plaintiff (Wollongong City Council) to manage the affairs of the Trust. No issue has been raised requiring the separate identity or relevant knowledge of the two bodies.
In 1986, Emibarb was granted a 10-year lease of land and building in the Park upon which the Lagoon Restaurant was conducted. Emibarb renovated and refurbished the building and the Restaurant was apparently quite successful.
An option for a further 10-year lease was exercised by Emibarb and they received a lease for the period from 11 July 1996 to 10 July 2006. Negotiations to acquire a further option were not, from Emibarb's point of view, very successful but they were ongoing.
On 9 January 2001, the Restaurant was completely destroyed by fire.
In due course, some $2 million became available from insurance, representing approximately $1.2 million for the building and $800,000 for the tenant's fixtures and fittings. The lease provided that, in the event of destruction or damage by fire, an election by the tenant to restore and repair would prevent the landlord from terminating the lease.
However, as the opportunity had in effect arisen, Emibarb advanced a proposal to rebuild a larger and more substantial premises incorporating new facilities as well as the Restaurant, for which it offered to enhance the insurance funds by a further $1million. There were, of course, discussions not only about this proposition but of some alternatives, such as simply rebuilding a restaurant on the existing "footprint" of the destroyed premises or just allowing the site to remain as parkland. Although some councillors might have favoured "greening" the site, I do not regard this as a seriously viable option in all the circumstances. Nor was it so regarded by those involved.
In the event, the larger premises were built and Emibarb was granted a 20-year lease. A critical issue for both landlord and tenant was the quantum of rent to be paid. This was not determinable as a simple matter of assessing market rent for commercial property. Significantly, at the end of term, the landlord would become the owner of the building improvements to which the tenant had made substantial contribution.
As might be expected, there were proposals and counter-proposals but they seemed to come down to discounting the rent otherwise calculated to make allowance for the tenant's contribution. Emibarb sought a discount over the whole term (seeking 35 per cent at one stage) whereas the Council was proposing discounts "stepped" during the first 10 years then during each of the succeeding 5 year periods descending from 30 per cent through to 25 per cent and finally 20 per cent. The latter method found expression in the executed documentation but the Council was disappointed to find that they were by reason of the "mistake" in the terms, discounted against ground rent (adjusted for CPI) and not against market rent for the improved site.
Equitable relief
After the consequences of the mistake were recognised, the Council sought advice from solicitors other than Mr Peedom.
A suit in Equity was brought by the current plaintiffs against Emibarb and others seeking rectification on the basis of mutual mistake, that is, that all parties believed, when the documentation was executed, that the method of valuation for the purpose of fixing rental included the landlord's fixtures and fittings and excluded only the tenant's fixtures and fittings. An alternative basis for relief, that Emibarb was aware of the mistake but acted unconscionably toward the plaintiffs, was abandoned during the hearing.
The summons for relief was dismissed by Bergin J (as her Honour then was) who held that she was not satisfied that the plaintiffs had discharged the onus of proving that Emibarb proceeded on the same mistaken basis as the plaintiffs as to the matters to be taken into account or excluded in valuation at the time the lease was executed. Her Honour's judgment was included in the somewhat extensive documents tendered as "bundles".
The plaintiffs assert that the bringing of the suit was a reasonable attempt to mitigate the damage caused by Mr Peedom and that the costs of that litigation, including those ordered to be paid to the successful defendants, should be recoverable from him.
I shall return to this aspect of claim.
The contradiction as to rental
The agreement for lease was dated 17 June 2003. The rebuilding took place in 2005 to 2006. However, on the date of signing the agreement, the General Manager of the Council advised the Department of Lands by letter that it was anticipated that the rent on the lease to Emibarb would be in the order of $200,000 per annum. That figure would have allowed for the discounts and for present purposes, possible increases flowing from exceeding a mark of gross turnover, can be ignored.
This was not the only figure being hypothesised during the negotiations. Mr Douglass, the Council's Property Services Manager, expressed an expectation of a net rent of $160,000 - $220,000 per annum in a memo of 18 February 2003. On 26 February 2003, a valuation by Martin Morris & Jones proposed that a gross rent of $300,000 - $350,000 would be achievable.
In contrast with such anticipated figures, in February 2003 Emibarb (through its director Mrs Vania Harrison) instructed its solicitors (Watkins Tapsell) to insist on 35 per cent discount over the whole term of lease and that there must be a commencement rental not exceeding $75,000 per annum in its negotiations with the Council. Similarly, at a meeting at the Council she had said to Mr Williams that $75,000 was all that "the market rent of the premises" was worth.
These were not the only statements concerning Emibarb's position in regard to commencement rent. Mr Dobrow, a valuer, wrote to the Council on 6 February 2003 opining that $75,000 was a reasonable rental. Mr Dobrow's position was somewhat obscure. Mr Williams regarded him as representing the interests of Emibarb whilst he claimed himself to be offering his services as an honest broker to achieve agreement between the parties. It is not necessary for me to make a finding about his exact status and I mention it only as the matter of his status is threaded through the documentation.
It is further consistent with the posture of Emibarb regarding the $75,000 commencement rent that on 27 November 2002 it had asserted to the Council that an annual rent of $150,000 was "wildly in excess of what the Council is entitled to receive for the asset".
The first of the insistences to Watkins Tapsell did not come to pass and, in lieu of 35 per cent over term, the stepped discounts previously mentioned were incorporated in the agreement.
There remained a conflict in expectation, at least as expressed, between a rental outcome of (in the order of) $200,000 per annum, on the one hand, and $75,000 per annum on the other.
Assuming that the plaintiffs become entitled to damages against the defendant, a measure of the difference between what would have been and what will be received by the landlord if the mistake had not intruded into the rental calculation clause and what it has and will receive pursuant to the clause in the documentation as executed, requires a finding that the gap in negotiations between $200,000 and $75,000 would have been bridged.
The unlikelihood of agreement
I am not satisfied of the probability of agreement being reached between the parties to the lease in regard to the tenant's rental obligations.
In her instructions to the solicitors, Mrs Harrison queried how she could formulate a business plan, which I infer would be necessary if finance was required to make the $1million contribution to the enhanced replacement building, if the rent commitment was not calculable and within budgetary consideration.
This was consistent with evidence given by Mrs Harrison noted by Bergin J in her judgment. The overall impression was that Mrs Harrison, who did not give evidence in these proceedings, did not mind how it was achieved but wanted to insist on $75,000 as a cap on the first year's rental.
To meet that requirement, the Council would have to reduce its estimate of rent receipt given to the Department of Lands by more than half. The evidence does not justify a conclusion that this would probably occur. Even as a matter of mere possibility, it would be remote, given the size of the gap in the positions of the negotiators.
Much emphasis was directed to the factors which made it desirable for Emibarb and the Council to reach agreement. Reference was made to media pressure and local distress about the failure to re-establish the restaurant. In addition, each party had obvious reasons to agree but I do not accept the submission, which I do not take to have been meant literally, that agreement would have been achieved "at any cost".
Rent paid and rent payable
Payments under the lease commenced to fall due with effect from 11 July 2006. As annual figures, with adjustments, they have been $45,500 for the first year rising to $50,891 for the year ending 10 July 2011.
On the basis that agreement was reached in terms of the Council's instructions to Mr Peedom for rental calculation, the plaintiff called evidence from Mr Preston, a valuer. Leaving aside criticisms of his method, he proposed an annual rental commencing (after discount) of $249,636. I interpolate that, if that were perceived to be the outcome of the application of the clause as intended, it is even less likely that Emibarb would have agreed to the lease.
However, in the light of my finding, there is no utility in these figures in any event and I must turn to what was probable in the absence of Emibarb agreeing to lease.
Obligation to rebuild
It was common ground that pursuant to the terms of the 1996 lease, Emibarb became obliged to restore the destroyed building.
In the absence of agreement with Emibarb, the Council would, after whatever was rebuilt, have to look for another tenant.
In response to interrogatories from Mr Caldwell, the principal auditor of the Department of Lands, Mr Douglass wrote:
Success or failure of Emibarb in the future and especially after 11 July 2006 is not considered relevant at this time (22 May 2003) as a new lessee can always be found once the building has been reconstructed.
In the absence of other evidence, I should act on the view of Mr Douglass, the (then acting) Property Services Manager of the Council, that a new lessee can "always be found" which he did not qualify by suggesting any particular difficulty in so doing.
In a supplementary report, Mr Preston proposed an estimated market rental of the hypothetically rebuilt premises in original form of $296,807. He recorded that he adopted the same principles, logic and market transaction evidence as in his original report. Putting to one side criticisms of those principles adopted, a critical problem arises in that the "comparables" mentioned are simply not comparable at all. The only common factor seems to be that all the businesses sold food but there is an obvious difference between, for example, a take-away fish and chip shop or a kiosk and an award-winning (see [1] Bergin J) restaurant. The only alleged comparables with rental exceeding the estimate given by Mr Preston are Dunes (now out of business), Glasshouse (a tavern not a restaurant) and City Beach (a function centre with associated facilities established with a 25-year rental "holiday").
Difficulties in achieving precision do not extinguish the plaintiffs' entitlements, if any, where loss has been demonstrated and, as proposed by Brennan J in Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332, what must be sought is an informed estimation.
The mind of the Council
The defendant contends that there is a fatal deficiency in the plaintiffs' case which should lead to a verdict in its favour.
As I understand it, the argument runs that the plaintiffs were obliged to prove that, at least, the majority of the councillors present at the meeting on 24 March 2004 which resolved that the common seal be applied to the documents and execution take place thereby, did not intend the result, that is, that the rent calculation would effectively be based on ground rent only.
Given the uncontradicted evidence that the documents prepared by Mr Peedom did not reflect the instructions given to him in those regards, the argument has the flavour of a plea of confession and avoidance in which case the evidential onus would be cast on the defendant. I do not need to explore this beyond that comment as, for other reasons, I am unpersuaded by the argument.
The only councillor called was the Lord Mayor, Mr Darling, who deposed that he assumed and believed that the lease provided for calculation of the rent in accordance with Council's instructions to Mr Peedom, which, of course, it did not.
The defendant adverted to the statement by senior counsel for the plaintiffs that they accepted the findings of Bergin J and he then referred to her Honour's finding that the evidence in that case did not prove that the Council was under the mistaken belief at the time that it passed the resolution that the lease documents contained a clause whereby the valuation method excluded the tenant's fixtures and fittings and included the landlord's fixtures and fittings. I observe in passing that a failure to prove something does not positively prove the converse.
It is convenient at this point to deal with the defendant's reliance on the "unexplained" annotation by Mr Williams on Mr Peedom's letter of 24 May 2004 namely, "Council was not mistaken".
It was said that he was taken to this in cross-examination but not taken in re-examination to cast doubt upon the "unambiguous meaning" of the entry.
I have paid particular attention to the cross-examination. All that was asked was confirmation of his view that "Council was not mistaken", which he did. I asked him, and he agreed, that he meant the staff of the Council rather than the body politic. In particular, he was not asked what he meant by the entry and I understand why the cross-examiner would not wish to inquire and the reference remained unelaborated. At no stage did Mr Williams suggest that he recognised the mistake at or near to the time it was made. In his evidence, he was simply saying that the Council staff did not make this mistake and that he meant this becomes obvious when the context is understood. Mr Williams had told Mr Peedom that (in an original draft) it was not intended that the tenant's fixtures be included for rent calculation purposes but only the landlord's fixtures. When the amendment, failing to reflect the instructions, was made it was not, as Mr Williams articulated, the Council which was mistaken (ie, made a mistake), it was Mr Peedom.
I return to the submissions which, in summary, were that the mistake by Mr Peedom is not shown to have caused the Council any loss because the plaintiffs have failed to show that a majority of the councillors at the 24 March 2003 meeting did not intend to achieve the result which occurred, notwithstanding Mr Peedom's failure to carry out his instructions.
In support of the argument that the plaintiffs are required to demonstrate a mistake in the mind of the majority of councillors, I was referred to a number of cases, all of which arose within the jurisdiction of the Land and Environment Court. The first of these was Hayden Theatres Pty Limited v Penrith City Council [1998] NSWLEC 50 (Bignold J 1 April 1998). The cases all involved, in different ways, challenges about the exercise of statutory powers. That, in those circumstances, there needs to be inquiry into the collegiate mind is a consequence of the nature of those issues. The tort liability of the Council as a body corporate involves issues of a quite different nature and, similarly, when the Council is a tort claimant.
The argument of the defendant infers that inquiry into the collegiate mind of a Council would be requisite in relation to any dispute in which a Council was involved without limitation as to the kind of dispute.
A useful guide, when dealing with issues arising in connection with corporate bodies, can be drawn from the comments of Barrett JA in Jacfun Pty Limited v Sydney Harbour Foreshore Authority [2012] NSWCA 218 where, although a decision by a company board was being investigated, it was not required to ascertain the understandings of the individual directors. As in that case, loss or damage was suffered by the conduct of the opponent, in the present case it suffices to show that loss or damage was suffered by the plaintiffs by the conduct of the defendant.
I reject the argument in these regards.
Duty of care and breach
There is no dispute that Mr Peedom owed his client a duty of care. Part of the discharge of that duty necessitated carrying out explicit instructions. He was instructed to make amendment to a draft which took into account both landlord and tenant's fixtures and fittings to include only the former and to exclude the latter. The amendment which had the effect of excluding both was explained as arising from his failure to turn over the page, obviously compounded by his failure to react to the presence of the word "and" at the conclusion of the paragraph relating to the tenant's fixtures and his failure to peruse the document in final form.
The conduct does not fall into the category of mere inadvertence which in some circumstances can provide an operative excuse. As the initial draft included both classes, and Mr Williams sought the change because this was, as he told Mr Peedom, not what was intended, reasonable care demanded express focus upon changing in particular provisions in the draft in order to achieve what was intended. It is noteworthy that Mr Peedom, who did not give evidence in this action, did testify in the rectification suit and agreed with the cross-examiner that the mistake which he made involved gross carelessness on his part.
Some attempt to shift responsibility was sought to be derived from the formality attaching to the exchanges between Mr Peedom and the Council, relevantly almost always, but not exclusively, through Mr Williams.
It was Mr Peedom's apparent custom to conclude letters with which he attached drafted documents with statements along the lines of "for your approval" or the like. In his letter of 21 February 2003 this appeared and it was within the attached documents that the drafts requiring regard to both landlord and tenant's fittings occurred.
It was observation of this part of the draft that provoked Mr Williams to give Mr Peedom specific instructions as already mentioned. It might be observed that Mr Peedom's method involved adapting the standard Law Society form and his letter of 14 March 2003, forwarding the amended agreement, conveyed the mistake in a schedule of amendments and additions to the printed form. His letter concluded, "Please confirm that the form of the amended document is acceptable to Council."
Mr Williams did not review the document. He had earlier done so with sufficient precision to identify the rent clause not complying with the Council's intention. He had specifically given Mr Peedom instructions about what was required and, it is apparent, he assumed that Mr Peedom had simply done as requested.
Neither the expression in the particular letter nor the history of formal interaction between Mr Peedom and Mr Williams operates to discharge the defendant from liability for the breach of duty manifest in his failure to carry out the express instructions.
Attention was directed to what were alleged to be pressures arising out of the timeframe within which tasks had to be performed and urgency was proposed as a matter of an exculpatory nature. In my view, there was ample time for the application of the necessary care and attention to avoid creation of the mistake and to detect it.
I also reject the submission of the defendant that the common sense cause of the loss was the Council's own conduct in failing to review the letter and provide confirmation as requested by Mr Peedom. The absence of formal confirmation and the absence of any further request for it from Mr Peedom gives fair indication of the somewhat ritual nature of the choice of words which routinely accompanied the dispatch of documents.
To the extent that the defendant challenged causation, in accordance with the precepts now incorporated in statute, two inquiries are apt. First, was the negligence, that is the failure to carry out instructions which became incorporated by the mistake, a necessary condition of the occurrence of loss, and second, is it appropriate for the liability of the defendant to extend to harm so caused? I would answer both inquiries in the affirmative.
A legal officer in the Council's Property Department
It is convenient to deal in isolation with a memorandum bearing date 25 March 2003, which is on the Council file. It is signed by Ms Niki Robertson who did, at the time and still does, work in the Property Department, under the supervision of Mr Douglass. Ms Robertson did not provide an affidavit and she was not called.
On 24 March, Council had resolved to authorise the use of the common seal to execute the agreement for lease and lease and on 25 March Ms Robertson sent it for that purpose to be signed by the Lord Mayor and the Acting General Manager.
The file note records that this had been done and goes on to assert that "many of the amendments as set out in John Peedom's letter of 21 February 2003 were not included in the final agreement" and that she raised this point with Mr Williams who gave her documents which did not answer her queries and the note continues that he explained that changes may have been agreed over the telephone. She was instructed to get the documents executed.
The file note has no detail and does not expressly identify what is now recognised as the mistake as being one of the matters referred to.
The file note has a manual inscription "Wayne - copy F.Y.I. Niki R" which I interpret as an information copy from Ms Robertson to Mr Douglass. Mr Douglass was not asked anything about the note. He was asked and agreed that he regarded Ms Robertson as a competent staff member who was, although it was not essential to her employment position, legally trained.
Mr Williams was cross-examined about the content of the note. He frankly stated that he did not like Ms Robertson and understood that she didn't like him. He adamantly denied conversing with her. I would presume that their mutual feelings are likely to have been an element in her transfer before 2003 from the Legal and Risk Section of Mr Williams to the Property Section of Mr Douglass.
The defendant submitted that the record was a more reliable source as to the events than Mr Williams' memory. I disagree. It is quite easy to be certain that one has succeeded in avoiding speaking to a disliked person as opposed to seeking to remember the content of a contact some years past.
Of course, I cannot determine whether the note was intentionally cryptic but the absence of detail prevents it from offering anything useful to analysis of any issue.
I note that the defendant sought to rely upon the content of the note in connection with submissions on causation and expressly not in relation to contributory negligence. I have recorded the foregoing to affirm that I have placed no weight on this somewhat extraneous and untested document.
Contributory negligence
In final submissions, the plaintiffs conceded contributory negligence. The concession was appropriate. The contributory conduct to be assessed is essentially the failure of Mr Williams to check what had been submitted by Mr Peedom and verify that he had in fact carried out his instructions.
Mr Williams was frank when cross-examined about the issue. He agreed that he could have checked the documents and expressed confidence that he would have picked up the error had he done so. The acknowledgment of his deficiencies were extracted in minute detail. A contrast I mention, although not directly material to this issue, with the absence of Mr Peedom. What is material is to observe that the Council, through Mr Williams, had retained the professional services of a person whom they knew to be a qualified and experienced solicitor. As the saying goes, one does not buy a dog to bark oneself. The prima facie situation was that the Council was entitled to assume that its instructions to its experienced solicitor had been carried out, particularly in circumstances where there had been precise focus upon what was required by reason of the detection in the earlier draft that it did not reflect what had been intended.
The assessment of contributory negligence involves a value judgment as to the proportions by which the negligence of each has contributed to loss. Comparing the failure by a retained professional carefully to carry out what would essentially have been a simple instruction to achieve a specific result as against the failure of a client to check that the professional person had done what he was retained to do, I would apportion responsibility as to 75 per cent to the former and 25 per cent to the latter.
Any assessment of damages therefore will be reduced by 25 per cent.
Heads of damage
The plaintiffs claim damages under several separate heads and they will need to be considered individually.
The first ingredient consists of losses to date by reason of the receipt of rents from Emibarb on a ground rent calculation only as opposed to larger rent which would have been expected to have been received but for the error calculated to date and into the future during the term of the 20-year lease now held by Emibarb.
The second ingredient are some fees for "the legal work" charged by the defendant for acting for the Council on the Emibarb lease.
The third ingredient relates to the costs for which the plaintiffs became liable in respect of the rectification suit. These involve a combination of costs invoiced by Kells, a firm of solicitors which Mr Peedom had subsequently joined, Clayton Utz and Company, which acted for the plaintiffs in the rectification suit, and the costs that the plaintiffs were ordered to pay to the solicitors acting for Emibarb, which was successful in having the suit dismissed. The basis of the claim for this ingredient is that the costs were incurred in pursuit of mitigation of damage.
The fourth ingredient relates to the costs incurred in reinstating Peedoms Lawyers Pty Limited to the Register. I infer that the corporate vehicle was no longer required to be maintained after Mr Peedom joined Kells but it needed to be restored in order to enable this litigation to be commenced.
It was anticipated that, upon publication of my findings, parties could apply for an opportunity to address the detail of damages claims and, possibly for that reason, submissions have not been received from both parties particularly in respect to the first and fourth ingredients, although during the hearing I did query whether the fourth ingredient was to be appropriately classified as costs of the litigation rather than as damage incurred.
Mitigation by commencing the suit for rectification
It is convenient to deal with this head of damage in respect of which detailed submissions have been made.
A very large ingredient of damage is sought by the plaintiffs represented by the costs of the failed suit.
It needs to be observed that this is a claim by the plaintiffs to recover their expenditure on what proved to be a fruitless exercise asserted to have been instituted in order to avoid the consequences of the defendant's mistake. It was submitted that the defendant bore the onus of proving that pursuit of relief by rectification was unreasonable. I reject that submission. I recognise that in actions at common law the most frequent encounter with issues of mitigation occurs in circumstances where a defendant alleges a failure by a plaintiff to mitigate and it is clear that in such cases the onus of proof does lie on the defendant but, concordant with the maxim that he who alleges must prove, when as at present, plaintiffs allege that they incurred expenditure in pursuit of mitigation, I hold that it is the plaintiffs who bear the onus of proof. I note that I was referred to the judgment of Hayne J in Unity Insurance Brokers Pty Limited v Rocco PezzanoPty Ltd [1998] HCA 38; (1998) 192 CLR 603, where his Honour said a wrongdoer is liable if the party harmed has acted reasonably even if that in result inflates the loss but his comments did not extend to any reference to onus.
The plaintiffs contend that onus in any event is discharged by demonstrating that they retained competent solicitors, who in turn consulted counsel appropriately experienced in the field, and pursued the litigation in accordance with advice received.
It is impossible to deal with the issue of damages in this regard without some examination of the conduct of the advisers. It is important to stress that none of the solicitors or counsel involved has been a party or a witness in this action and to the extent that any criticism is expressed or implied, it must be understood that such is based on the evidence which the parties to this litigation have chosen to put before the Court and no opportunity for response or explanation or reference to further facts has been accorded to those advisers. Any finding and any comment must be understood as made in the context of the limited material and in the absence of contribution from significant participants and neither comments nor findings purport to determine any possible issues which might exist between the plaintiffs and those advisers.
The issue for determination is, therefore, whether the evidence before the Court establishes, on the probabilities, that the commencement and/or continuation of the suit by the plaintiffs was reasonable.
As I have said, mitigation as an issue usually arises as a contention that a plaintiff has failed so to do but in that context there are helpful observations by Burchett J in Austotel Management Pty Limited v Jamieson (1995) 57 FCR 411 where his Honour said:
But other cases suggest that, at least in relation to a claim against a solicitor that he was negligent in failing to secure for his client appropriate rights in connection with some transaction as against a third party, if a viable claim nevertheless lies against that third party to remedy the situation, the maintenance of which would not be unduly risky, protracted or expensive, a duty to mitigate by pursuing that remedy may not be out of the question. (At [5])
Thus the present case can be approached by asking, was the pursuit of equitable remedy unduly risky, protracted or expensive?
As to the last mentioned item, the evidence is that at no time did the Council seek an estimate of the costs either before commencement of the suit or about the cumulating expense at any point of the litigation. The total exposure of the Council approaches $2million and unduly expensive is an accurate description.
For these purposes, I consider the Council to have attributed to it the knowledge of the legal advisers whom it had retained and I assess whether reasonableness has been shown without discrimination between the retainer and those retained: cf Smits v Roach [2006] HCA 36; (2006) 227 CLR 423 at [47]; Permanent Trustee Company v FAI General Insurance Co Ltd [2001] NSWCA 20; (2001) 50 NSWLR 679 at [87].
It is assumed knowledge that the remedy of rectification can only be obtained upon clear and convincing proof, a requirement no doubt based upon the reticence with which a Court will act in imposing terms other than those which are manifest in an agreement.
By letter of 22 December 2004, the solicitors advised the Council that they had met with senior and junior counsel (it would seem for about an hour) whose opinion was that there was a reasonable basis for commencing proceedings which would be in the client's interests "commercially and tactically". Exactly what was intended to be conveyed by those adverbs in the particular circumstances was not defined.
A further letter of 21 April 2005 described reasonable to good prospects as "a preliminary view" and final advice would require statements by witnesses and consideration of them by counsel. The evidence does not disclose such advice being provided in any formal sense and the subsequent initiation of the suit leaves any final view to be drawn from inference.
In fact proceedings had been commenced in June 2005 but it was subsequent (on 10 October 2005) that a file note showed junior counsel requesting affidavits from all witnesses and cautioning that the burden of proof was "high" and that there was a need to have "a complete picture of the intention".
In my view, it was not reasonable to embark on the litigation when there was an obvious inadequacy in relevant inquiry as demonstrated by the expression of the outstanding need.
Subsequent events operate to fortify that view. In February 2006, there were received affidavits and statements filed by Emibarb which, in an overall sense, disputed any notion of mutual mistake. By letter of 23 February 2006, the solicitors mentioned to their client that "needless to say if the Court accepted that the Council knew in March 2003 that the rent was to be determined on a ground rent basis, the case would fail". The evidence in the present case does not reveal what, if any, follow up of this caution occurred but the lawyers apparently simply pressed on with the suit.
The problems faced by the plaintiffs were pointedly articulated in a written submission in the suit by the defendants, specifically related to the later abandoned unconscionability issue, that for the plaintiffs to succeed it would need to be proved that nine people had given false evidence. Leaving aside the four councillors whose states of "mind" were in contest, the other five were Mr and Mrs Harrison, Mr Haralambides (Mr Harrison's brother), Mr Rusbourne (a partner of Watkins Tapsell) and Mr Dobrow.
A written submission by the plaintiffs observed that the evidence put forward by the latter five and therefore the outcome of the issue "will depend upon the evidence which ultimately emerges from those witnesses after cross-examination".
It was then scarcely surprising that, in an oratorical flourish, senior counsel for the defendant described the plaintiffs and their advisers as having adopted a Mr Micawber position.
The predicament into which the litigious venture had brought the plaintiffs was apparently recognised and an attempt was made, so to speak, to shut the gate after the horse had bolted. By letter of 12 April 2006, the solicitors wrote to Mr Tim Price addressed in his capacity as solicitor for the current defendant's insurer asking him, inter alia, for written confirmation that the plaintiffs "had not acted unreasonably in the commencement of and/or the prosecution of the rectification proceedings".
Mr Price has continued to act for the defendant although he now practises in a new partnership. He did not supply the confirmation requested either in writing or orally. True he indicated that he would communicate his client's position as soon as possible and in the meantime reserved his client's rights, but that could hardly be understood as any endorsement, in whole or in part, of the course upon which the plaintiffs had embarked.
As I have found, I am not satisfied that it was, in the circumstances, to the extent that they are manifest in the evidence in this case, reasonable to embark on the rectification suit. It was, in Burchett J's terms, unduly risky, protracted and expensive and, in my view, foreseeably so. If adequate inquiry had been made and attention paid to what was being embarked upon, it should not have been commenced.
It is unnecessary to elaborate upon the defendant's "fall back" position that, if it was reasonable to commence the suit, as knowledge of facts, circumstances and likely testimony began to emerge, it ceased to be reasonable to continue.
The plaintiffs are not entitled, as an ingredient of any award of damages, to the costs relating to the rectification suit including the costs that they became required to pay to the successful defendant.
The loss of rental income
As originally particularised, the plaintiff's claim under this head was based upon an assumption that the Council and Emibarb would have come to agree upon a rental by bridging the wide gap between the stated positions as to rent demanded and willingness to pay. My finding that bridging the gap was, in the circumstances, unlikely means that another measure needs to be determined. Of course, the plaintiffs' submissions were based upon the enhanced rebuilding and this involved an allowance for the plaintiffs' contribution by the benefit of stepped discounts against market rent if agreement were reached.
A superadded difficulty is any dependence upon the opinions as to market rent expressed by Mr Preston, the only valuer called, although the documentation contains some untested expressions by others including Mr Dobrow. I do not need to dilate at any length upon this difficulty. In an exchange with counsel, I commented upon the plain inutility of the comparable leases offered by Mr Preston which were manifestly not so. The defendant's written submissions contain a detailed criticism of his evidence, the force of which was implicitly recognised by the plaintiffs who, at one stage, during the hearing, sought to withdraw his evidence on the condition that I would order assessment of loss by a Court appointed expert, an application which was refused.
The question arises as to whether the consequent result is to leave a gap in the plaintiffs' case so that it fails for want of evidence of relevant damage. I would answer that question in the negative. Debate between counsel involved counter arguments about what could be extracted from a number of authorities. I agree with the submission that, read in context, the judgment of Hayne J in Placer (Granny Smith) v Thiess Contractors [2003] HCA 10; (2003) 196 ALR 257 does not establish that the plaintiffs bear an onus of proving their loss with a degree of precision. The principle that I would apply is to uphold the plaintiffs' claim if they have shown that they have, as a result of the tort, suffered significant loss even if the evidence does not reveal factors enabling positive calculation. This is, I consider, in accord with statements that, if evidence does not permit precise calculation, a Court must "do its best" rather than hold the loss, the existence of which has been shown, is to be assessed at zero: Fink v Fink [1946] HCA 54; (1946) 74 CLR 127; NSW v Moss [2000] NSWCA 133; (2000) 54 NSWLR 536; Uszok v Henley Properties (NSW) Pty Ltd [2007] NSWCA 31; Paino v Paino [2008] NSWCA 276.
The findings that I have made which reject prediction that in some way the Council and Emibarb would have come to an agreement for rent on the enhanced building leaves for examination this issue. Whether a loss has been demonstrated by a comparison between rent now (and in future) to be received pursuant to the lease whereby Emibarb pays only ground rent (as discounted) and the hypothetical rent which the Council would have received on the basis that, negotiations with Emibarb having collapsed, Emibarb was nevertheless bound in terms of the 1996 lease to restore the pre-existing building and a new lease became entered for that new building. In effect, the hypothesis is that a building similar to that which was destroyed by fire has been placed on the same footprint.
For the same considerations as make his valuations in connection with the new building, evidence upon which I have declined to rely, Mr Preston's supplemental views to the extent that they purport to deal with the hypothesis arising out of restoration of the new building are also unreliable.
There is, however, evidence from which the existence of probable substantial loss of rental income can be deduced. That deduction emerges from the following.
As at July 2006 when the Council became entitled to receive rent under the (defective) lease, the ground rental was assessed at an annual $70,000. Because of the agreed discounts, this adjusted down to $49,000 per annum.
The first thing to be observed is that the new lease of the restored (but not enhanced) premises would not entitle the lessee to the discounts that Emibarb was granted in consideration of its contribution to the new building. I have noted elsewhere Mr Douglass' expressed view that a new lessee can be found. Of course, I am not in a position to speculate whether the Council would determine to agree with incentives being granted to a new lessee such as a rent holiday or similar.
I do not overlook that the footprint of the new enlarged building, and therefore ground rent presumably based on it, would be larger than that upon which the destroyed building stood. So far as I can gauge, the accretion is not huge. Hence, as at July 2006, the ground rent on the "old footprint" was likely to approach $70,000 or, on any view, exceed $49,000 which the Council is currently receiving. That would not be the end of the matter. An appropriate rental for the restored (but not enhanced) building would, as a matter of commerciality, take into account the landlord's fixtures and fittings when rent assessment was being agreed.
The combination of these two factors for consideration make a conclusion that significant loss exists inevitable.
I am aware that, in his supplemental report, Mr Preston proposed an estimated market rental for the hypothetically restored building of $296,807 per annum but I expressly record that I do not find that a reliable assessment.
If, as I estimate, that figure is considered too high to represent a likely achievable rent then, commencing at July 2006, the tort induced loss of rent receipt is the difference between $49,000 per annum and some annual figure greater than that but less than $296,807. I recognise that any calculation will necessarily make allowance for increases by CPI, rent review or whatever mechanics for such purposes might be agreed and the future losses need to be capitalised to a present value sum. As Emibarb has a secure lease for 20 years, that would be the appropriate period to consider for these purposes.
The parties should have an opportunity to make submissions in the light of these findings.
Decision
I make the following findings and give directions in accordance with the foregoing. As indicated to counsel, I will not direct entry of judgment until they have had an opportunity to be heard on the issues concerning quantum of damage.
1) There should be verdict and judgment for the plaintiffs in the action.
2) By reason of contributory negligence, there should be a reduction of 25 per cent against damages assessed.
3) The plaintiffs are not entitled to recover the costs referable to the failed suit for rectification and such costs are to be excluded from any assessment of damages.
4) Both parties have leave to make submissions limited to the claims for damage and costs listed hereunder in accordance with directions which will be given forthwith after hearing from the representatives in respect of a suitable timetable:
a) The legal costs paid by the Council to the defendant and Kells Lawyers.
b) The costs of reinstating the defendant's registration.
c) The assessment of damages for lost rent on the part of the Council on the basis that the building destroyed by fire has been rebuilt and let, as against what has and will be received from Emibarb pursuant to its lease whereby, because of the error, rent is initially calculated as ground rent only.
d) The legal costs of this action.
SUPPLEMENTARY JUDGMENT
On 4 September instant I published reasons for findings and aspects of intended judgment in this action. I directed, as discussed in the course of hearing, that submissions might be made on the issues specified in paragraph [120] of that publication. On 14 September instant I received those submissions which were addressed both orally and in writing. These reasons will be attached and thus incorporated with those of 4 September and unless necessary for reference, I will not repeat what appears therein.
It is convenient to deal first with claims for what amount to liquidated sums.
Legal costs paid to the defendant and Kells Lawyers
As originally particularised a component of these claims was $14,696.69, being a charge by the defendant to the Council, evidenced by invoice 7664. In written submissions it was stated on behalf of the plaintiffs that this appears not to have been paid and, "this portion of the plaintiffs' claim needs to be abandoned". I treat it accordingly.
The next two components of this head of claim are $6,049.20, charged by the defendant (invoice 8623) and $4,140.60, charged after Mr Peedom joined the practice of Kells Lawyers. Interest from the date of payment on each sum is also claimed.
The plaintiffs submit that these sums are recoverable as damages in the action either as, "wasted expenditure or expenditure incurred by reason of the defendant's breach of duty". As I understand it, the implied proposition is that, having regard to the breach of duty, if the defendant had made a claim for these fees the council would, whether by set-off or cross-claim, have had an entitlement which would have negatived the defendant's claim for fees. Although the council, either in ignorance of the breach at the time or in routinely settling accounts, paid the invoices, the principle applies and the sums should be recoverable. No point was taken concerning any technicalities of pleading the cause of action upon which the claims were based as they were plainly enunciated in the originating pleading.
The defendant resists inclusion of these items in the damages. The first contention was that the fact that a mistake was made does not mean that costs were not incurred. The question really is whether the defendant would have been entitled to have been paid for work negligently performed and I have above made reference to the notions of set-off and cross-claim. The second contention was that, on the findings that I have made, costs would be incurred for lease of the hypothetical building on the old footprint. It would be up to the council to decide whether to retain a solicitor for that purpose. Because expenditure might be made on something different does not alter the basis upon which the defendant should not be paid for negligently performed work.
I will include these components (with appropriate interest) in the damages assessment. It will therefore be vulnerable to reduction by reason of the finding of contributory negligence.
Reinstating the defendant's registration
The defendant's written submissions acknowledged that there is no dispute that the plaintiffs incurred costs of $29,278.77 in reinstating the registration of the defendant. The contest revolves around whether this sum is to be characterised as damages and therefore subject to reduction on account of contributory negligence.
The essence of the defendant's submission, as I understood it, was that, even if the amount should be characterised as costs, a view which, (subject to submission) I informed counsel in an exchange with them that I held, it should be reduced by 25 per cent. It was associated with, if not founded upon, my determination that the plaintiffs' damages would not include the costs of the failed rectification suit. Expression included, "any discount referable to the reinstatement portion of the case should carry over to these costs, because the reinstatement was done, in part, in order to bring that failed claim".
First, it must be observed that the present defendant was not a party to the rectification suit. Second, the plaintiffs have proved that a significant loss has been sustained as a result of the defendant's negligence and it could not seek to recover damages at all unless the registration was restored.
Restoration was an essential step which was necessary before litigation could be commenced and it is isolated from any considerations which the conduct of the case and the determination of the issues might have on the overall question of costs inter-partes.
I propose to make a specific order to enable the plaintiffs to recover the undisputed quantum of these costs.
Loss of rent
In accordance with the reasons previously published, I am satisfied that the plaintiffs have proved the probability of significant loss in respect of rent income and they are therefore entitled to be compensated for that loss. Further, I have found that a measure lies between annual sums of $49,000 and $296,807. A number of considerations however affect those terminus figures. Inter alia, the lower sum is derived after discounts already described and the higher sum is derived from valuation which I have found to be unreliable.
I will adopt a conventional approach of making assessments of loss to date and for future. As is obvious, I need to deal with the hypothetical reconstruction and lease of a building on the original footprint.
In fact the lease of the enhanced building commenced from July 2006 and I propose to consider the hypothetical lease also to commence then. I am aware of the contentions concerning possible differences in construction schedules but I do not regard them as of sufficient countervailing weight to alter the course I propose to adopt. I add that I am conscious that authority places some inhibition on making allowances for independently arranged insurance in cases of damage for personal injury but the present claims are quasi-commercial and there was evidence, although without specifics, that the council was receiving payments in lieu of rent for the destroyed building.
It is to be borne in mind that my task is essentially to assess just compensation, and just as juries were reminded when performing a like task, the object is to be fair by being neither niggardly to the plaintiff nor over generous at the expense of the defendant.
It has become clear that permutations and combinations of figures applied to the huge variety of available factors purporting to calculate loss can be manipulated to produce sums which range from the patently extravagant down to a virtual extinction of loss. These calculations are likely to give a false impression of precision to an exercise which has no such quality. That does not mean, of course, that damages can be arbitrarily fixed and I must expose the basis upon which any figure has been reached.
Before so doing, I should deal with the submission by the defendant that the plaintiffs have suffered no loss at all because of what were described as countervailing benefits. It was observed that the council will, at the end of the 20 year term, acquire the building. Of course, it will be by then a 20 year old building. The same acquisition would follow if a hypothetical building were restored on the original footprint and a similar lease be granted. The defendant's submission was that Emibarb in fact spent $3 million rebuilding the enhanced premises and only $2.1 million was "insurance monies to which the council would have been entitled in any event". It is said that the plaintiffs have therefore received the benefit of $900,000 that they would not have received absent the defendant's negligence.
The short answer to this submission is that, in the event, the council is paying for that asserted benefit by way of the stepped discounts, which I have already described. The argument raises no issue of relevance to the assessment of the plaintiffs damages.
In a letter to the Crown Lands Department of 17 June 2003, the general manager of the council observed that, if it is to be required to reinstate the premises, the initial annual return which the council would be entitled would be 10 per cent of $2 million, that is $200,000. I propose to use that as a broad guide figure for the rent return on the hypothetical building. Thus, as an annual loss the plaintiffs' damages lie between that figure and $49,000 which it commenced originally to receive.
It would not be just as between the parties simply to apply the difference between those figures over the 20 years of a hypothetical lease from 2006 to 2026. There are vicissitudes which predictably would weigh against such an assumption of the perfection of the operation of a lease for an uninterrupted and otherwise unaffected 20 years. The council would have to find a new tenant, which would not possess whatever residual goodwill Emibarb possessed. The evidence shows that the council has frequently, even apparently usually, found it necessary to provide incentive to new tenants by way of reduction or even rent holidays for periods of time. It is conceivable that a restaurateur may not be successful and failure would lead to a gap of time in which a further tenant would need to be found. New tenants may not be willing to enter into leases for periods as long as 20 years and replacement tenant or tenants may in any event be required to be found from time to time.
I will allow for these risks which I estimate as highly likely to fall due in one way or another by significantly reducing the arithmetical difference between the general managers estimate of rent return and what Emibarb is paying. Having done so, I will not do so again as against guide figures which I will record. I interpolate that I do not propose to intrude calculations of CPI increase or the like as they would be applied to both high and low point hypothetical rents. I recognise that a percentage application to a higher figure produces a higher raw result but this is another aspect that I will avoid giving a false indicator of precision. Nor do I propose to descend into the actuarial niceties of parts of years.
Self evidently, the difference between $200,000 and $49,000 is $151,000. Taking the matters to which I have made reference into account and the imprecision which necessarily includes into the hypothetical, I have adopted a figure of $100,000 per annum as a guide to the assessment of loss. For 6 years from 2006 to 2012 that would amount to $600,000. For the further 14 years to the end of a 20 year term of lease, capitalising at a rate of 6 per cent as agreed by counsel, I calculate and accumulate a rounded sum of $960,000.
The damages component of loss of rent will therefore be $1,560,000. The element of past loss will carry an entitlement of interest in accordance with the usual practice.
Costs
It is apparent that the defendant has had success on issues canvassed in the hearing and no doubt in the preparation for those issues to be argued. The most prominent of these have been its success on the issue of exclusion from damages of the costs of the failed rectification suit and the attack on the reliability of the expert valuer called by the plaintiffs. Nevertheless, the plaintiffs have been significantly successful in proving the core contention of the statement of claim that, as a result of the defendant's negligence, substantial loss has been and will be incurred. I have not found it necessary to distinguish between the defendant's breach of duty in tort or deriving from his retainer.
Subject to what I have said about the costs of the restoration to the register of the defendant, to allow for the mixed successes of issues, the defendant should pay 80 per cent of the general costs of the action incurred by the plaintiffs.
Conclusion
(1) There should be judgment for the plaintiffs in the action for damages for a sum assessed by addition of the following ingredients:
(a) $7,642 (invoices for fees paid less 25 per cent);
(b) Interest on the components of $7,642 from the respective dates of payment (in accordance with published rates or as agreed);
(c) $450,000 plus GST for lost rental to date ($600,000 less 25 per cent);
(d) Interest on past loss of rental as it accumulated from 2006 to 2012;
(e) $720,000 plus GST ($960,000 less 25 per cent)
(2) The defendant ordered to pay the plaintiffs' $29,278.77 for the costs of the restoration of the defendant to the register.
(3) Subject to the specific order for payment of the costs of restoration of the defendant to the register and subject to any successful application pursuant to liberty granted, the defendant is to pay 80 per cent of the platintiffs' costs of the action as agreed or assessed.
(4) Liberty to apply forthwith in relation to variation of the costs order, cause to be shown.
(5) The plaintiffs are directed to bring in and file a minute of judgment in accordance with the foregoing including any order amending the order for costs in the event of successful application to vary pursuant to the liberty to apply.
TERMS OF JUDGMENT MADE BY THE COURT
(1) Judgment for the Plaintiffs against the Defendant.
(2) The Defendant is to pay the Plaintiffs the following amounts:
(a) $450,000.00 (being $600,000.00 less 25%) on account of damages for lost past rent;
(b) $45,000 for GST (if payable) on the amount in sub-paragraph (a) above, but subject to the regime set out in Order 4 below;
(c) $144,478.00 on account of interest upon damages for lost past rent;
(d) $720,000.00 (being $960,000.00 less 25%) on account of damages for lost future rent;
(e) $72,000.00 for GST (if payable) on the amount in sub-paragraph (d) above, but subject to the regime set out in Order 4 below;
(f) $7,642.00 on account of damages for legal fees thrown away; and
(g) $6,129.00 on account of interest upon damages for legal fees thrown away.
(3) The Defendant is to pay to the Plaintiffs the amount of $29,278.77 on account of the costs of the proceedings to restore the Defendant's registration as a corporation.
(4) Further to Order 2 above (and specifically in relation to the items set out at sub-paragraphs 2(b) and 2(e)):
(a) Within 30 days of these orders, the Plaintiffs are to render a taxation invoice to the Defendant in relation to the damages component of the final orders which bears or possibly bears Goods & Services Tax ("GST");
(b) The obligation on the part of the Defendant to pay the GST component of the award of damages is subject to the orders set out in sub-paragraphs (i) to (v) below:
(i) If, within 6 months of the date of these orders, the parties agree that GST is not payable upon the Court's award of damages in favour of the Plaintiffs, the Plaintiffs are to notify the Defendant in writing of their position in that respect, at which point the Plaintiffs are to refund to the Defendant the GST component received by the Plaintiffs;
(ii) If, within 6 months of the date of these orders, the parties agree in writing that GST is payable, the Plaintiffs will be entitled to retain the GST component received from the Defendant;
(iii) If, at any time prior to the expiry of the 6 month period, the Plaintiffs obtain a ruling from the Australian Taxation Office (ATO), which ruling indicates that the Plaintiffs will be liable to remit GST to the Commissioner of Taxation in relation to the damages award against the Defendant, the Plaintiffs are to provide a copy of that ruling to the Defendant and the Plaintiffs will be entitled to retain the GST component received from the Defendant;
(iv) If, after the expiry of the 6 month period following these orders in these proceedings, the parties have not agreed on the GST position and if the Plaintiffs have not obtained a ruling from the ATO indicating an obligation on their part to remit GST or if any such ruling indicates that GST is not payable, the Plaintiffs are immediately to refund to the Defendant such of the amount received under any final orders, which related to a GST component on the award of damages for lost rent; and
(v) Each party is to bear their own costs and expenses of negotiating the above issues and/or seeking any ruling from the ATO.
(5) The Defendant is to pay 80% of the Plaintiffs' costs of the action as agreed or assessed up to 10 June 2011.
(6) The Plaintiffs are to pay the Defendant's costs of the action on a full indemnity basis from 11 June 2011.
(7) Notwithstanding Order 6 above, there is no order as to costs, with the intent that each of the parties bear their own costs, of and incidental to the listing of the matter before the Court on 26 September 2012, including in relation to the costs of the Defendant's Notice of Motion filed on 26 September 2012 of the Plaintiffs' Notice of Motion filed on 26 September 2012.
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Amendments
05 November 2012 - terms of judgment added
Amended paragraphs: coversheet and 148
27 September 2012 - corrected decision date
Amended paragraphs: coversheet
Decision last updated: 05 November 2012
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