Westgem Investments Pty Ltd in Its Own Right Trustee for Hossean Pourzand and Jenny Maria Pourzand ATF the Helen Trust v Commonwealth Bank of Australia Ltd - [2017] WASC 333

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WESTGEM INVESTMENTS PTY LTD IN ITS OWN RIGHT TRUSTEE FOR HOSSEAN POURZAND AND JENNY MARIA POURZAND ATF THE HELEN TRUST -v- COMMONWEALTH BANK OF AUSTRALIA LTD [2017] WASC 333

CORAM: TOTTLE J

HEARD: 10 NOVEMBER 2017

DELIVERED : 17 NOVEMBER 2017

FILE NO/S: CIV 2722 of 2012

BETWEEN: WESTGEM INVESTMENTS PTY LTD IN ITS OWN RIGHT TRUSTEE FOR HOSSEAN POURZAND AND JENNY MARIA POURZAND ATF THE HELEN TRUST
First Plaintiff
HOSSEAN POURZAND IN ITS OWN RIGHT TRUSTEE FOR THE HELEN TRUST & THE SHERIN TRUST & THE POURZAND TRUST
First Named Second Plaintiff
JENNY MARIA POURZAND IN ITS OWN RIGHT TRUSTEE FOR THE HELEN TRUST & THE SHERIN TRUST & THE POURZAND TRUST
Second Named Second Plaintiff
PAKWEST PTY LTD (RECEIVERS AND MANAGERS APPOINTED) IN ITS OWN RIGHT TRUSTEE FOR NEWPORT SECURITIES PTY LTD & TRUSTEE FOR VARIOUS OTHER COMPANIES
Third Plaintiff
NEWPORT SECURITIES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) ATF THE PAKWEST TRUST THE NEWPORT FAMILY TRUST & THE LUKE SARACENI FAMILY TRUST
Fourth Plaintiff
OAKCURE PTY LTD OWN CAPACITY AND TRUSTEE FOR THE PARRY TRUST
Fifth Plaintiff
SEAPORT PTY LTD (RECEIVERS AND MANAGERS APPOINTED) IN ITS OWN RIGHT TRUSTEE FOR THE SEAPORT TRUST
Sixth Plaintiff
LUKE SARACENI
Seventh Plaintiff
MAYPORT NOMINEES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) IN ITS OWN RIGHT TRUSTEE FOR THE MAYPORT UNIT TRUST
Eighth Plaintiff
QUEEN STREET PROPERTIES PTY LTD IN ITS OWN RIGHT TRUSTEE FOR THE QUEEN STREET PROPERTIES
Ninth Plaintiff
GRAND EDITION PTY LTD (RECEIVERS AND MANAGERS APPOINTED) IN ITS OWN RIGHT TRUSTEE FOR THE FARAH INVESTMENT TRUST NO 4
Tenth Plaintiff
LMS HOLDINGS PTY LTD ATF THE SARACENI FAMILY TRUST
Eleventh Plaintiff
TOKYO CITY PTY LTD ATF THE TOKYO CITY TRUST
Twelfth Plaintiff
MAREE SARACENI PTY LTD ATF THE TOKYO CITY TRUST AND THE LUKE SARACENI FAMILY TRUST
Thirteenth Plaintiff
MAREE ANN SARACENI
Fourteenth Plaintiff
SINGLE HOLDINGS WA PTY LTD ATF THE TUART INVESTMENTS UNIT TRUST
Fifteenth Plaintiff
SARACEN PROJECT MANAGEMENT PTY LTD ATF THE SARACEN PROJECT MANAGEMENT TRUST
Sixteenth Plaintiff
CARDUP INDUSTRIAL LAND HOLDINGS PTY LTD IN ITS OWN RIGHT TRUSTEE FOR THE CARDUP INDUSTRIAL LAND TRUST AND THE CARDUP INDUSTRIAL LAND TRUST NO 2
Seventeenth Plaintiff
GOLDCUP NOMINEES PTY LTD ATF THE PAKWEST TRUST
Eighteenth Plaintiff
GOLDEN WEST PROPERTIES PTY LTD ATF THE POURZAND FAMILY TRUST THE OZRA TRUST THE GOLD HOUSE TRUST AND JENNY'S TRUST
Nineteenth Plaintiff
AND
COMMONWEALTH BANK OF AUSTRALIA LTD
First Defendant
WESTPAC ADMINISTRATION 2 LTD
Second Defendant
WESTPAC ADMINISTRATION 3 LTD
Third Defendant

Catchwords:

Application to vary orders for separate trial of liability and quantum

Legislation:

Nil

Result:

Application refused

Category: B

Representation:

Counsel:

First Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
First Named Second Plaintiff     :    Mr R Newlinds SC & Mr W Edwards
Second Named Second Plaintiff :    Mr R Newlinds SC & Mr W Edwards
Third Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Fourth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Fifth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Sixth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Seventh Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Eighth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Ninth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Tenth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Eleventh Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Twelfth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Thirteenth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Fourteenth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Fifteenth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Sixteenth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Seventeenth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Eighteenth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
Nineteenth Plaintiff          :    Mr R Newlinds SC & Mr W Edwards
First Defendant          :    Mr J Thomson SC & Mr E Gisonda
Second Defendant          :    Mr J Thomson SC & Mr E Gisonda
Third Defendant          :    Mr J Thomson SC & Mr E Gisonda

Solicitors:

First Plaintiff          :    Jackson McDonald
First Named Second Plaintiff     :    Jackson McDonald
Second Named Second Plaintiff :    Jackson McDonald
Third Plaintiff          :    Jackson McDonald
Fourth Plaintiff          :    Jackson McDonald
Fifth Plaintiff          :    Jackson McDonald
Sixth Plaintiff          :    Jackson McDonald
Seventh Plaintiff          :    Jackson McDonald
Eighth Plaintiff          :    Jackson McDonald
Ninth Plaintiff          :    Jackson McDonald
Tenth Plaintiff          :    Jackson McDonald
Eleventh Plaintiff          :    Jackson McDonald
Twelfth Plaintiff          :    Jackson McDonald
Thirteenth Plaintiff          :    Jackson McDonald
Fourteenth Plaintiff     :    Jackson McDonald
Fifteenth Plaintiff          :    Jackson McDonald
Sixteenth Plaintiff          :    Jackson McDonald
Seventeenth Plaintiff          :    Jackson McDonald
Eighteenth Plaintiff          :    Jackson McDonald
Nineteenth Plaintiff          :    Jackson McDonald
First Defendant          :    King & Wood Mallesons
Second Defendant          :    King & Wood Mallesons
Third Defendant          :    King & Wood Mallesons

Case(s) referred to in judgment(s):

Nil
TOTTLE J:

Introduction

The plaintiffs have applied to vacate one of a number of orders made by consent on 6 September 2016. The order in question, order 20, stipulated the issues to be determined at the 'Liability Hearing' listed for 16 weeks commencing on 1 March 2018.[1] The issues were identified in attachment D to the 6 September, 2016 orders. A controversy has arisen over whether certain issues should be dealt with at the Liability Hearing or should be deferred, if the plaintiffs establish liability, to a 'Quantum Hearing'. The application is solely concerned with case management and does not involve the determination of any issue of legal principle.
[1] Orders had been made on 25 March 2015 for separate hearings of liability and quantum.

Background

The proceedings principally involve a related series of disputes between two developers (the principal plaintiffs, Luke Saraceni and Hossean Pourzand) and their financiers (the defendant banks) in connection with the high rise office/retail development in Perth, known as 'Raine Square'. Westgem Investments Pty Ltd is the corporate vehicle owned by Mr Saraceni and Mr Pourzand used to carry out the development. One of the financiers, Bankwest (Commonwealth Bank of Australia), also had dealings with Westgem in its capacity as a prospective tenant of the Raine Square building and this is the subject of a specific claim in these proceedings.
Salta Construction Ltd was the initial builder appointed to carry out the development by Westgem. Salta left the site in February 2010 (the Salta Stoppage), and later that month terminated the building contract (the Salta Termination). Probuild Constructions (Aust) Pty Ltd was later appointed in September 2010 to complete the development by Westgem.
The development ran substantially over cost and was completed substantially later than planned. Based on the occurrence of defaults under the facility, receivers were appointed by the defendant banks to Westgem in January 2011. The receivers completed the development and sold it in June 2013. The developers and the banks have incurred large losses and a substantial part of the bank debt remains unpaid. The core allegations made by the plaintiffs are that the defaults occurred because of breaches of contracts, breaches of applicable statutory prohibitions on misleading or deceptive conduct and unconscionable conduct, and breaches of an applicable Code of Conduct.
In essence, the banks seek recovery of amounts advanced to Westgem and to enforce rights under various securities. Their primary claim is for debt owing under the facility and this is the subject of the counterclaim.
The plaintiffs resist the recovery actions and the enforcement of securities, and claim monetary relief against the defendants on the basis of allegations attacking the efficacy of the financing and security instruments, and relying upon claims about the defendants' conduct before and during the course of the construction of the Raine Square development. The relevant facts span at least 4 1/2 years and are complex and detailed. The plaintiffs' claims are brought against the defendant banks in two capacities: first, in their capacity as the financiers of the Raine Square project, the 'financing claims'; and, second, in Bankwest's (Commonwealth Bank of Australia) capacity as a prospective tenant of the Raine Square building, the 'leasing claims'. For present purposes it is unnecessary to make further reference to the leasing claims.
The plaintiffs' financing claims primarily concern whether the defendant banks improperly issued notices of default under both the original facility and a subsequent facility, the restated facility, and ultimately improperly appointed receivers to Westgem. These claims include claims for damages based upon delay to the completion of Raine Square and additional cost associated with the use of Probuild caused, so the plaintiffs allege, by the Salta Stoppage and the Salta Termination.
The plaintiffs allege that but for cost overrun determinations made by the banks in July 2009 in the amount of $13 million and September 2009 in the amount of $17 million, which they allege were wrongful and contractually ineffective, Salta would have remained on the site and continued the build so that:
(a)there would have been no material delay to completion of the works which would have been completed in late August 2010;
(b)Salta would have been held to its contract without material variations, provisional sum cost increases, re‑measure or other cost increases so that there would have been no material increase in the cost of construction or in Westgem's funding requirements.
The extra time and cost to achieve practical completion is claimed to be the measure of those damages, (the time and cost claims).
In response to the time and cost claims one of the defendants' contentions is that the project was mismanaged. They allege that as a result of the mismanagement by Westgem, by at least mid-2009, the relationship between Westgem and Salta became dysfunctional, the project was considerably delayed and there were significant cost blow-outs. The defendants say this occurred due to no fault of their part.
In particular, and relevantly for present purposes the defendants contend, amongst other things, that:
(a)By November 2009, the costs to complete the Raine Square project had blown out with further cost increases likely to emerge having regard to numerous unresolved variations, requests for information and the like submitted by Salta. The cost overruns were therefore validly determined.
(b)Salta had entered into a loss-making contract (or which, as administered by the developer-aligned superintendent, was proving loss–making). Salta's relationship with Westgem was dysfunctional for this and other reasons. By late 2009, the project was no longer viable for Salta for both financial and other reasons, and its decision to terminate the building contract was wholly unrelated to the conduct of the defendants.
(c)Having regard to the status of the building works when Salta departed the site in February 2010, even had Salta remained on the site, the works would not have been completed until well into 2012 and would have cost no less than the costs in fact incurred. Salta would have been entitled to variations from Westgem which would have brought the total contract price to about the same level as the cost of having Probuild complete the building.
At the directions hearing held on 25 August 2016,[2] in the course of outlining the plaintiffs' position on the defendants' contentions summarised above, Mr Lee SC, senior counsel for the plaintiffs, made it clear that the plaintiffs intended to establish that there would not have been cost overruns or any material delay in completion of the works by relying on contemporaneous documentation. He observed that what was being put against the plaintiffs was a 'hypothetical counterfactual which seeks to say that what everyone seemed to ‑ thought contemporaneously was wrong'.[3] In the context of outlining those issues that were to be resolved at the Liability Hearing and those to be deferred, Mr Lee described the defendants' contention summarised at (c) above as, ' … a red‑hot issue within the case, what might ‑ someone might even describe as a case within a case'.[4]
[2] A minute of the orders ultimately made on 6 September 2016 was considered at the directions hearing.
[3] ts 325.9.
[4] ts 326.5.
Mr Lee went on to refer to the overlap between the liability and quantum aspects of the case as follows:[5]
The question of loss and causation, what flows logically from the contravening conduct and loss, are in very much ‑ if it was a venn diagram, there would be a large overlap. And we don't think that will be a problem here. But the parties have used this term which is useful, although perhaps not entirely accurate, of economic causation.
Your Honour would have seen from what I went through this notion of the financiers are saying and running a positive case (indistinct) Even if we did engage in this contravening conduct, even if we breached these contractual norms, there's no damage, because this project was essentially a basket case.
It was inevitably going to cost as much money as it eventually did, and it was not going to be finished on time. And that has to be resolved and that is obviously a question that will involve, amongst other things, my client's capacity, financial capacity, to continue with the project, and complete the project and the like.
And they're all questions which will also be relevant when it comes to the quantification part of the case if, as we hope, we are able to provide a reliability. So there is going to be overlap that the parties will be bound by the hearing ‑ by the findings of fact that your Honour already made on the ‑ on the liability hearing, to the extent that they informed damages in any event, and in accordance with mutual principles.
[5] ts 335.5 ‑ 335.10.
Reflecting Mr Lee's observations attachment D contained the following note:
…[t]he Liability Hearing will address the whole of the causation counterfactual related to each of the claims, including the time and cost to complete construction of the Raine Square project so as to achieve Practical Completion under the building contract and AFL [Agreement for lease] but for the defendants' alleged wrongful conduct.'
The 6 September 2017 orders programmed the actions to trial. A large volume of lay and expert evidence has been filed and served in accordance with those orders. Amendments have been made to both the statement of claim (on 17 August 2017) and to the defence (on 2 October 2017).[6]
[6] The current version of the statement of claim is the Third Further Amended Second Substituted Statement of Claim.
The defendants' evidence includes an expert report prepared by Mr Peter Byford. Mr Byford's report is substantial, 171 pages and several hundred pages of appendices, it contains a large volume of detailed analysis much of it in the form of schedules and spreadsheets. At the risk of over simplification Mr Byford's report is directed to establishing the hypothetical counterfactual referred to by Mr Lee at the directions hearing on 25 August 2016. In his report Mr Byford addresses two 'primary' questions: first, on the assumption that Salta did not terminate its building contract, when would it have achieved practical completion and when would the works have been completed (the time and cost claims); second, did the plaintiffs' superintendent perform his obligations in a manner consistent with that of a reasonably competent superintendent.
It is significant to note that in the course of his report Mr Byford comments on opinions contained in a report prepared on the plaintiffs' behalf by Ms Wendy MacLaughlin as to the forecast completion date by Salta but for the Salta termination.
A version of Mr Byford's report was served on the plaintiffs' solicitors on 25 August 2017. Some information was missing from the version served but the missing information has subsequently been provided. Mr Byford's report lists all the documents provided to him by the defendants' solicitors. The plaintiffs' solicitors have asked for copies of all of these documents to be provided to them. The defendants claim that some of the documents are the subject of legal professional privilege (on the basis that they were not considered by Mr Byford for the purposes of expressing the opinions contained in his report) and that the plaintiffs either have the balance of the documents or they have ready access to them. The legal professional privilege claim has been the subject of an interlocutory application and my decision on that application is currently reserved. At the hearing of the application senior counsel for the defendants, Mr Thomson SC, stated that the defendants' solicitors would provide the plaintiffs' solicitors with copies of the documents provided to Mr Byford, (other than those the subject of a privilege claim) within 10 days of the determination of this application. This was without prejudice to the defendants' contention that the plaintiffs either have the documents or have access to the documents.
As I noted earlier the defendants amended their defence on 3 October 2017. The amended paragraphs [299], [301] and [302A] answer the plaintiffs' time and cost claims. To provide the context for the present application it is sufficient to reproduce par [299] of the defence. It reads:
299The defendants deny paragraph 299 and say further that but for the Salta Stoppage:.
(a) Salta would have been granted practical completion on about 31March 2011 and the balance of the works to complete construction of the Complex would have been completed on about 31 August 2012; or
(b) alternatively, Salta would have been granted practical completion on about 4 August 2011 and the balance of the works to complete construction of the Complex would have been completed on about 24 October 2012; or
(c) alternatively, Salta would have been granted practical completion on about 31 March 2011 and the balance of the works to complete construction of the Complex would have been completed on about 27 November 2012; and
(d) the construction costs that Westgem would have incurred to complete construction of the Complex, excluding IFO costs, would have been approximately $300,000,000.
Particulars
~~Particulars will be provided following discovery and exchange of expert evidence~~ Evidence of Peter Byford dated 24 August 2017.
I will not set out the careful and detailed submissions advanced by the both parties it is sufficient to summarise the plaintiffs' principal submissions which were to the effect that:
(a)If the defendants are permitted to rely on the totality of the Byford report it will have the effect of incorporating into the liability hearing large parts of the quantification case.
(b)If that is permitted unfairness will be suffered by the plaintiffs because they had not sought discovery on many issues now sought to be agitated by the defendants and the plaintiffs' experts have limited ability to meet the defendants' case. The plaintiffs' solicitors have not prepared on the basis that the precise time and cost to complete the Raine Square project was to be determined in the Liability Hearing and it would be difficult for the plaintiffs to now retain and instruct experts to deal with these issues in time for them to be dealt with at the Liability Hearing.
(c)To establish liability it was sufficient for the plaintiffs to establish some damage and once they have shown that the defendants' conduct led to any delay or additional cost they have proved what they need to prove to establish liability and the question of the precise time when the works would have been completed and the difference in the cost to complete is a question of quantification.
(d)The amendments to the defence raise 'for the first time' positive counterfactual assertions as to time and costs had there been no Salta Termination.
(e)The definition of the issues in attachment D to the 6 September 2016 orders was problematic in that if read in the way contended for by the defendants it would have the effect of negating the intention behind ordering separate hearings.
(f)Although the court and the parties had adopted the phrases 'Liability Hearing' and 'Quantum Hearing' sound case management did not require the issues to be resolved strictly in accordance with a liability-quantum dichotomy and that deferring the issues raised by amendments to the defence to a later hearing would be an appropriate exercise of the case management discretion.
(g)In any event the defendants' pleas that the superintendent was a concurrent wrongdoer and the proportionate liability issues flowing from those pleas should be deferred because it was impossible to work out such claims without getting into the detail of the actual loss suffered which would defeat the purpose of the separation of liability and quantum. Additionally the plaintiffs criticised the defendants' proportionate liability pleas on the grounds that they failed to identify the acts or omissions of the superintendent said to give rise to concurrent liability.

Mr Newlinds SC, who appeared on the application on the plaintiffs' behalf, acknowledged that the position that the plaintiffs now wanted to see adopted in relation to the resolution of issues was inconsistent with the way in which Mr Lee had outlined that the issues would be resolved.
Mr Newlinds also acknowledged that if the plaintiffs were obliged to put on evidence responding to Mr Byford's report so that the issues in question could be resolved at the 'liability hearing' they could do so with difficulty but that adjustments would be required for the trial directions.

Disposition

The application should be dismissed for the following reasons.
First, whilst it may be accepted that there is a factual overlap between the liability and quantum issues the defendants' case that the plaintiffs would have suffered the delays and costs that are the subject of their time and costs claims irrespective of whether the defendants engaged in the impugned conduct raises a causation issue that must be resolved in the plaintiffs' favour before they can succeed on their statutory causes of action. As such it should be determined in the Liability Hearing otherwise there is a danger that the judgment following the Liability Hearing will be inconclusive in important respects because critical causes of action have not been determined.
Second, drawing the line between liability and quantum issues where there is an overlap can present difficulties. It is plain, however, from the observations made by Mr Lee at the directions hearing on 25 August 2016 that the plaintiffs' lawyers knew where the line had been drawn in this case. Any shortcomings in the definition of the issues in attachment D to the 6 September 2016 orders must be seen in that light.
Third, I do not accept that Mr Byford's report and the amendments made to the defence raise new issues. For the reasons already touched upon the plaintiffs were aware of those issues when the 6 September 2016 orders were formulated.
Fourth, Mr Byford's evidence is, at least in part, responsive to the plaintiffs' evidence filed and served for use at the Liability hearing, as to the date on which Salta would have achieved practical completion but for the defendants' impugned conduct.
Fifth, adopting the course proposed by the plaintiffs creates the risk that Ms MacLaughlin (the plaintiffs' expert) and Mr Byford having to give evidence at two hearings.
Sixth, it is not necessary to adopt the course proposed by the plaintiffs in order to ensure that the Liability Hearing can proceed as planned. The difficulties that the plaintiffs have foreshadowed that they will face can be addressed by varying the trial directions.
Seventh, there has been no amendment to the defendants' proportionate liability pleas. These were issues identified in the 6 September 2016 orders to be resolved at the Liability Hearing. As the defendants submit they are intertwined with the facts relevant to causation and should be determined at the same time as those issues are determined.
I will hear the parties on the variations required to adjust the trial timetable in the light of these reasons and on the issue of costs.