Thoo v The Owners Strata Plan No. 50276 (No. 2)

[2012] NSWSC 1313

Supreme Court

New South Wales

Medium Neutral Citation:	Thoo v The Owners Strata Plan No. 50276 (No. 2) [2012] NSWSC 1313
Hearing dates:	12 & 22 August 2011, 15 September 2011, 4 & 5 October 2011
Decision date:	29 October 2012
Jurisdiction:	Equity Division
Before:	Slattery J
Decision:	Plaintiff has suffered loss due to defendant's statutory breaches - quantum of plaintiff's loss assessed.
Catchwords:	REAL PROPERTY - Strata and related titles and occupancy - defendant Owners Corporation in breach of Strata Schemes Management Act 1996, s 62(2) since December 2007 - whether plaintiff lot owner has suffered any loss from such statutory breach - assessment of the quantum of any such loss.
Legislation Cited:	Civil Procedure Act 2005 (NSW) Retail Leases Act 1994 (NSW) Retail Leases Amendment Act 2005 (NSW) Strata Schemes Management Act 1996 (NSW) Supreme Court Act 1970 (NSW)
Cases Cited:	Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558 Evans Marshall & Co Ltd v Bertola SA (1973) 1 WLR 349 Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547 Johnson v Perez (1988) 166 CLR 351 Lin & Anor v Owners of Strata Plan 50276 [2004] NSWSC 88 Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 McDonald v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 231 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Redland Bricks Ltd v Morris [1970] AC 652 Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449 Sandersons Motor (Sales) Pty Ltd v Yorkstar Motors Pty Ltd [1983] 1 NSWLR 513 Seiwa Pty Ltd v Owners of Strata Plan 35042 [2006] NSWSC 1157 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Trevallyn - Jones v Owners of Strata Plan 50358 [2009] NSWSC 694 Thoo v Owners Strata Plan No 50276 (2011) 15 BPR 29,309; [2011] NSWSC 657
Category:	Consequential orders
Parties:	Plaintiff- Chee Min Thoo Defendant- The Owners Strata Plan No. 50276
Representation:	Plaintiff- A.J. McInerney, B. Koch Defendant- V.F. Kerr Plaintiff- P. Sarvaas, Sarvaas Ciappara Lawyers Defendant- R. Cheung, Rutland's Law Firm
File Number(s):	08/277829
Publication restriction:	No

Judgment

1. This is my second judgment in these proceedings. In the Court's principal judgment the defendant Owners Corporation was found to have breached its duty under Strata Schemes Management Act 1996 ("the Management Act"), s 62(2) in failing to provide sufficient exhaust ventilation capacity to the plaintiff's commercial premises, Lot 17 in Strata Scheme 50276: Thoo v Owners Strata Plan No 50276 (2011) 15 BPR 29,309; [2011] NSWSC 657. The Court's principal judgment directed an inquiry as to damages arising from the statutory breaches found against the Owners Corporation. An inquiry as to damages took place. This judgment is the result of that inquiry. It should be read with the Court's principal judgment. Events, matters and persons are referred to in identical terms within both judgments.

1. The Court's detailed findings of breach of Management Act, s 62(2) are to be found in the principal judgment. In summary the Court found that the effective 620 l/s of exhaust capacity the Owners Corporation offered to Dr Thoo's Lot 17 from about 1 December 2007 was not a reasonable level of capacity for that lot: Thoo v Owners Strata Plan No 50276 (2011) 15 BPR 29,309; [2011] NSWSC 657 at [187]. The Court found that 3,600 l/s was a reasonable level of exhaust ventilation capacity for Lot 17 but that since 1 December 2007 the Owners Corporation has been in breach of its duty to provide such a reasonable level of capacity to the lot: Thoo v Owners Strata Plan No 50276 (2011) 15 BPR 29,309; [2011] NSWSC 657 at [187].

1. Dr Thoo contends that the Owners Corporation's statutory breaches have caused him to suffer loss and damage. The Owners Corporation contests his damages contentions.

1. Mr McInerney SC continues to represent the plaintiff, Dr Thoo, and Mr Kerr of counsel the defendant, the Owners Corporation.

Dr Thoo's Claim for Damages

1. Dr Thoo claims to have suffered loss as a result of the Owners Corporation's breach of Management Act, s 62(2) since 1 December 2007. He seeks assessment of the damages he claims to have suffered.

1. Dr Thoo's claim that he has suffered loss as a result of the Owners Corporation's breach of Management Act, s 62(2) is put three ways. First, he submits that he lost the opportunity to lease Lot 17 to Yum! Restaurants International ("Yum! Restaurants"), an operator of Kentucky Fried Chicken ("KFC") franchises, with whom he was negotiating in early 2008 to let the premises. Secondly, and in the alternative, Dr Thoo submits, upon general evidence that is not specific to a single prospective leasing transaction: that he suffered loss due to an inability to lease Lot 17 to cooked food retailers, who would ordinarily require in excess of 620 l/s of exhaust capacity; and that such cooked food retailers would have generated greater income from Lot 17 than non-food retailers, who do not require any significant exhaust capacity. Thirdly, Dr Thoo claims loss based on a combination of the first and second methods of assessment. Each of these three ways Dr Thoo puts his case requires greater elaboration.

Leasing Lot 17 to Yum! Restaurants - March to October 2008

1. Dr Thoo first claims he lost the opportunity of leasing Lot 17 to Yum! Restaurants. Negotiations with Yum! Restaurants commenced shortly after the date from which the Court has found the Owners Corporation breached Management Act, s 62(2), 1 December 2007, with respect to Lot 17. Dr Thoo contrasts the rent, which he claims that he would have derived from leasing Lot 17 to Yum! Restaurants, with his actual earnings from the Lot after December 2007 and he claims the difference in damages. The Owners Corporation contests this part of Dr Thoo's claim on the basis that: (1) that Yum! Restaurants decided not to proceed with leasing Lot 17 for reasons other than the lack of sufficient exhaust ventilation capacity to the Lot; and (2), the methodology of Dr Thoo's expert assessment of the loss flowing from the Yum! Restaurants offer is incorrect.

1. Dr Thoo's negotiations with Yum! Restaurants, which operates and franchises KFC fast food chicken outlets, commenced in March 2008. Dr Thoo appointed an agent, Mr Reno Zenari of RGZ Commercial Pty Limited to manage the marketing and collection of rent from the shops he owned in the Strata Plan. In March 2008 Yum! Restaurants offered to lease Lot 17 through its business development manager, Mr Ben Fogarty. The offer was for an area of approximately 133 square metres, for a term of five years plus an option to renew for a further five years at a gross rent of $90,000 per annum plus GST, together with annual rent reviews of 3.5 per cent. A condition of the offer was that the common dining areas in the Hunter Connection be available for use by KFC patrons.

1. The Yum! Restaurants March 2008 offer included an exhaust ventilation specification. The offer was conditional on the lessor completing certain "Typical Lessor Works and Specifications" which included, "Kitchen Exhaust of System of 2600 litres per second capacity to be provided (based on 650 litre/sec for chip hood and main hood of 3.7m x 1.3m @ 300 litres/sqm) KFC to provide hoods and branch connection". Thus, Yum! Restaurants' requirements for exhaust ventilation capacity exceeded the 620 l/s that the Owners Corporation were offering Dr Thoo. But its requirements were within the 3600 l/s which the Court has found to be reasonable for Lot 17.

1. Negotiations followed the Yum! Restaurants' March 2008 offer. Dr Thoo spoke to Mr Fogarty in March expressing interest in leasing Lot 17 but at annual rent of $120,000. On 13 March 2008 Mr Fogarty emailed Mr Zenari and offered to lease Lot 17 on the terms identified in the March 2008 letter of offer but at the new level of rent Dr Thoo had now stipulated, namely $120,000 gross plus GST. The following day, 14 March 2008, Dr Thoo indicated to Mr Zenari that $120,000 per annum gross plus GST was acceptable. Mr Zenari communicated this to Mr Fogarty. Dr Thoo then set about dealing with the body corporate to see if Yum! Restaurants' exhaust requirements could be satisfied. He emailed Mr Zenari on 5 April 2008 saying, what I infer was his then intention: "I will be seeing Body Corporate next week (sic). If I get the exhaust then I will proceed to the lease".

1. Little happened between Dr Thoo and Yum! Restaurants for about the next six months, whilst Dr Thoo was dealing with the Owners Corporation. Then on 15 October 2008 Dr Thoo emailed Mr Zenari asking "is KFC still interested in Lot 17? What is the exhaust requirements of KFC?" But by then KFC had lost interest. Mr Zenari replied to Dr Thoo on 21 October 2008 "I have just spoken with KFC, they are no longer interested in the location..."

1. The period between March and October 2008, when Yum! Restaurants changed its mind, was the focus of a contest between Dr Thoo and the Owners Corporation; a contest as to why Yum! Restaurant changed its mind. Dr Thoo contended that had it not been for Dr Thoo's failure to satisfy Yum! Restaurants' kitchen exhaust requirements that he would have leased Lot 17 to Yum! Restaurants on the terms proposed between them. His contention was that his correspondence with Yum! Restaurants revealed no obstacle to it proceeding with the lease, other than the Owners Corporation's failure to provide reasonable exhaust ventilation capacity to the Lot.

1. But the Owners Corporation's case was that Yum! Restaurants changed its mind by October 2008 for other reasons. The only relevant witnesses who gave evidence at the inquiry as to damages on this issue were, Dr Thoo and Mr Zenari. Neither side called any decision maker from Yum! Restaurants as a witness. The Court was therefore left to draw inferences about Yum! Restaurants' internal decision making processes from the available correspondence and from the course of events.

1. Dr Thoo quantified the revenue he claimed to have lost from not leasing Lot 17 to Yum! Restaurants. He did so through an expert witness, Mr Rodney Ferrier of Ferriers Practice Pty Limited. Mr Ferrier calculated alleged past loss from 1 May 2008 (the date at which it was assumed that the Yum! Restaurants lease would have commenced, if sufficient exhaust ventilation has been available) up to 31 August 2011 (a date just before the hearing of the damages trial). The assumptions behind his calculations were that the premises would have been leased at an annual gross rental of $120,000 plus GST with annual increases of 3.5 per cent. Mr Ferrier also calculated (1) continuing monthly loss from 31 August 2011 on the same assumptions as for past loss and (2) interest on past loss at the applicable pre-judgment interest rate. Deducted from these claimed receipts are the actual earnings from Lot 17 since May 2008. The claimed loss from the 1 May 2008 to 31 August 2011 period on Mr Ferrier's calculation was $417,092 (the expected rent from Yum! Restaurants between May 2008 and August 2011) less $253,000 (the actual rental receipts from Lot 17 between May 2008 and August 2011) leaving a net loss of $164,092. Mr Ferrier's calculations infer a continuing monthly loss after 31 August 2011 of $2,476.

The Yum! Restaurants' Claim - Findings and Conclusions

1. A telling factor against the success of Dr Thoo's Yum! Restaurants' claim was the absence of evidence from Yum! Restaurants itself. It was difficult to draw the inferences which the Court was asked to draw in Dr Thoo's favour in the absence of such evidence.

1. I infer from the available evidence that Yum! Restaurants changed its mind about leasing Lot 17 principally for reasons that were not associated with delay in achieving MEVS connection. I accept Mr Zenari's evidence that he spoke to Mr Ben Fogarty, the business development manager of Yum! Restaurants on or about 15 October 2008, following up a prompt from Dr Thoo about Yum! Restaurants' exhaust requirements in comparison to what the Owners Corporation were then offering to him. In the telephone conversation Mr Zenari asked Mr Fogarty whether Yum! Restaurants was still interested in Lot 17. Mr Fogarty replied in words to the effect "No, we are now only looking at street front locations". Mr Zenari contemporaneously recorded his conversation with Mr Fogarty in an email to Dr Thoo of 21 October 2008 in which he said to Dr Thoo, "I have just spoken with KFC, they are no longer interested in the location. At this point they will consider only street front locations. (KFC's requirement for exhaust was approx. 2,600 l/s minimum)".

1. It seems probable in my view that Yum! Restaurants decided at sometime between March and October 2008 that it wanted a street front location for its proposed restaurant rather than one in the basement level of the Hunter Connection. But even without this conversation, the lack of Mr Fogarty or anyone else from Yum! Restaurants giving evidence means that inferences must be drawn from very thin material. A problem for Dr Thoo's Yum! Restaurants rental based case is that between April and October 2008 there is no correspondence from Yum! Restaurants pressing an answer from Dr Thoo about the availability of exhaust because Yum! Restaurants wished to proceed to lease Lot 17 as a KFC outlet. If Yum! Restaurants really were only thwarted in its desire to lease Lot 17 by the lack of an MEVS connection, then the Court would expect the correspondence to look very different from the way that it does. I am not prepared to infer that Dr Thoo probably lost Yum! Restaurants as a Lot 17 tenant because of delay in having it connected to the MEVS.

The Alternative Claim - Valuation of Food and Non-Food Retail Outlets

1. Dr Thoo's alternative claim was based not upon a particular lost leasing transaction for the whole of Lot 17 to Yum! Restaurants. But rather it was based upon the course that Dr Thoo has taken of dividing Lot 17 into three shops (described throughout these reasons respectively as Shop 1, Shop 2 and Shop 3, when numbered from south to north within Lot 17). Both parties adduced expert evidence about whether there was any difference in the market rental value of these three shops within Lot 17 upon the alternative assumptions that (1) they were connected to the MEVS (MEVS-connected) and leased as food retailing outlets, and that (2) they were not connected to the MEVS (MEVS-unconnected) and were leased as non-food retailing outlets. Dr Thoo adduced evidence from an expert valuer, Mr Robert Timmermans, that there was an identifiable difference of $14,800 gross per annum between the market rentals obtainable from the Lot 17 shops as MEVS-connected food outlets ($144,200 gross per annum) and as MEVS-unconnected non-food outlets ($129,400 gross per annum).

1. This alternative claim did not involve reference to actual rents received during the period of claimed loss: the experts' MEVS-unconnected assessment was a measure of what Lot 17 should have been able to earn in its present state.

1. The Owners Corporation contested this case. It adduced evidence from another expert valuer, Mr Wayne Wotton, to ground a contention that whether or not Lot 17 was connected to the MEVS did not make any difference to the market rent for the shops in the Lot. Mr Wotton contested Mr Timmermans' view that the market rent between the two alternatives showed a "distinct difference".

1. In preparation for the main hearing in 2012 both valuers initially assessed the market rental for the three shops in Lot 17 as at 15 February 2007. But in the principal judgment the Court found that the Owners Corporation had breached Management Act, s 62(2) from 1 December 2007. Both valuers looked at their valuations again in light of the Courts findings. Neither valuer thought that any timing differences between a valuation as at February 2007 or December 2007 would be material to their conclusions. They generally thought that any minor differences that might exist as a result of this 11 month time shift would cancel one another out. Thus, these reasons refer to the valuers' work as at February 2007. But when the valuers' conclusions are applied they are applied, without further explanation in these reasons, as at December 2007.

1. This part of Dr Thoo's claim required the Court to analyse the factual assumptions and reasoning behind Mr Timmermans' and Mr Wotton's expert opinions and to determine whether one or other of them should be preferred. Both experts used essentially similar methodology and drew upon similar primary materials, namely leases in other shops in the Hunter Connection basement area, the same level as Lot 17. But their different conclusions flowed from different factual assumptions and different judgments about the weighting of comparable leases in the basement area. The resolution of the differences between Mr Timmermans and Mr Wotton initially requires a broader description of the common evidence and assumptions from which they were both working.

The Contest between Mr Timmermans and Mr Wotton - Preliminary

1. Qualifications of the Experts. There was no issue between the parties about the expert qualifications of the principal valuation experts Mr Wotton and Mr Timmermans. The contest was about their assumptions, methodology and reasoning.

1. Mr Wotton is a registered real estate valuer who has been in practice in New South Wales for over 30 years. His practice has included the valuation of retail commercial, industrial and residential property and mostly in the Sydney metropolitan area including the Central Business District ("CBD"). He has experience in providing advice as to market rental levels for commercial and retail property within the CBD.

1. Mr Timmermans has a similar but not quite as lengthy experience as a valuer. He has valued commercial, retail, industrial and residential real estate since 1996 for banks, institutions, private investors, and owner-occupiers. He has extensive but not exclusive experience in valuing property in the Sydney metropolitan area. He has valued fast food outlets, restaurants and other food and non-food retail premises in suburban Sydney.

1. The two experts conferred and were able to agree on a number of matters that had previously been in contest in the proceedings.

1. The Basement Level Layout and Lot Size. The layout and lot size of the Hunter Connection's basement level lots are vital integers in the competing reasoning of the two experts. The layout of the 18 lots in the Hunter Connection basement level of Strata Plan 50276 is depicted in figure 1 ("the basement plan" - figure 1") at the end of these reasons. The basement plan - figure 1, shows that the long axis of the Hunter Connection basement lies in a north-south direction. The Hunter Connection's access to Wynyard Station through the Wynyard Arcade lies in an east-west direction. The Wynyard Arcade forms the stem of a "Y", which divides into the two branches of the "Y" shortly after it enters the Hunter Connection basement from the west. Each of these two branches of the "Y" lead to a set of escalators, one close to the northern (Hunter Street) entrance, and the other close to the southern (Pitt Street) entrance to the Hunter Connection. As the basement plan shows, the route of the southern branch from the "Y" intersection is the longer of the two and passes more of the basement level properties than the northern branch route. But the northern branch from the "Y" intersection leads to the Hunter Street escalators, situated just outside Lot 17 itself, which is the north-westernmost basement level lot of Strata Plan 50276.

1. The basement plan - figure 1 needs further explanation. In the plan, the common property (marked "common property") is all that area within the building envelope not within a numbered lot. The basement plan - figure 1 common property is available for use by pedestrians seeking access to individual shops (lots) at that level. The shaded area through the centre of the common property depicts the usual path of pedestrian traffic through the Hunter Connection basement, both on the northern route and the southern route.

1. The size of the 18 individual basement level lots also appears from the basement plan - figure 1. The precise lot size of the particular lots the experts used for comparative rental purposes is also reproduced in the tables set out later in these reasons.

1. Comparable Lots and Pedestrian Traffic. With one exception the experts were both agreed as to the foundation characteristics of the basement level lots with which Lot 17 should be compared for valuation purposes. The exception related to relative pedestrian traffic flow along the northern and southern branches of the "Y" pedestrian intersection within the basement level. Mr Timmermans concluded in support of Dr Thoo's case that "approximately 50 per cent of the passing pedestrian traffic leaving Wynyard station turns left, passing by the subject property with the other approximate half turning right towards Pitt Street". In contrast, Mr Wotton's view was that Lot 17 at the northern end of the basement level arcade is "away from the main pedestrian route which...runs from the arcade linking Wynyard station and then running in a south-easterly direction to the arcade linking to the exit in Pitt Street". This difference of view justified Mr Wotton allowing for a larger downwards adjustment in the rental for Lot 17 from the comparative shop rentals on the southern route to Pitt Street than did Mr Timmermans. Mr Wotton allowed for the larger downwards adjustment because he thought Lot 17, on the northern route, was comparatively inferior in relation to the characteristic of passing pedestrian traffic compared with the lots on the southern route.

1. But the Court prefers Mr Timmermans' observations over Mr Wotton's observations about relative pedestrian traffic through the Hunter Connection basement level. Mr Wotton had been a regular user of this arcade over the years and drew upon that experience. But in execution of his valuation task Mr Timmermans did systematic checking of how many people used each of the northern and southern routes through the basement level. In the course of his work he sat at the basement level "Y" pedestrian intersection of the Hunter Connection on several occasions and noted the movement of people from the Wynyard Arcade turning left into the northern Hunter Street route or right into the southern Pitt Street route. He marked how many people came through in five to ten minute intervals. He undertook that exercise three times in the morning and three times in the evening, recording his findings in field notes.

1. Mr Wotton supported his views on the subject of pedestrian traffic with the observation that there should be lower traffic flow in the northern route past Lot 17, because there is only a single escalator going up to Hunter Street, past Lot 17, but there are two way escalators at the Pitt Street end. The single Hunter Street escalator follows the dominant pedestrian flow, depending on the time of day: moving up in the morning taking pedestrians from the basement to Hunter Street; and then back down in the evening from Hunter Street. Thus, if a pedestrian is walking against the pedestrian traffic in peak hour at the Hunter Street entrance, the pedestrian must use the stairs rather than the escalators. Moreover, there is another set of stairs exiting from the Wynyard Arcade up to Hunter Street from an adjacent building. But in my view it is difficult to argue with the accuracy of Mr Timmermans' direct pedestrian flow observations, which he took systematically, and which he noted as he made each observation. I find as a result of his notes and observations that the pedestrian traffic on both the northern and southern routes is substantially the same.

1. That means that some of Mr Wotton's comparative rental adjustments against Lot 17 would need to be modified. Both experts conceded that if they were wrong about the relative pedestrian flows that they would be more likely to agree with the adjustments made by the other expert. Pedestrian flow was a substantial component of each expert's analysis when using southern route comparative rentals. In my view, because of Mr Wotton's wrong premise about the higher pedestrian traffic exposure of the southern route shops, he applied an overly negative adjustment to reach the market rent for Lot 17 from the rents of the shops on the southern route.

1. There is another reason to be cautious about applying a rental discount to Lot 17 against the southern route rentals, because of lower pedestrian traffic. Mr Timmermans' points out that the two lots on the northern route and near Lot 17 (being Lot 16 adjacent to Lot 17, and Lot 1 opposite it), surround a common area that is particularly well adapted for food related uses. In that location, public tables and seating are installed on the common property, providing a place where people can enjoy a recently purchased fast food lunch. There is no equivalent table and seating area on the southern route. I accept Mr Timmermans' evidence that the northern route through the Hunter Connection offers a marginally higher attraction to potential food patrons, because of this common seating area. The Owners Corporation also pointed out in final submissions that Lots 1 and 2, near the northern end, both had significant internal seating facilities and therefore have the capacity to attract patrons which does not make them entirely analogous to Lot 17. Whilst this point has some validity, such internal seating really only adds to the "food hall" effect of the northern route area and strengthens Mr Timmermans' argument that a discount should not be applied for differences between the southern route shops and the northern route shops.

1. Mr Timmermans made other observations about the pedestrian use of this area, which I accept. He observed that persons using this common seating area between Lot 17 and Lot 1 were customers of the adjacent cooked food shops. He says, and I accept, that the general habit of these customers was to make their food purchases and then take their seats for about 15 minutes to consume their meals before leaving, after which their places were quickly taken by other patrons consuming purchased foods. Sometimes patrons queued before taking up available seats. I also accept the correctness of Mr Timmermans' observations that the food patrons using this common food consumption area did not enter the non-food shops on the basement level area; and that the food shops traded longer hours than the non-food shops in the basement level area.

1. Beyond these findings about pedestrian traffic and common areas, the principal contest between Mr Wotton and Mr Timmermans was in relation to their different approaches to their valuation task.

Contrasting Valuation Methodologies

1. The main differences between Mr Wotton's and Mr Timmermans' valuation methodologies can be readily identified. Upon these differences the Court prefers Mr Timmermans' methodology or concludes that the differences between the two experts are not material. Both experts refer closely to the lots configured in the basement plan - figure 1. All the comparative rentals they used are described in these reasons by reference to their individual lot numbers in figure 1. The main differences in the experts' methodology were: (a) the range of properties they each used as a source of comparative rentals, and (b) the size of the areas within Lot 17 that each expert assumed was to be offered for rent for the purpose of rental comparison. The first of these differences in methodology was an important point of division between the two experts. The second difference was highlighted but on analysis did not really account for much of what divided the experts.

1. (a) The Range of Comparable Properties. The experts first differ in the range of properties they used for comparative rentals. Mr Timmermans used all the basement level tenancies: those that sell cooked food and have the benefit of the mechanical exhaust ventilation system, namely Lots 1, 2, 11, 16, 18 and the sub-divided Lot 10; and those that do not sell cooked food and are not connected to the MEVS, namely lots 3, 5, 7, 9, 13, 14 and 15. Lots 4 and 6 were not tenanted. Mr Timmermans excludes Lot 8 from his analysis of cooked food outlets. Although Lot 8 is a cooked food retail shop at the time of valuation it was not connected to the MEVS, as the food sold from that lot is prepared off site and re-heated. Mr Timmermans regards the cooked food MEVS-connected tenancies as the most comparable with lot 17 but he had regard to these other named basement level tenancies in his analysis.

1. In contrast, Mr Wotton's approach is to use comparative rental evidence from a smaller number of cooked food and non-cooked food retail outlets, which are a subset of all the 18 basement level lots. For each of Shops 1, 2 and 3 in Lot 17 he makes judgments about the other basement level lots that are in his view the most comparable with Shops 1, 2 and 3. He selects as the most comparable other basement level lots, which are generally of a similar size to Shops 1, 2 and 3. He places particular focus upon four lots, which were let around the critical time of February 2007, namely Lots 1, 7, 8 and 13. Two of these, Lots 7 and 13 are non-cooked food retail outlets. The other two, Lots 1 and 8, are cooked food retail outlets. He also considered lots let in 2008, Lots 2, 5, 11 and 14.

1. Mr Wotton's opinion was that the similarity in size between Shop 1 of Lot 17 (30 m²) made it "most comparable" to Lot 8 (31 m²) and Lot 13 (21 m²). Similarly he thought that the similarity in size between Shop 2 (50 m²) gave it greatest comparability with the two lots of similar area, Lots 2 (57 m²) and 7 (50 m²). According to Mr Wotton only minor further adjustment was required for the slightly less well-positioned and larger Shop 3 (53 m²). Mr Wotton explained the reasons for his choice: "I consider it was more appropriate to look at shops having similar areas, therefore you don't have to make such a subjective judgment on size. You eliminate the risk of adjustment that is wrong". Mr Wotton did have further regard in his analysis to lettings of Lots 2, 5, 11 and 14 and did take into account a wider range of basement level properties. But he saw no need to exclude non-cooked food retail rentals from his comparative process. Upon his analysis he saw no special need to adjust for the difference between cooked food and non-cooked food retail outlets: the rentals for both, in his view, did not vary on account of that factor.

1. Thus the principal differences between Mr Wotton's approach and Mr Timmermans' approach were in the rationale for their selection of the most comparable rental properties to Shops 1, 2 and 3. Mr Wotton selected his most comparable rental properties on the basis of their similar size to Shops 1, 2 and 3 (and their greater proximity in lease execution time to February 2007), irrespective of whether these comparable properties were used for cooked food purposes or not. In contrast, Mr Timmermans used a larger number of basement level comparable properties, but subdivided that number into two classes defined by whether each lot was used for cooked food purposes or not.

1. Mr Timmerman's analysis preferred. The Court prefers Mr Timmermans' analysis and concludes that connection to the MEVS does have an influence on the market rate per m² for the basement level leases. The Court prefers Mr Timmermans' analysis because it is better fitted to exposing whether there is any difference between the market rentals for the three shops in Lot 17 let as food outlets or let as or non-food outlets. Mr Wotton's decision to use non food retail lots among his four lots used for primary comparison, in addition to food retail lots, has a tendency to: (1) depress Mr Wotton's rental valuation for Lot 17 for the three shops in Lot 17; and (2) obscure the differences between cooked and non-cooked food outlets.

1. Mr Timmermans criticized Mr Wotton's analysis. Mr Timmermans asked himself the question "How can I compare food to non-food related rentals?" In response to this question he organized his comparative data separating out for analysis the rentals for food and non-food shops to see if they were different. He then calculated the average value for the rentals for each of those two different uses, to see if the averages for the two groups were different. He concluded that they were. I accept as correct Mr Timmermans' criticism of Mr Wotton's method. As Mr Timmermans explained: Mr Wotton's choice of a single basket of food and non-food comparable rentals meant that "it was impossible [for Mr Wotton] to determine whether one use should achieve a higher rental or lower rental because that basket is a mixed bag of both."

1. Mr Wotton explained that he did not see any difference between market rentals for food and for non-food shops in the basement area. But in my view his method of analysis, combining the two uses into one basket, meant that it was more difficult for him to discover any differences between the two classes of rentals.

1. The Owners Corporation criticized Mr Timmermans' approach for assuming the answer that it seeks to prove. But I do not think that is a valid criticism. It is quite possible that Mr Timmermans' analysis could have revealed no difference between the two classes of rentals. But he did find a difference. He expected to do so but that does not mean that he had pre-determined the issue.

1. Mr Wotton's approach was partly based upon his well-grounded concern that he should attempt to reduce subjectivity in his analysis. He concluded that he could reduce such subjectivity by focusing on comparable properties for the three Lot 17 shops that were closest in size to those three shops. He did that. But he did not wholly eliminate subjectivity. He still needed to make some adjustments for shop-size between the comparable rental properties and the three Lot 17 shops. Like Mr Timmermans, it was necessary for Mr Wotton to adjust his comparable rental properties for their differences in size, in location, and in time (of lease execution) from the three shops in Lot 17. There was still subjectivity in these several adjustments. Mr Wotton's and Mr Timmermans' analysis really only differed in the end in whether the comparative rental data was organized into two classes of food and non-food rental properties before making adjustments for size, position and time.

1. In my view there were no real subjectivity disadvantages in Mr Timmermans analysis. But there were analytical disadvantages in Mr Wotton's approach: it was difficult for him to see possible differences between food and non-food rentals. He did attempt to do so from the smaller sample that he had used but no differences were evident to him.

1. (b) The Assumed Shop Size within Lot 17. Mr Wotton and Mr Timmermans also used a different base area within Lot 17 as their primary point of comparison with other rentals. As explained above Dr Thoo has divided Lot 17 into three shops of varying size; the smallest shop (Shop 1) of 30 m² is adjacent to Lot 16; the next largest shop (Shop 2) of 50 m² is immediately to the north of Shop 1 and towards Hunter Street; and the third shop (Shop 3), the northern most shop, has an area of 53 m². It was not in contest that the northern most shop, Shop 3, was at the greatest disadvantage of the three in attracting passing traffic because of its recessed position somewhat behind and to the side of the escalator moving pedestrians between the Hunter Street and the basement level.

1. Both Mr Timmermans and Mr Wotton agreed that in valuation theory and practice smaller shops will attract rental at a higher rate per m² than larger shops. It was therefore necessary to make adjustments between the three Lot 17 shops and the other lots on the basement level by reference to lot and/or shop size. The two experts did this in different ways. Mr Timmermans sought to average the three shops within Lot 17 and reach an average Lot 17 shop size of 44 m². In contrast Mr Wotton did not undertake any averaging but sought to adjust rentals between comparable lots and each individual shop separately. He criticized Mr Timmermans for introducing an artificial average lot size, which did not correspond with any actual shop size within Lot 17.

1. I accept that Mr Timmermans' use of an average Lot 17 shop size of 44 m² does introduce an extra step into his size adjustment reasoning. Nevertheless, this does not impair the validity of Mr Timmermans' method, as he clearly adjusts for the difference between his average 44 m² Lot 17 shop and the different actual sizes of each of Shops 1, 2 and 3. At no time in his analysis does he lose sight of the actual sizes of Shops 1, 2 and 3, and the need to adjust for the influence of shop size in his comparisons. Indeed he, like Mr Wotton, makes direct comparisons between the comparable rental properties he has selected and the actual sizes of the three shops within Lot 17. Moreover, Mr Wotton and Mr Timmermans have no disagreement about the adjustments that should be made for the rentals of Shops 1, 2 and 3 on account of their relative size and position within Lot 17. So Mr Timmermans' adjustments from an average Lot 17 lot size of 44m² are not ultimately a contentious part of his valuer's logic.

1. But it is necessary now to give a more detailed account of Mr Timmermans' valuation approach, which the Court prefers and to contrast it in places with Mr Wotton's opinions. Mr Wotton's contrasting method appears incidentally from this more detailed review of Mr Timmermans' work.

Mr Timmermans' Analysis in More Detail

1. Mr Timmermans' expert opinion was sought on the question of what market rent could be obtained from an arms length tenant renting each of Shops 1, 2 and 3 as at 15 February 2007, on the alternative assumptions that (a) those three shops were fitted out for and connected to the MEVS and available for use as a fast food shop or for other uses requiring mechanical exhaust ventilation, or that (b) the three shops were not connected to the MEVS.

1. Mr Timmermans found, as the basement plan - figure 1 shows, that inclusive of the subject property there were 18 shops on the basement level within the boundaries of the strata plan. Each shop comprised a separate Strata Lot. Some 15 of these shops were leased and two were owner occupied. Mr Timmermans disregarded the owner occupied shops in his analysis. Of the 15 leased shops, 7 were used for cooked food retail purposes and 8 for non-food retail food purposes. One of the cooked food retail shops (Lot 8) was not connected to the MEVS, because the food it offered for sale was prepared off site.

1. Thus, Mr Timmermans found and I accept that, about 50 per cent of the basement level strata area is used for cooked food retail purposes. Of the 407 m² of basement level cooked food retail space the majority, about 65 per cent, is situated towards the northern end of the basement level. Lot 17, located as it is at the northern end of the basement level, is located close to cooked food retail shops, and specifically Lots 1, 2 and 16.

1. As these reasons identified earlier, the northern end of the common property supports three fixed bench tables, approximately 3 to 4 metres in length, with associated seating of approximately 36 individual stools. I accept Mr Timmermans' evidence that these enhance the retail experience of the cooked food retail shops in the area and are an advantage to the cooked food tenants, providing something of a "food hall" atmosphere at the northern end of the basement level. And, as explained earlier, there is no other seating or other tables accessible to cooked food retail customers on the southern route common property.

1. Mr Timmermans' analysis of the directly comparable cooked food retail shops connected to the MEVS is set out below. Most of the basement level leases are for terms of 5 years with a further option for 5 years. The Retail Leases Amendment Act 2005 requires retail shop leases to be for a minimum of five years. Mr Timmermans has adopted a term of five years plus an option of five years as a basis for his rental assessments.

1. Mr Timmermans adopts on his report the definition of "current market rent" in Retail Leases Act 1994, s 19(1)(a), which relevantly provides as follows:-

"19 Reviews of current market rent

(1) A retail shop lease that provides for rent to be changed to current market rent is taken to include provision to the following effect:

(a) The current market rent is the rent that would reasonably be expected to be paid for the shop, as between a willing lessor and a willing lessee in an arm's length transaction (where the parties are each acting knowledgeably, prudently and without compulsion), determined on an effective rent basis, having regard to the following matters:

(i) the provisions of the lease,

(ii) the rent that would reasonably be expected to be paid for the shop if it were unoccupied and offered for renting for the same or a substantially similar use to which the shop may be put under the lease,

(iii) the gross rent, less the lessor's outgoings payable by the lessee,

(iv) rent concessions and other benefits that are frequently or generally offered to prospective lessees of unoccupied retail shops.

The current market rent is not to take into account the value of goodwill created by the lessee's occupation or the value of the lessee's fixtures and fittings on the retail shop premises."

1. I accept that Retail Leases Act, s 19 provides an appropriate definition of current market rent for valuation purposes here. Whilst the non-cooked food retail shops may have a "similar use" to assumed MEVS-connected Lot 17 shops, it is the cooked food retail shops in the basement level that in my view have a "substantially similar use" to such shops. But Mr Timmermans does not wholly exclude non-food comparative rentals. He also uses the non-cooked food retail shops in the basement level as a source of the most comparable rentals for the Lot 17 shops MEVS-unconnected, as they are now.

1. The cooked food retail shops connected to the MEVS, to which Mr Timmermans primarily has regard, are Lots 1, 2, 10, 11, 16, and 18. Mr Timmermans makes a number of observations about the comparison between those lots and the shops in Lot 17. He deals with Lot 8 separately. His comments explain the adjustments that he makes between these six comparable rental properties and the Lot 17 shops. Mr Wotton contested a number of Mr Timmermans' adjustments about these properties but the Court accepts Mr Timmermans' adjustments as appropriate. Following are the Court's findings about the comparable cooked food lots that Mr Timmermans used. The Court accepts his descriptions and valuers' judgments and adjustments about the comparability of these lots to the shops in Lot 17, in preference to those of Mr Wotton.

1. Lot 1. Directly opposite Lot 17 to the east, across the common property is Lot 1, which, with a strata area of 118 m², is substantially larger than any of Shops 1, 2 or 3. The Lot 17 shops range in size between 30 m² and 53 m². Lot 1 operates as a restaurant with a 5 plus 5 lease term, commencing in April 2007 at a gross rent of $130,000 per annum, resulting in a rental per square metre per annum of $1,102. Lot 1 is connected to the MEVS. I accept that smaller shops command a higher rental rate per square metre than larger shops and that as this lot is inferior as to area compared with each of the shops in Lot 17. But as Mr Timmermans explained in his addendum (2) to his expert report, I find that it is similar in location to Lot 17.

1. Lot 2. The size of Lot 2, across the common area from Lot 17 in a south-easterly direction, at 57 m² is similar to Shops 2 and 3 of Lot 17. I accept that Lot 2 is neither superior nor inferior in area to Shops 2 and 3. But it is slightly superior in location to Lot 17. Lot 2 lies directly east of the Wynyard Arcade and particularly in the mornings captures the full line of sight of pedestrian traffic before turning either to the north or to the south. It is superior in location to Lot 17.

1. Lot 2 also has a 5 plus 5 lease term, commencing in October 2008 and its use is as a noodle bar and for the sale of Asian takeaway food. Its area of 57 m² at a commencing rental per annum of $84,459 on a gross basis, infers a rental per square metre per annum of $1,491.

1. Lot 11. The next comparable take-away food outlet, Lot 11, is situated well along the southern route, towards the Pitt Street escalators but on the western side of the basement level. This Indian food outlet and associated catering business is the subject of a 3 plus 3 lease, commencing in July 2008. It occupies only a small strata area of 14 m² with a commencement rental per annum of $35,782 gross. This infers a rental per square metre per annum of $2,556. It is connected to the MEVS. It has attractive features, being a small shop with a wide frontage and a location opposite the Pitt Street escalators. And I accept Mr Timmermans' opinion in addendum (2) to his expert report that it is a superior location to Lot 17.

1. Lot 16. The lot immediately to the south of Lot 17, Lot 16, is a 39 m² strata area retail food shop connected to the MEVS. Its commencement rental per annum, on a gross basis, is $91,000, inferring a net rental per square metre per annum of $2,333. Mr Timmermans believed that the lease renewal for this lot was approximately 2008. It is similar in size to Lot 17, Shop 1 and has no size advantage. But it has both superior location and frontage, given it stands on the corner of the Wynyard Arcade and the northern and southern branches of the Hunter Arcade.

1. Lot 18. On the southern route Lot 18 is located an island lot in the middle of the common property. As the basement plan - figure 1 shows Lot 18 divides the southern route of the common property into two paths for a distance of about 15 to 20 metres, one path slightly to the west of the other. With an area of 50 m² Lot 18 is similar in size to Lot 17, Shops 2 and 3. It is operated as a café with access to the MEVS. It has a 5 plus 5 lease term commencing in January 2005 with a commencement rent per annum of $114,400 (but agreed on a net basis). Subject to adjustment, the lease infers a rental per square metre per annum for Lot 18 of $2,090.

1. I accept Mr Timmermans' opinion that Lot 18 is superior in location to Lot 17. It is an island shop, the northern most end of which is close to the entrance of the Wynyard Arcade, putting it the line of sight of pedestrians taking both the northern and southern routes both in the morning and evening rush hour. Thus it is equivalent in size but superior in location and frontage to Shops 1, 2 and 3 in Lot 17.

1. Lot 10. Mr Timmermans' last comparable rental location was Lot 10. This lot has now been subdivided into Lots 59 to 61 in a different strata scheme, strata plan 62889. But it appears as Lot 10 on the basement plan - figure 1, and will be referred to that way throughout these reasons. At 98 m² Lot 10 is much larger than each of the three shops in Lot 17. But despite its size, only a small percentage of its frontage is exposed to passing pedestrian traffic. It lies at the very southern end of the Hunter Arcade, adjoining the escalators towards Pitt Street. As a result, like Lot 11, it is well away from the 3 tables and 36 seats for local and immediate food consumption at the northern end of the common property. And it is located away from most of the other food shops in the basement level. I accept Mr Timmermans' opinion that this shop is inferior in location and shape to the Lot 17 shops. I conclude it is also inferior in size, as smaller shops command a higher rate per square metre than larger shops. Lot 10 has a current lease term of 5 plus 5 with a lease commencement date of January 2008, at a commencement rental per annum of $124,800 agreed on a gross basis. This infers a rental per square metre per annum of $1,273. It is connected to the MEVS to support its operations as a restaurant and provider of take-away food.

1. Mr Timmermans also had regard to Lots 3, 5, 7, 9, 13 and 14, which he regarded as the most comparable non-food retail shops in the basement level. The locations of these appear from the basement plan - figure 1. He offers the view, which I accept, that some of these non-food retail shops towards the basement level southern end may well have a superior location when exposure to passing pedestrian traffic is considered, especially in comparison to Shop 2 and Shop 3 of Lot 17.

1. Mr Timmermans used the direct valuation approach, comparing the rentals of properties similar to the three shops in Lot 17. Mr Timmermans took into account differences in pedestrian traffic and in sight lines for passing pedestrian traffic, between the subject property and the comparable rental properties. He also took into account the tenancy mix. I accept Mr Timmermans' opinion that the tenancy mix is important in assessing market rents because customers are attracted to the convenience of particular user precincts and the advantages in arranging tenants within a shopping centre according to the type of trading. I accept Mr Timmermans' opinion that leasing any of the three shops of Lot 17 as a cooked food retail shop would be the highest and best use for Lot 17. Moreover, I also accept that Mr Timmermans' opinion that no retailer of fresh cooked food would take a lease for any of the shops in the subject property without sufficient MEVS capacity. Further reasons for these conclusions appear below.

1. The objective of the direct comparison approach is to compare like with like. This requires the valuer to adjust the rentals of comparable properties to account for their differences from the subject property. Mr Timmermans needed to adjust for four such variables: (1) the difference between gross and net rentals; (2) the weighting of leases entered into in closer proximity of time to the date of valuation; (3) the factor that large shops generally achieve lower rental rate per square metre than smaller shops; and (4) the location of the shops, bringing into consideration issues such as pedestrian traffic and resulting sight lines. The result is reproduced on the following table, Table 1.

Table 1
Lot	Strata Area (m²)	Gross/Net (Adj)	Time (Adj)	Size (Adj)	Location (Adj)	Adjusted Rental/m²
1	118	$1,102	0.0%	25%	0%	$1,377
2	57	$1,491	-5.0%	5%	0%	$1,491
3 N	24	$2,083	-10.0%	-15%	-5%	$1,458
5 N	21	$2,647	-5.0%	-15%	-10%	$1,853
7 N	50	$1,100	-5.0%	0%	-5%	$990
8	31	$1,639	2.5%	-5%	-10%	$1,434
9 N	34	$1,300	10.0%	-5%	-5%	$1,300
10	98	$1,273	-5.0%	25%	5%	$1,592
11	14	$2,556	-5.0%	-25%	-10%	$1,534
13 N	21	$1,429	0.0%	-15%	0%	$1,214
14 N	32	$1,788	-5.0%	-5%	0%	$1,609
15 N	20	$1,820	-2.0%	-15%	0%	$1,511
16	39	$2,333	-5.0%	0%	-20%	$1,750
18	50	$2,388	7.5%	0%	-20%	$2,090

1. The bold entries in the "Adjusted Rental/m²" column represent Mr Timmermans' adjusted rentals for the comparable cooked food rental properties. The italicised parts of the table (and where the letter "N" appears after the lot number) show the adjustments Mr Timmermans' makes for the comparable non-food rentals: Lot 3, a dry cleaners; Lot 5, a hairdressing salon; Lot 7, a retailer of ladies fashion; Lot 9, a retailer of bags and accessories; Lot 13, a tailor; and Lot 15, a jewellery shop. Lot 12 does not appear in Mr Timmerman's table. He excludes it from consideration because its lease was entered into in April 1999.

1. The adjustments Mr Timmermans makes are subjective judgments from his experience as a valuer. So are the adjustments Mr Wotton makes. The table of adjustments shows Mr Timmermans' adjusted rentals for cooked food retail purposes varied between $1,337 (Lot 1) and $2,090 (Lot 18) per square metre per annum. The adjusted rentals for non-food retail purposes varied between $990 (Lot 7) and $1,853 (Lot 5) per square metre per annum. The initial time adjustment was to compare the date of each lease to the date of valuation, namely being 15 February 2007.

1. Mr Timmermans' analysis is conservative in that it does not take into account the effect of adding cooked food vendors into the three Lot 17 shops, Shops 1, 2 and 3. This would intensify the creation of a "food hall effect" at the northern end of the basement level and would itself tend to lift the achievable rentals in the northern end of the Hunter Arcade basement level.

1. There is also a degree of conservatism in the way that Mr Timmermans dealt with the ambiguous Lot 8 in his analysis. Lot 8 sells food but is not connected to the MEVS. Its tenants bring their food stock onto site and reheat it, without using the MEVS. Mr Timmermans excluded Lot 8 from among his cooked food related comparative rentals for calculation purposes. But his doing so does not raise his median rental rate for comparable cooked food rentals. Lot 8's adjusted rental rate per m² per annum is $1,434, which sits below the average value of $1550 per m² per annum for cooked food rentals. I accept Mr Timmermans' evidence that removing it from the cooked food comparative rentals would not lower the average rental for that category. So leaving it in does not artificially lift the average cooked food rental Mr Timmermans is using for his analysis. Although it must be said that if Lot 8 is put within the non-food comparative rentals it would lift them slightly. This would reduce the margin that Mr Timmermans identified between cooked food and non-cooked food comparative rentals. But the effect is slight and does not impair Mr Timmermans' analysis, as he explains, that there is a "comfortable" difference between food and non-food comparative rentals.

1. Based upon these adjusted rentals Mr Timmermans then assessed the rate per m² per annum for each of the three Lot 17 shops upon two scenarios: the cooked food retail use requiring the shops to be MEVS-connected (Scenario A); and a non-food retail use where the shops are MEVS-unconnected (Scenario B). He excluded the two extreme values in each of the food and non-food comparable rental properties and then took the average of the rentals that remained. The resulting average of the Scenario A food rentals was $1,550 per m2 per annum for Shop 1. The resulting average of the non-food Scenario B rentals was $1,440 per m² per annum for Shop 1. Mr Timmermans then inferred the results for Shops 2 and 3 by adjusting for their relative inferiority compared with Shop 1. The results of his calculation were the following and led to Mr Timmermans' conclusion that there was a differential of $14,800 per m² per annum between the cooked food and non-cooked food market annual rentals for all the shops in Lot 17 from December 2007.

Scenario A		Scenario B
Shop	Area (m²)	Rent/m²	Rent	Rent/m²	Rent
Shop 1	30	$1,550	$46,500	$1,400	$42,000
Shop 2	50	$1,000	$50,000	$900	$45,000
Shop 3	53	$900	$47,700	$800	$42,400
133	$144,200	$129,400

1. Mr Timmermans explained in his Addendum (2) to his expert evidence that on both scenarios A and B he applied a 35% discount to his findings in relation to Shop 1 to reach his findings in relation to Shop 2. He applied a further 10% discount to his findings in relation to Shop 2 to reach his findings in relation to Shop 3. These relative rental ratios between Shops 1, 2 and 3 were not in contest between the parties.

1. Mr Wotton criticised Mr Timmermans for using averages rather than medians in his analysis of the comparable rental data. Mr Wotton says that the use of medians (or averages with standard deviations) is more consistent with accepted valuation practice specially with small sample sizes. It is not demonstrable that Mr Timmermans' use of averages has distorted his conclusions, especially where his sample size for both cooked and non-cooked food is not small.

1. Mr Wotton accepted that the shift from a valuation date of February 2007 to one of December 2007 as a result of the Court's findings in the principal judgment would not make a material difference to the main contest between the valuers. But he pointed out that the move somewhat strengthened his argument for only having regard to a smaller number of leases closer in time and lot size to the three shops in Lot 17. For example he said, he did not, and Mr Timmermans did, have regard to Lot 9 as a comparable rental property, which was leased in 2004. But in my view time adjustments do not account for the major differences between the valuers, as can be seen from Table 1. And the 11 month time shift made some of Mr Timmermans' comparable rentals closer in time to a hypothetical lease of the three shops in Lot 17.

1. Mr Wotton resisted the suggestion in cross-examination that his analysis should have taken in to account the offers that Yum! Restaurants made for Lot 17 in March 2008. He described the Yum! Restaurants negotiation as no more than an offer, which had not matured into an agreed lease, and which was therefore not relevant for valuation purposes. I agree with Mr Wotton in this respect. The Yum! Restaurants offer did not result in a lease transaction between a willing tenant and a willing landlord. I accept, as Mr Wotton explained, on proper valuation theory it is a mere offer, which can be ignored: cf McDonald v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 231, and Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547, at 562.

1. The Owners Corporation also criticised Mr Timmermans' approach for using a mathematical rather than a valuation based analysis. In my view Mr Timmermans was justified in using mathematical analysis to determine whether there was a difference between the rentals for the connected and non-connected Lots at the basement level. Some kind of mathematical analysis such as he engaged in was the only way that any differences could be identified. The Owners Corporation then made a related criticism against Mr Timmermans for not engaging in a pure valuation exercise, and using the two or three most relevant pieces of comparable evidence, rather than just using an average. Mr Timmermans is criticised for using averages of the MEVS-connected and MEVS-unconnected rentals respectively. But I accept Mr Timmermans' evidence that this was a legitimate valuation approach for the specific brief that he had: which was, after all, to deal with not just one but two hypothetical valuations of the same property; where he was not averaging a large data set; and where he excluded the largest and smallest rental values from his averaging process. Nor do I accept that merely because he took some averages that he was not exercising valuer's judgment at the same. His elimination of the highest and lowest comparative rentals in each of the clauses of connected and non-connected rentals, before taking his averages, shows this. Such elimination involves selection of the more relevant comparative rentals.

1. Highest and Best Use of Lot 17. Mr Timmermans' separate analysis and adjustment of the non-food rentals using Lots 3, 5, 7, 9, 13, 14 and 15 has assisted him reaching a judgment that cooked food retail shops on the basement level achieve higher rents than non-food retail shops.

1. In my view five other factors support the same conclusion: that there is a difference between the rental levels for food and non-food retail shops at that location. First the evidence of RGZ Commercial's Mr Zenari is that he has encountered only minimal interest from marketing Shops 1, 2 and 3 as non-food outlets. Mr Zenari is an experienced agent and was an impressive witness. His opinion is that it would be better if the shops could be offered for food related retail purposes as that would increase the number of respective tenants. I accept the correctness of his opinion on this matter.

1. The second factor is that the three shops of Lot 17 are currently only leased for non-food purpose on a month-to-month basis for a gross rent per annum plus GST of $70,364. The market for leasing Shops 1, 2 and 3 as non-food retail outlets could readily be described as tepid.

1. A third factor also bases that conclusion. I accept Mr Timmermans' observations that people using and queuing for the common area seating at the northern end of the basement level common property tend predominantly to only go into the food outlets and not then into the non-food outlets. This strongly suggests that Lot 17 is already disadvantaged in its current environment by a "food hall effect" and that its position would be improved by converting itself to cooked food retailing, to match its immediately surrounding tenancies.

1. There is a fourth and more general factor from which I infer that the highest and best use for Lot 17 is presently as a cooked food retail outlet. I accept Mr Timmermans' evidence that cooked food shops have greater business resilience to fluctuating economic forces. His evidence is that food is not considered to be discretionary spending and provides a steadier business income profile than exists for discretionary spending products such as fashion, jewellery and other non-food items. The reduced risk of lower business revenue for tenants in volatile economic times is another factor, which infers a higher rental premium for cooked food shops in this area, where they are otherwise suitable.

1. The fifth and last factor is based on some further calculations Mr Timmermans performed. In an additional report dated 13 August 2010 (Exhibit M) Mr Timmermans sought to apply Mr Wotton's own adjustments to the separate food and non-food rentals set out in Mr Timmermans' report. In his doing so I accept that Mr Timmermans established that Mr Wotton's own adjustments reaffirmed the difference between food and non-food rentals in the basement level. Although Mr Timmermans using Mr Wotton's work this way was criticised, I accept the validity of this as a testing exercise.

1. I accept that the highest and best use of the three Lot 17 shops is as cooked food retail outlets and that there is a difference between leasing them as cooked food outlets and non-cooked food outlets.

1. In final submissions Dr Thoo also put a case that Lot 17 should be valued from the expert evidence for leasing as one shop, rather than being sub-divided into three shops. But for a number of reasons the Court declines to consider this damages option. It was not a clear part of the contest at trial between the experts. Both Mr Timmermans and Mr Wotton approached their valuation task on the assumption of Lot 17 would be divided into three shops. Mr McInerney on behalf of Dr Thoo asked a limited number of questions of Mr Wotton about the possible leasing of Lot 17 as one shop. But these questions did not put Mr Timmermans and Mr Wotton wholly at issue on this further valuation option. Moreover, once Dr Thoo failed to lease Lot 17 as a single unit to Yum! Restaurants, he set about subdividing and letting the lot as three shops. His valuation evidence appropriately reflected his actual approach in this respect. At the time of the principal hearing and of the damages hearing, Lot 17 was divided into three shops. And Dr Thoo was receiving rent from tenants within the lot on that basis. It is not necessary further to consider this part of Dr Thoo's case.

Assessment of the plaintiff's claim for damages

1. Dr Thoo seeks damages for loss of opportunity resulting from the Owners Corporation's established breach of duty under Management Act, s 62(2). Dr Thoo's case is that but for the Owners Corporation's breach of its statutory duty he would have been able to re-develop Lot 17 so that tenants could cook and sell food from the space, resulting in turn from higher rental from the lot.

1. That Dr Thoo may claim damages for a breach of Management Act, s 62(2) is clear. The Management Act, s 62 duty is owed to each lot owner and its breach gives rise to a private cause of action under which damages may be awarded to a lot owner for breach of statutory duty: Seiwa Pty Ltd v Owners of Strata Plan 35042 [2006] NSWSC 1157 at [3] - [6] and Trevallyn - Jones v Owners of Strata Plan 50358 [2009] NSWSC 694 at [113] - [156]. This principle holds true for breaches of both Management Act, ss 62(1) and 62(2): Seiwa Pty Ltd and Trevallyn - Jones concerned breaches of Management Act, s 62(1). But there is no principled reason why the damages consequences of a breach of the s 62(1) duty to "maintain" should differ from those for breach of the s 62(2) duty to "renew and replace fixtures of fittings". Moreover, in Lin & Anor v Owners of Strata Plan 50276 [2004] NSWSC 88, concerning the subject strata plan, Gzell J awarded damages to Mr Lin, consequent or a s 62(3) breach.

1. The Owners Corporation raised a point contrary to this conclusion. The Owners Corporation argued that certain observations of McColl JA in Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449; [2005] NSWCA 246 at [115] support the view that a breach of s 62 does not sound in damages. Her Honour observed, at [115], in that case:-

"[115] This review of the scheme of the Strata Schemes Management Act indicates that, as its name indicates, the Act is concerned to allocate responsibilities for the strata scheme between the owners corporation and lot proprietors, to set out

the functions of the owners corporation and to establish a regime to enable the enforcement, without recourse to courts, of a function conferred or imposed by or under the Strata Schemes Management Act in relation to a strata scheme.

Significantly, too, there are some matters the legislature considered so significant as to create a liability in damages for exercise of the function (s 65) or to create an offence by the owners corporation for their breach (ss 65C, 83, 84 and 87). A "breach" of s 62 does not sound in damages nor constitute an offence under the Strata Schemes Management Act. Rather, it is apparent, in my view, that the legislature intended the system of adjudication established under Ch 5 to be the vehicle through which the owners corporation's discharge of its s 62 functions could be regulated."

1. The Owners Corporation emphasised her Honour's words "'a breach' of s 62 does not sound in damages nor constitute an offence under Management Act". But her Honour's observations were obiter, as Ridis was not adjudicating a claim for damages for breach of statutory duty under s 62. Moreover it is not evident from the judgments of the Court of Appeal in that case that there was a contest before the Court as to whether cases such as Seiwa and Lin were wrong in this respect. It is clear that the present issue did not arise in Ridis. As McColl JA observed in that case (at [87]) "the appellant does not assert s 62 gave rise to a statutory cause of action". In my view her Honour's observations are not an impediment to finding in this case that breach of Management Act, s 62(2) does give rise to a right in damages.

1. As a lot owner in the subject strata plan Dr Thoo belongs to the class of persons for whose benefit the Management Act, s 62(2) duty was created. As such he has a right to recover damages caused by the Owners Corporation's s 62(2) breach in relation to Lot 17. The issue now is the extent of his loss.

1. Dr Thoo's case is that he has suffered damage because the Owners Corporation's breach of statutory duty prevented him re-developing Lot 17 so tenants could cook and serve food from this space, which in turn has meant that he cannot earn higher rent from the lot. He claims he has lost the opportunity to earn this higher rental from Lot 17 in the past, and will do so if the mandatory injunction is not carried into effect. The issue for determination is whether he has indeed lost the opportunity of earning such a higher rental.

1. Relevant legal principles may be shortly stated. Damage for loss of a commercial opportunity in contract, tort or contravention of Trade Practices Act 1974 (Cth), s 52 should be ascertained by reference to the Court's assessment of the prospects of success of that opportunity had it been pursued: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, at 348 per Mason CJ, Dawson, Toohey and Gaudron JJ. The principle is recognised because of the peculiar difficulties associated with proof and evaluation of future possibilities and past hypothetical fact situations as contrasted with historical facts: Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 and Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 348.

1. Proof of such a loss of opportunity is a two step process: first it involves questions of causation, then separately the quantification of any loss: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 335. Each of these two steps involves distinct reasoning. First, whether the defendants' conduct caused any loss must be established on the balance of probabilities: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 per Brennan J at 368. But hypotheses, and possibilities the fulfilment of which cannot be proved, must be evaluated to determine the amount of the loss suffered; a task on which proof on the balance of probabilities has no part to play, because the evaluation is a matter of informed estimation: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 per Brennan J at 368.

Causation

1. Dr Thoo's case first addresses the issue of causation of loss. The Court has found that Dr Thoo has not established that Yum! Restaurants would have proceeded with their March 2008 offer, had the Owners Corporation not breached Management Act, s 62(2). The Yum! Restaurants negotiations evidence does not satisfy the Sellar's causation test. Dr Thoo has not established, on the balance of probabilities that in respect of that potential lease there was "a loss caused by the defendant's conduct" to use the words of Brennan J. Thus, in respect of the Yum! Restaurants negotiations it will not be necessary to proceed to the second step of evaluating the amount of any loss suffered.

1. But the course of events with respect to Yum! Restaurants still has some relevance on the issue of causation. Yum! Restaurants showed close commercial interest in leasing Lot 17 from the first quarter of 2008. Whilst it is not possible to say that the Owners Corporation's breach of Management Act, s 62(2) was the reason for Yum! Restaurants changing its mind and not proceeding with the lease, its interest as a potential lessee is significant. The Court's findings earlier in these reasons show: an established commercial fast food chain, Yum! Restaurants, showing genuine interest in leasing Lot 17; that interest being maintained for many months throughout 2008; and, Dr Thoo unsuccessfully attempting during that period to overcome the exhaust capacity obstacle, among others, to see if this commercial opportunity could be realised.

1. The Yum! Restaurants evidence supports Dr Thoo's alternative case. It shows genuine rather than hypothetical commercial interest in Lot 17 by a fast food provider. This commercial interest emerged at a time when Dr Thoo thought the Owners Corporation may be able to provide sufficient exhaust capacity to satisfy a potential lessee such as Yum! Restaurants. It reflects actual market interest when the space was being offered to cooked food retailers. This interest, genuine as I have found it to be, supports Mr Timmermans' expert evidence that Lot 17 would be likely to attract rental interest from cooked food retailers in addition to non food retailers.

1. But the Yum! Restaurants evidence has only limited use. As no lease was concluded between Yum! Restaurants and Dr Thoo, the parties' respective conditional and unaccepted offers cannot be used for valuation: cf Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547, at 564 per Gibbs J. Moreover, by the time the two valuers, Mr Wotton and Mr Timmermans were at work, the litigation was on foot, Lot 17 was being marketed not as one lot but as three shops, and was being so offered without exhaust capacity. The commercial environment and subject matter of Yum! Restaurants negotiations with Dr Thoo were quite different from those that the valuers were addressing.

1. The deciding factor on causation is the Court's preference for Mr Timmermans' evidence over Mr Wotton's evidence. Mr Timmermans' has satisfied the Court that there is a margin of $14,800 per annum between the annual market rental for the three shops within Lot 17, (1) with, or (2) without, a MEVS connection. The Court accepts that Mr Timmermans' reasoning to that conclusion is sound, and that there is such a rental difference, as has been explained earlier in these reasons. Nothing in the non-expert evidence gives cause to doubt its correctness. I infer on the balance of probabilities, based on the expert evidence, that Dr Thoo has suffered the loss. Several of the Court's earlier findings from the expert evidence, are also important factors supporting this causation conclusion: Lot 17's position in an area dominated by food retailers with nearby public eating areas; lower volatility in the revenue of the retailers of cooked food, which is not considered discretionary spending; the pattern of pedestrian customers in the Hunter Arcade, visiting cooked food shops but not non-cooked food shops; and the longer opening hours of the cooked food shops.

1. The Owners Corporation's Causation Case. The Owners Corporation challenged the conclusion that its breach of Management Act, s 62(2) caused any loss to Dr Thoo. The Owners Corporation's causation case was put in a number of ways. None of them, in my view, are persuasive.

1. First the Owners Corporation argued that any breach of Management Act, s 62(2) did not foreclose Dr Thoo from either using or leasing Lot 17 for the purpose of food retailing. The Owners Corporation points out that the Strata Scheme's by-laws permitted Lot 17 to be used for the provision of food service and retail and could have always been so used in common with all basement level lots (other than Lot 5). The Owners Corporation points to the use of Lot 17 to retail health products and health foods prior to Dr Thoo's purchase. The Owners Corporation also points to Lot 8's existing use for retailing cooked food, though it is not connected to the MEVS, by preparing the food off-site and re-heating it on-site, and submits Lot 17 could be used in the same way. The Owners Corporation suggests that any opportunity that Dr Thoo has lost can be more accurately characterised as the loss of opportunity (1) to lease the Lot 17 shops with exhaust capacity of 3, 600 l/s, rather than the loss of an opportunity (2) to use the Lot 17 shops for the purpose of food retailing, as Dr Thoo puts the case.

1. This argument is not persuasive. The leasing of Lot 17 for selling health foods prior to Dr Thoo's purchase in December 2005 certainly establishes the food stuffs can be sold from the lot without a MEVS. The current use of Lot 8 leads to the same conclusion. But I accept Mr Timmermans' judgment that Lot 8 is not an appropriate comparable for inferring market rentals for basement level cooked food retail outlets. As the Yum! Restaurants interest in Lot 17 shows, MEVS-connection is intrinsically attractive to some cooked food retailers.

1. The Owners Corporation's second causation argument is also unpersuasive. The Owners Corporation submits that Dr Thoo is a commercial landlord who has sought to maximise his rental income from Lot 17 by leasing it to non-food tenants who were prepared to pay the rent he was seeking. Dr Thoo has not sacrificed the opportunity to lease Lot 17 to such non-food tenants, even if that meant that he was precluded in the future from leasing to tenants who did require exhaust capacity. The Owners Corporation points to the actual leasing of Shop 1 in Lot 17 as a hair salon to Bruno Core Pty Ltd. Dr Thoo signed a five plus five lease to Bruno Core on 30 July 2010, to commence on 1 September 2010. The Owners Corporation says that the Bruno Core lease shows Dr Thoo was prepared to lease to tenants who did not require a connection to the MEVS, thereby foreclosing use of the same space for higher value MEVS tenants once the proceedings were resolved.

1. But Dr Thoo has a duty to mitigate his loss. Were he to have rejected the Bruno Core opportunity, and thereby failed to mitigate his loss, the rental income that it has in fact generated may well have diminished his damages in any event by the amount of the rental he would have received from that potential tenant had he taken up the lease. Foreclosing the possibility of leasing Lot 17 as a cooked food retail outlet for a period of time is just one consequence of the fact that these proceedings were unresolved for a period of time after the Yum! Restaurants' negotiations failed. The Bruno Core lease only shows Dr Thoo mitigating his loss. It is not a basis to infer that he would not have taken up the opportunity, were it available to him, of leasing the premises at the highest and best use to a tenant retailing cooked food.

1. The Teplano Leases. The Owners Corporation's third causation argument rests upon a transaction that Dr Thoo entered into on 25 June 2007 to lease the three shops in Lot 17 to a company, Teplano Pty Ltd owned by interests associated with him. Dr Thoo's lease of Lot 17 to Teplano was at a significantly higher annual rent than either Mr Timmermans' or Mr Wotton's assessed annual market rental. Mr Wotton's market assessment for the combined annual rent for the three Lot 17 shops was $140,835, with no allowance for any difference for connection to the MEVS. As has been seen, Mr Timmermans reached annual market rental figures for Lot 17 of $144,200 (MEVS connected) and $129,600 (not MEVS connected). But the Teplano leases were for higher figures than either expert predicted for the annual market rental, namely $174,200, being $65,000 for Shop 1, $57,200 for Shop 2 and $52,000 for Shop 3. This higher Teplano lease rental prompted the Owners Corporation to argue: that the entirety of Dr Thoo's submissions had proceeded on a false premise; that Dr Thoo would have been entitled to receive a higher annual rental for Lot 17, namely $174,200, if there had not been a breach of Management Act, s 62(2). The Owners Corporation submitted that Dr Thoo is already entitled to receive an even higher rental from Teplano than any tenants would have paid under either Mr Wotton or Mr Timmermans' scenarios, which was said to be a complete answer to Dr Thoo's case that the Owners Corporation's breach had caused him loss. The Owners Corporation also argued that as Dr Thoo had sub-let the premises to Teplano the only proper plaintiff in these proceedings was Teplano and as Teplano had not been joined as a plaintiff then Dr Thoo must fail on this part of his claim. Ultimately, I do not find the Owners Corporation's arguments about the Teplano leases to be persuasive. That conclusion depends on a realistic view of the whole of the circumstances surrounding the entry into these leases and their variation and the Court's favourable assessment of Dr Thoo's credibility on this subject. First though it is necessary to explain a little more about the circumstances of the Teplano leases. The paragraphs following are the Court's findings on the subject.

1. Teplano is a corporate entity related to Dr Thoo. All the issued shares in Teplano are owned beneficially by James Thoo Services Pty Ltd ("Services"). Dr Thoo, his wife and two of his daughters are directors of Teplano. Dr Thoo has a substantial interest in Services. He is a 50 per cent shareholder in Services. His wife is the other 50 per cent shareholder in Services. He is one of the beneficiaries of the James Thoo Services Pty Ltd Superannuation Fund Trust, of which Services is a trustee.

1. I accept Dr Thoo's evidence that when he purchased Lot 17 in February 2006 his then business plan was to lease the premises to Teplano and to develop or sub-let the premises for retailing Asian takeaway and fast food or to employ staff to run an Asian takeaway fast food business. Teplano is a private family company with no staff trained in the food retailing industry or with the experience to run an Asian takeaway fast food business itself.

1. Dr Thoo's business plan unfolded slowly. He did not complete negotiations with Teplano concerning the terms of the lease for Shops 1, 2 and 3 until February 2007. Then he did not sign the three Teplano leases, one for each shop, until 25 June 2007. But there was a contest about whether Dr Thoo's evidence of these leases and negotiations should be accepted.

1. Dr Thoo's view was that he could allocate rentals paid by sub-tenants between himself from Teplano for his own internal accounting purposes. The Owners Corporation's case was that having adopted the leasing structure that he did he cannot now ignore it. That leasing structure certainly involved Teplano itself, not Dr Thoo, leasing several of the shops in Lot 17 to third parties. Fitness First was a sub-tenant between June and September 2007; Moustafa and Renan Muir was a sub-tenant between July and November 2008; Flowing Ocean & International Pty Ltd between December 2008 and June 2010; and Shanghai Huamin Pty Ltd between June 2010 and June 2011. These have all been tenants of Teplano, not Dr Thoo. The Owners Corporation relies upon Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 694-5 in which Young J said of artificial commercial structures:-

"Unfortunately, it very often happens in cases in this court that a person has arranged his affairs for commercial or fiscal reasons employing a particular structure, which with respect to creditors and the Government he expects to be recognized as no sham, but when it comes to a dispute with his former wife or former business associates it is not in his interests to maintain the structure and he pleads before this Court that one must not look at the structure at all but rather at the "realistic" or "practical" effect of what has happened. I do not find this sort of submission attractive. So long as the law permits people to erect structures which have meaningful legal consequences then if a person elects to erect such a structure he must take the consequences of such erection for better, for worse, for richer or poorer, in commercial sickness or commercial health."

1. The Owners Corporation's submission is that Dr Thoo's structure here should be similarly assessed: as a set of leases to Teplano who should be the true plaintiff in these proceedings.

1. Dr Thoo sought to vary the Teplano leases to reduce Teplano's liability to pay rent until the Lot 17 shop fit outs were complete. Just when that variation occurred is a matter of contention. The Teplano leases were registered. Their registration was varied on 6 June 2008. The variation confirmed that the annual rent of $174,200 provided for under the original Teplano leases of 15 February 2007 should be replaced by a provision that "the lessee should not be liable to pay any rent or service charges until such time as the lessor completes the fit-out of Shop 1...and Shop 1 is provided with mechanical exhaust ventilation". The condition in these amended leases has never been fulfilled. Shop 1 has never been provided with mechanical exhaust ventilation. Therefore no rent has been payable to Dr Thoo on the Teplano leases after the variation. This is certainly the position on paper after 6 June 2008.

1. But there is a dispute between Dr Thoo and the Owners Corporation as to when the Teplano amending leases were made. Dr Thoo says that that was the agreement between himself and Teplano from February 2007. The Owners Corporation says that the variation agreement was only made in June 2008. I generally prefer Dr Thoo' evidence on contested issues in relation to the Teplano leases. His evidence survives most of the challenges made to it. But on this question in my view he is mistaken: the Teplano amending leases were made in May or early June 2008, just before they were registered. They do not reflect an earlier agreement. Dr Thoo's evidence that he agreed with other family members in 2007 that Teplano's rent would be waived until the fit outs were complete is not consistent with his later conduct. He instructed his solicitor, Mr Healey, to draw up the Teplano leases in May 2007. According to Dr Thoo, at the time of those instructions the terms of the amendment had already been long agreed. If that was so it is very odd that instructions about the amendment were not given to his solicitor so that the altered provision could be included in the original Teplano leases of June 2007. Instead the leases were prepared in their original form providing for unqualified total annual rent from Teplano of approximately $174,200. Moreover, the lease amendment clearly refers back to the earlier lease and varies it as though it were made up after the earlier lease. I infer that the Teplano amending leases were agreed and executed after the Teplano leases.

1. But when were the Teplano leases executed? I prefer the Owners Corporation's case that they were agreed and executed in May - June 2008. There is no obvious reason why they would not have been agreed and executed very close to the day the registered variation of lease for the Teplano leases shows, 6 June 2008. The effect of these transactions is that payment of rent from Teplano has been waived since 6 June 2008. The Owners Corporation rightly submits that "an arrangement by which a landlord simply excuses the tenant from paying rent from in terminate period of time is entirely uncommercial". No clearly identified consideration flowed from Teplano to Dr Thoo for this variation. It demonstrates that Teplano leases were not an arms length transaction. This might be expected of a transaction between Dr Thoo and Teplano, a company controlled by Dr Thoo, and his family members.

1. The Court accepts Dr Thoo's evidence that he always intended to lease out the Shops within Lot 17 to third parties at commercial rates. I find that the Teplano leases of June 2007 were non-arms length transactions between Dr Thoo and a company which he either controlled or substantially influenced. There are several evidentiary signposts indicating that neither Dr Thoo nor Teplano treated the Teplano leases as real commercial arrangements. The June 2008 Teplano amending leases are inexplicable except in a non-arms length relationship. Without receiving consideration Dr Thoo waives an existing obligation on Teplano's part to pay him $174,000 per annum. Moreover, from July 2010 both he and Teplano treated the Teplano leases, amended or not, as though they did not exist. Dr Thoo was himself the lessor to Bruno Core from 30 July 2010. The Bruno Core lease is not consistent with the continued existence of the Teplano leases. The fact that Dr Thoo himself was the lessor to Bruno Core is a basis to infer that he retained control of the capacity to lease Lot 17 at least from July 2010. There is no doubt that the Bruno Core lease is a genuine lease to a third party. I infer that Dr Thoo had that control of the capacity to lease Lot 17 to third parties from no later than 6 June 2008. I am not prepared to infer in his favour before 6 June 2008 that he exercised such control. Until he objectively demonstrated, as he did on 6 June 2008 that the Teplano leases could be varied for his benefit, he should in my view be bound by the legal structure that he had created. But I find that from that date he was in a position to lease Lot 17 directly to a third party notwithstanding the Teplano leases. His damages will be calculated from 6 June 2008. I accept the Owners Corporation's argument that Teplano was the proper plaintiff before that date. The Owners Corporation's breach of Management Act, s 62(2) from 1 December 2007 only sounds in damages for Dr Thoo from 6 June 2008 onwards. There are other reasons for drawing this conclusion.

1. Dr Thoo's overall conduct is consistent with this conclusion. I fully accept Dr Thoo's evidence that he intended to develop and sub-let the premises for the purposes of retailing takeaway Asian food. He said he was prepared to employ staff within Teplano for the purposes of doing that. But I am not convinced that that was what he was prepared to do. He was certainly determined to sub-let the premises for that purpose. But he struck the Court as being a sophisticated investor rather than a hands on retail operator. Although it is theoretically possible that he could have hired staff to run such a business in Teplano's name I do not think that he was ever likely to do that.

1. I do accept that Dr Thoo entered into the Teplano leases for sub-letting to Asian food takeaway retailers. But by mid 2008 that purpose was clearly unachievable in the short term. He had commenced these proceedings in March 2008. So, Dr Thoo decided to deal with Lot 17 without the structure which had been created to serve his by then unachievable purpose.

1. The Owners Corporation characterises the June 2008 Teplano lease variation as "a voluntary act by Dr Thoo which breaks the chain of causation between the Owners Corporation's breach and the loss claimed by him in these proceedings". In my view it does not a break in the chain of causation. Rather it is the moment when Dr Thoo demonstrates his real control over the leasing of the property held in his own name, after which date there is no doubt that he has suffered loss.

Evaluation of Loss

1. The second step in the damages reasoning is the evaluation of the plaintiff's loss, to determine the amount of the loss suffered. The Court prefers Mr Timmermans' evidence over Mr Wotton's evidence as the basis for valuation of both the past and future hypotheses of what additional marginal rental of $14,800 per annum the plaintiff would have earned (and will earn) from Lot 17 after 1 December 2007 had it been connected to the MEVS. I see no basis to modify Mr Timmermans' conclusions in this evaluation exercise which is consequent upon the Court's causation findings. Subject therefore to what the Court says below about the possibility of the future connection of Lot 17 to the MEVS, Dr Thoo is entitled to damages for breach of Management Act, s 62(2) from 5 June 2008 up to the date of this judgment and into the future.

1. It is here that the third way that Dr Thoo put his damages claim should be mentioned. This third approach was to assess damages for the period from 1 December 2007 to date based on Mr Timmermans' evidence, which the Court has accepted. This third way the Court has ultimately found to be the appropriate basis for the assessment of Dr Thoo's loss, as the reasons below show.

Dr Thoo's Actual Marginal Loss for the Past

1. There is debate between the parties as to what Dr Thoo's marginal loss is for the past.

1. Dr Thoo's calculations for past and future loss are based on figures of $14,800 per annum and $22,800 per annum in lost cash flow. The Owners Corporation further challenged Dr Thoo's calculations in respect of both of these amounts. The Owners Corporation is more successful in relation to the second than the first of these.

1. The $14,800 Claim. The Owners Corporation challenged Dr Thoo's calculation of $14,800 per annum in marginal lost rental. The Owners Corporation's challenge lay to Mr Timmermans' methodology. Mr Timmermans' derived market rents for Shop 1 in Lot 17 of $1,550 per square metre per annum on an MEVS connected basis and $1,440 per square metre per annum on an MEVS non-connected basis. The difference is $150 per square metre per annum. Mr Timmermans then adjusted his calculations allow for the differences between Shop 1 and Shops 2 and 3, to produce the figure of $14,400 per annum.

1. Mr Timmermans used Lot 16 as one of his MEVS connected comparable lots and excluded Lot 8 from consideration. In final submissions the Owners Corporation sought to re-adjust Mr Timmermans' calculations by removing Lot 16 entirely from the comparable figures he had used and by including Lot 8 within the MEVS unconnected group. The Owners Corporation's analysis on this re-adjusted basis shows a difference between the medians of the two re-adjusted groups of comparables (MEVS connected and MEVS unconnected) of only 88 square metres per annum ($1534 minus $1446), rather than the $150 square metres per annum Mr Timmermans originally calculated. The Owners Corporation's resulting contention is that that differential is so small that it undermines Mr Timmermans' conclusion that there is any significant difference between the comparable figures for MEVS connected and MEVS unconnected lots. The Owners Corporation's contentions are supplemented by other criticism of Mr Timmermans' methodology.

1. But for the reasons earlier given I accept Mr Timmermans' primary methodology to calculate $1440 per square metre per annum in marginal lost rental: (1) including Lot 16 as a rental comparable among his MEVS connected lots; and, (2) removing Lot 8 from the MEVS connected group but not including it in the MEVS unconnected group. This answers the Owners Corporation's criticisms of Mr Timmermans' calculations of $1,440 per square metre per annum.

1. The $22,800 Claim. The Owners Corporation also challenged Dr Thoo's calculation of $22,800 in marginal lost rental. The Owners Corporation submitted that Mr Ferrier's use of the figure of $22,800 as an alternative differential between MEVS connected and MEVS unconnected rentals must be rejected. The Owners Corporation submits that this figure should be rejected because it is based upon certain tables used by Mr Timmermans at page 17 of his first report. Those were tables that simply extracted the lowest and highest adjusted rentals per square metre for MEVS connected and MEVS unconnected rentals. This was a narrower exercise than Mr Timmermans undertook in the table on page 15 of his first report (which table is set out earlier in these reasons).

1. I accept the Owners Corporation's submission that Mr Timmermans disclaimed the use of the page 17 table to calculate the difference between food and non-food rentals. That does undermine Mr Ferrier's logic that $22,800 can be used as a basis for calculating the margin of lost annual rental between MEVS connected and MEVS unconnected rentals. But it in no way undermines Mr Timmermans' logic for calculating the basic figure of $14,400, because that figure is not based on his page 17 tables but his page 15 tables.

1. Also, in his addendum (3) to his expert report Mr Timmermans readdressed his original calculations based on better evidence as to Lot 16, and by including Lot 8 as a non-food retail shop, contrary to his original approach. But I accept his conclusion that these changes make no appreciable difference to his assessment of the marginal annual rental loss to Dr Thoo.

1. Thus, subject to the issues which follow, Dr Thoo should have damages for past loss assessed at the $14,800 per annum from 6 June 2008 to the date of this judgment, namely 29 October 2012, a period of approximately 4 and a quarter years. Issues arise as to whether there should be any discount to that calculation. These are considered in the next section.

Assessing the Value of the Chance

1. The parties were in contest about what discount, if any, should be applied to the value of the lost opportunity that had been calculated in respect of the past. The defendant's submission was that some discount must be made to allow for (1) the validity of the hypothesis Mr Timmermans used to calculate loss; and (2) for the possibility that Dr Thoo would not have immediately let the Lot 17 shops to a food tenant in December 2007. Any such discount would apply to the assessment of damages in the past and in the future.

1. The applicable law can concisely be stated. It can be appropriate to allow a discount for the validity of the assessment hypothesis and for the possibility that the chance might not have eventuated. It is generally acceptable to quantify a discount using a percentage but the use of percentages is not a concession that the discount is capable of calculation with mathematical precision; it is merely a convenient mathematical representation of a judgment about the relevant vicissitudes and probabilities: Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187 at [595].

1. But whether any discount should be applied and the extent of that discount depends upon the circumstances of each case. Here Dr Thoo contends that no discount is appropriate. Dr Thoo argues that his approach to the loss is inherently conservative and more than adequately takes into account the relevant vicissitudes and probabilities for the purposes of assessment. Dr Thoo's argument concedes that some discount is appropriate but he says that it has already been accounted for.

1. The Court generally prefers Dr Thoo's contentions in relation to the need for any discount. First there is no need to discount for the possible invalidity of Mr Timmmermans' hypothesis. This is really an argument that the Court should apply a discount to allow for the possibility that Mr Timmermans' methodology may be wrong. But that does not seem to be a correct approach. The application for a discount appears to presuppose that if Mr Timmermans is wrong he has overstated rather than understated the result. If Mr Timmermans has used incorrect methodology it may be necessary to add to his figures to correct the error. The Owners Corporation's posited basis for a discount does not justify applying a discount at all. Moreover, it is the Court's duty to decide whether Mr Timmermans' methodology is right or wrong. The Court has made that decision in Mr Timmermans' favour. The Owners Corporation's argument is really a request for the Court to apply a discount for the possibility that the Court may be wrong about approving Mr Timmermans' methodology.

1. The Owners Corporation's second argument is more effective. It is necessary to consider a discount for the possibility that it may not have been possible to have let Lot 17 shops to a food tenant in December 2007. But that factor does not lead to applying any further discount in this case.

1. The Court has already limited the assessment of Dr Thoo's damages from the 1 December 2007 to the 6 June 2008 for the reasons already explained. If Dr Thoo would not have been able to lease the Lot 17 shops immediately on the 1 December 2007 it is highly likely that he would have done so by the 6 June 2008. So the restriction on Dr Thoo's damages before that date already reflects a sufficient discount in the circumstances. Dr Thoo would have let the three Lot 17 shops quickly. He appeared to the Court to be very commercially astute and someone who would plan and carry through his commercial purpose in a methodical way. I also accept Mr Zenari's evidence about the strength of the demand for this kind of use. In this period Mr Zenari received regular enquiries from prospective tenants for leasing Lot 17 for cooked food retailing purposes. This conclusion is further supported by the evidence already considered of the Yum! Restaurants offer. Mr Zenari also supported Mr Timmermans' conclusions that a property located in or near a food court with the ability to prepare and serve cooked fast food is easier to rent than the same property with no ability to sell cooked food. There is no reason to discount Dr Thoo's past damages beyond the existing limit on their commencement after 6 June 2008.

Interest on Past Losses

1. Dr Thoo should have interest up to judgment on his past losses. He has been out of pocket because of the disadvantage of being MEVS unconnected to date. He will continue to be out of pocket until the work to upgrade the MEVS is completed in accordance with the Court's orders. Dr Thoo should have interest up to judgment at the rate prescribed from time to time under s 100 of the Civil Procedure Act 2005. The parties should confer with a view to calculating the amount of that interest and present the Court with an agreed calculation so the Court can make orders for the payment of interest up to judgment.

Revoking the Mandatory Injunction

1. The parties are at issue about whether the existing mandatory injunction ordered on 22 August 2011 should be revoked. The Owners Corporation argues that as a result of the additional evidence adduced on the damages hearing it is clear that damages are an adequate remedy for Dr Thoo and that had all the damages material now adduced been available at the time of the original hearing, the Owners Corporation could have used it to submit that the injunction should not have been ordered.

1. Dr Thoo resists these contentions and submits that the mandatory injunction should remain in place. He takes both procedural and substantial points in answer. Dr Thoo's procedural point is that it is too late for the Owners Corporation now to argue for the discharge of the mandatory inunction. Dr Thoo's substantive point is that damages are not an adequate remedy.

1. The applicable law on this issue may be shortly stated. The question is whether it is just in all the circumstances the plaintiff be confined to his remedy in damages: Evans Marshall & Co Ltd v Bertola SA (1973) 1 WLR 349 at 379 and Sandersons Motor (Sales) Pty Ltd v Yorkstar Motors Pty Ltd [1983] 1 NSWLR 513 at 516. The principles upon which equitable damages are awarded in lieu of an injunction under Supreme Court Act 1970, s 68 are also relevant. A further relevant consideration is that the jurisdiction to order a mandatory injunction, especially one which may require ongoing court supervision is to be exercised cautiously and in circumstances where the plaintiff can demonstrate a strong probability of grave damage: Redland Bricks Ltd v Morris [1970] AC 652.

1. The Owners Corporation submits that damages are an adequate remedy. It points out that complying with the mandatory injunction: is likely to involve the Owners Corporation in significant cost, a preliminary estimate (from Mr West) for which is $800,000; is likely to involve significant building work over a substantial length of time (Mr West's estimate is 18 months); and, there can be no confidence that the result to which the work is directed can be achieved. In contrast the Owners Corporation submits that Dr Thoo's damage: is only in respect of an investment vehicle, not involving any personal or special character; and is either non existent, if Mr Wotton's evidence is accepted, or relatively insignificant compared to the cost of carrying out the work the subject of the mandatory injunction (being damage of the order of $50,000 it is said), if Mr Timmermans' evidence is accepted. The Owners Corporation's submission is that Dr Thoo should only be awarded damages (if any) to which he is entitled for past rental losses and any damages for diminution in the value of Lot 17 by remaining MEVS-unconnected.

1. Dr Thoo deploys both procedural and substantive arguments against these contentions. Both are effective. The substantive arguments are considered here even though the procedural arguments would be sufficient to dispose this part of the claim.

1. Dr Thoo's procedural arguments are decisive. His submission is that this issue has not been raised in the proceedings prior to the end of the damages hearing. The Owners Corporation's argument was not put before the Court's principal judgment was given. It is true that more evidence has been adduced in relation to damages issues since the Court's principal judgment. But the principal reports of Mr Wotton and Mr Timmermans were filed before the principal hearing took place, as were the reports from Mr West and Mr Laffer about the costs of and difficulties in upgrading the MEVS. All of this material was capable of founding a submission of the kind now put in terms close to those now being advanced. It is too late in my view for the Owners Corporation to advance this submission now.

1. Moreover, allowing the Owners Corporation to seek revocation of the mandatory injunction now would be unfair because it is contrary to the way the proceedings have been conducted. Dr Thoo approached the damages hearing on the basis of the orders already made by the Court, and he framed his arguments for relief accordingly. The Owners Corporation first raised the current point after the expert evidence had been adduced in the damages hearing and late on the business day before the lay evidence was adduced. It was not practical for Dr Thoo to meet the case that the Owners Corporation now seeks to argue. It must therefore fail on procedural grounds.

1. But the Owners Corporation's argument for dissolution of the mandatory injunction would have failed on substantive grounds. Those grounds are the following. First, Dr Thoo's damages case is only supplementary to his claim for injunctive relief. The plaintiff claims damages for breach of Management Act, s 62 in the past and for the near term future before the works under the mandatory injunction are completed and sufficient MEVS provided to Lot 17. The injunctive relief was stayed until the Court gave this decision on damages. Thus a submission that the present damages judgment is a basis to dissolve the injunction somewhat misapprehends the plaintiff's case. There is no conflict between an award of past damages to the plaintiff and the continuance of the injunction. The former is not a replacement for the latter.

1. Secondly, Dr Thoo has not advanced a valuation of Lot 17, on the basis that the lot remains permanently MEVS unconnected. Had he done so the Court may have had a measure of Dr Thoo's resulting position if the injunction were not granted or were now dissolved. He has instead sought to advance a case through Mr Ferrier as to what the net present value of his lost rent from Lot 17 would be for the long-term future. But this does not seem to be the correct measure of his loss because it assumes he will hold Lot 17 into perpetuity. The more appropriate measure, and the one Brereton J applied in similar circumstances in Seiwa Pty Limited v Owners of Strata Plan 35042 [2006] NSWSC 1157 is the diminution in value of Lot 17 by reason of it being permanently MEVS-unconnected.

1. Were the Owners Corporation to have adduced evidence of the diminution in value to Lot 17 caused by its being MEVS unconnected on a permanent basis, then that may have arguably been a factor to be taken into account before the injunction was granted. But there is no such evidence. And it is not a matter about which the Court can now speculate.

1. Thirdly, the cost to the Owners Corporation of the building work, the length of time for completing that work, and its difficulty in execution, are all matters concerned with implementing the Court's existing mandatory injunction orders made in August 2011. Orders for that injunctive relief have been stayed to date. There is no demonstrated basis upon which the Owners Corporation could now seek dissolution or variation of those orders. The absence of any evidence in the proceedings by which the defendant could compare the expense it will incur on upgrading the common property to provide adequate exhaust, with the diminution in value of the plaintiff's lots, is really the defendant's evidentiary responsibility. Moreover, such a comparison that the Owners Corporation advances is an overly simplistic way of looking at the competing discretionary factors. There are or could be a number of lots, apart from Lot 17, that would be potentially benefited by an upgrade of the exhaust system. The capital works associated with undertaking the upgrade to the MEVS should be compared, not just with the diminution value to Dr Thoo's lot without the MEVS, but with the diminution in value to all other MEVS-unconnected lots in the strata plan that would be benefited by such an enhanced system, to be installed as a result of implementing the Court's mandatory injunction. The Owners Corporation has not really entered upon that debate. There is no evidence that it has as yet designed its enhanced MEVS. The number of lots to be benefited by that system is as yet undetermined.

1. Fourthly, the case for dissolving the injunction is said to be based upon Dr Thoo's Lot 17 merely being an investment vehicle rather than a property with any personal or special character. That the lot is used for commercial, rather than residential purposes, does not assist in deciding whether the existing injunction should be dissolved. For the reasons given, the injunction will not be dissolved.

Assessment of Future Damage

1. The assessment of Dr Thoo's future loss raised two main areas of contention between the parties. The first area relates to the effect that compliance with the mandatory injunction will have on the assessment of damages. The second is a group of issues relating to the methodology behind the assessment of future damages.

1. The Court has found that the mandatory injunction will remain in force. Dr Thoo's damages must therefore be assessed having regard to its effect on his future position. It can be assumed that in the near to medium term the new MEVS will be constructed in accordance with the Court's orders. But the precise time in which that will occur is presently uncertain.

1. This uncertainty creates difficulties for the principal way in which Dr Thoo put his case. Dr Thoo advanced expert actuarial evidence from Mr Ferrier projecting losses based on Mr Timmermans' evidence and the Yum! Restaurants evidence into the future, upon the assumption that Lot 17 would remain permanently MEVS unconnected. But if 3,600 l/s MEVS capacity was connected to Lot 17 within the next 2 to 3 years, such an award of damages would be excessive. But if no damages for future loss were given, Dr Thoo would be under compensated, especially if the execution of the works to achieve MEVS connection for Lot 17 were delayed. And, as previously indicated, damages in lieu of the injunction should be measured by the diminution in value of Lot 17 by being permanently MEVS-unconnected.

1. The appropriate compensation to Dr Thoo for future loss is only for the period necessary for the Owners Corporation to complete the MEVS connection of 3,600 l/s to Lot 17. This result can justly be achieved by making it a condition of the grant of injunctive relief that the Owners Corporation be given a period of time to plan and execute the works necessary to comply with the mandatory injunction, but on condition that for such time as is allowed to the defendant, a monthly sum would be paid. In my view that monthly sum should be based on the current annual marginal rental loss to Dr Thoo by reason of Lot 17 remaining MEVS-unconnected. Such payment would continue until the implementation of the mandatory injunctive relief.

1. This resolves most of the debates between the parties about the relationship between the injunction and the assessment of future damage. It is not necessary to identify the precise period for repair, as monthly payments would be made up until Lot 17 achieved MEVS connection. If the period of repair became unexpectedly shortened or delayed that would not result in any injustice.

1. Both Mr Ferrier's evidence and the Owners Corporation's submissions are partly predicated upon the assumption that the Court would now award a lump sum of damages because Lot 17 will remain MEVS unconnected. The Court is not prepared to assume that its orders will not be complied with. The parties will be granted liberty to apply in respect of the implementation of the Court's orders. That liberty will allow the parties to return to Court if some supervening factor prevents compliance with the mandatory injunction. But unless some such supervening factor occurs, rendering the compliance with the Court's orders impossible, the combination of injunction and monthly payments does complete justice in this case.

1. But the defendant says that damages must be assessed once and for all: Johnson v Perez (1988) 166 CLR 351 at 355-6 per Mason CJ. And the defendant points out the mere difficulty in estimating damages does not relieve the Court from responsibility of doing the best that it can: The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83 per Mason CJ and Dawson J and at 138 per Toohey J.

1. If supervening factors mean that the mandatory injunction cannot be executed, then it may be necessary for a single lump sum of damages to be awarded in substitution for the injunction under Supreme Court Act 1970, s 68. In that circumstance it will be necessary to consider an award of damages as a lump sum, based upon the assumption that Lot 17 remains MEVS unconnected. But Dr Thoo does not put such a case. The Court should not award damages speculatively on that basis.

1. A number of issues of methodology remain on the parties' submissions. In my view Dr Thoo should have $14,800 per annum for his marginal annual rental loss for Lot 17 remaining MEVS-unconnected. But this sum should be paid to him on a monthly basis. He has lost a part of a monthly rental. The best substitute is for him to receive a monthly payment. Most of the issues of methodology can be quickly resolved.

1. First, the defendant says that management fees should be deducted. But Mr Timmermans' report was prepared on a net basis. It is not necessary further to deduct management fees.

1. Secondly, the Owners Corporation urges upon the Court an alternative approach: that adopted by Brereton J in Seiwa, that the Court would allow the Owners Corporation a nominated period in which to complete the work the subject of the mandatory injunction failing which Dr Thoo would be entitled to damages on the basis the breach is never remedied. For the reasons already given I do not think this course should be taken. Dr Thoo does not seek damages in lieu of injunction. He should not be forced to accept the purchase of his Management Act, s 62 rights against the Owners Corporation.

Conclusions and Orders

1. The Court has found that Dr Thoo is entitled to past damages for the Owners Corporation's breach of Management Act, s 62 from 6 June 2008 until the date of this judgment, 29 October 2012 at the rate of $14,800 per annum. Dr Thoo is also entitled to interest on these past losses at the applicable rates from time to time under Civil Procedure Act, s 100.

1. The Court declines to dissolve the mandatory injunction granted in August 2011. Lump sum of damages for future loss need not be awarded upon an assumption that the Courts orders for mandatory injunctive relief will not be complied with. Rather, the Court will award future compensation as a condition of deferring implementation of the already-ordered mandatory injunction at the rate of $14,800 per annum, which shall be paid in monthly instalments of $1,233.33.

1. Dr Thoo is entitled to a refund of the strata levies he has paid since 6 June 2008 to the extent they include legal fees and expenses associated with this claim. The parties should agree on these expenses for inclusion in the Court's orders.

1. Dr Thoo has been substantially although not wholly successful. Costs would ordinarily follow the event. But one or other party may seek a special costs order or wish to contend costs should not follow the event. I direct the parties to put on any submissions as to costs or in relation to the orders to be made by 5.00pm on 13 November 2012.

1. The Court directs the parties to bring in short minutes of order to give effect to these reasons. The existing orders for injunctive relief will be extended but stayed for 35 days to allow short minutes of order to be finalised. I will grant liberty to apply. I direct the parties to communicate with my Associate to fix the proceedings for any further argument at 9.30am one day in the week commencing 3 December 2012.

**********

Figure 1

Decision last updated: 29 October 2012