Winky Pop Pty Ltd v Mobil Refining Australia Pty Ltd

IN THE SUPREME COURT OF VICTORIA AT MELBOURNE

Not Restricted

COMMON LAW DIVISION

VALUATION, COMPENSATION & PLANNING LIST

S CI 2009 6345

WINKY POP PTY LTD (ACN 082 744 769) and OR AUSTRALIA PTY LTD (ACN 073 102 520)	Plaintiffs
v
MOBIL REFINING AUSTRALIA PTY LTD (ACN 004 300 163) and THE STATE OF VICTORIA	First Defendant Second Defendant

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JUDGE:	Digby J
WHERE HELD:	Melbourne
DATE OF HEARING:	3-7, 11-12, 19-21 June, 21-23 October 2013 and 12-13 February 2014
DATE OF JUDGMENT:	13 July 2015
CASE MAY BE CITED AS:	Winky Pop & anor v Mobil & anor
MEDIUM NEUTRAL CITATION:	[2015] VSC 348

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TORT – Negligence – Nuisance – Duty of care and breach of duty admitted – Leak of petroleum hydrocarbons contaminating the groundwater beneath the plaintiffs’ land – Plaintiffs’ land undeveloped – Application for mandatory injunction abandoned – Dispute as to the appropriate measure of damages – Loss of opportunity involving profits for the development of land – Damages for the diminution in value of land – Pipelines Act2005.

DAMAGES – Diminution in value – Change in market value of the land caused by contamination from the leak – Diminution in value accepted as the appropriate measure of damages.

DAMAGES – Loss of opportunity – Did an opportunity to develop the land residentially exist – Was that opportunity lost because of the contamination from the leak – Valuation of the alleged opportunity – Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, applied.

DAMAGES — Assessment of claims for loss of profit.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr C Scerri QC with Ms M Foley	King & Wood Mallesons
For the First Defendant	Mr P Riordan SC with Ms P Neskovcin and Ms F Spencer	Ashurst Australia
For the Second Defendant	Mr S Horgan SC with Ms E Latif	Clayton Utz

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

Summary of Findings........................................................................................................................ 3

Chronology.......................................................................................................................................... 4

Pre-leak........................................................................................................................................... 4

Planning law framework.................................................................................................................. 5

Planning history pre-leak................................................................................................................. 7

L14 Amendment............................................................................................................................ 7
1998 Application for 107 warehouses........................................................................................ 7
C1 Amendment.............................................................................................................................. 7
2006 Application for 69 warehouses.......................................................................................... 8

The leak and clean-up response...................................................................................................... 8

Planning history post-leak............................................................................................................. 11

C33 Amendment.......................................................................................................................... 11
C74 Amendment.......................................................................................................................... 13

The plaintiffs’ pleaded case........................................................................................................... 13

Mobil’s pleaded case....................................................................................................................... 16

State’s liability to be determined separately............................................................................... 17

The plaintiffs’ submission calling for inferences to be drawn against the State................. 22

Adverse inference sought in relation to potential rezoning evidence................................ 22

The State’s pleaded case................................................................................................................. 23

Negligence and nuisance................................................................................................................ 26

Damages for torts affecting land................................................................................................... 32

Plaintiffs’ submissions............................................................................................................... 32
Mobil’s submissions................................................................................................................... 36
The State’s submissions............................................................................................................. 37
What is the appropriate measure of damages for torts affecting land? In General – diminution in value – reinstatement of costs.......................................................................................... 39

Conclusion as to the appropriate measure of damages............................................................ 55

Plaintiffs have no special value in the land............................................................................ 58
Other suitable development properties.................................................................................. 58
Circumstances rendering diminution in value damages more appropriate and just than loss of opportunity damages....................................................................................................... 61
Conclusion................................................................................................................................... 63

Damages for loss of opportunity................................................................................................... 64

Plaintiffs’ submissions............................................................................................................... 64
Mobil’s submissions................................................................................................................... 72
Comparative Scenario................................................................................................................ 74
Comparable Development Opportunity................................................................................. 76
The State’s submissions............................................................................................................. 79
Applicable principles................................................................................................................. 83
After the Mobil leak was there a substantial prospect of acquiring the benefit of the identified opportunity........................................................................................................................ 88
The state of the plaintiffs’ land at the time of purchase by the plaintiffs........................... 92

Impediments/constraints to Rezoning for residential use and the issue of necessary development permits.......................................................................................................................................... 96

Before the Mobil leak................................................................................................................. 96
EPA buffer zone.......................................................................................................................... 97
Pre-existing contamination........................................................................................................ 99
Conclusion pre-existing contamination................................................................................. 102
Interface issues.......................................................................................................................... 103
Access.......................................................................................................................................... 104
Section 173 Agreement............................................................................................................. 105
Environmental audit................................................................................................................. 105
Planning permits....................................................................................................................... 106

History of planning applications................................................................................................ 106

Subdivision development.............................................................................................. 109
Terrace House development......................................................................................... 110
Higher Density development........................................................................................ 110

Buffer................................................................................................................................................ 113

Conclusion — plaintiffs’ prospects of having their land rezoned for residential use...... 121

The plaintiffs’ claimed abandonment of residential development plans........................... 124

Has the opportunity been lost?............................................................................................... 129
Mr Cini’s evidence.................................................................................................................... 130
121 lot land subdivision plan and feasibility profile.......................................................... 130
Townhouse development plan and feasibility profile....................................................... 131
Townhouse and apartment combination development plan and feasibility profile..... 131
Mr Williams’ evidence............................................................................................................. 132
Mr Nunn’s evidence................................................................................................................. 135
Question (i)................................................................................................................................ 136
Question (ii)............................................................................................................................... 137
Mr de Greene’s evidence......................................................................................................... 138
Mr Hadwen’s evidence............................................................................................................ 138
Mr Mirkov’s evidence.............................................................................................................. 139
Plaintiffs’ submissions.................................................................................................... 140
Mobil’s submissions....................................................................................................... 143

Conclusion – Objections to the evidence of Mr Mirkov..................................................... 145

Groundwater Contamination caused by Mobil leak.............................................................. 149

Conclusions - Contamination.................................................................................................. 156
Uncertainty of statement of environmental audit – conditions......................................... 158
Conclusion as to existence of opportunity and whether the opportunity has been lost 159

Plaintiffs’ Damages Claim............................................................................................................ 160

Value of the lost opportunity....................................................................................................... 163

Evidence of Mr Papworth........................................................................................................ 165
Mr Brown’s evidence as to selling prices.............................................................................. 167
Evidence of Mr Brown.................................................................................................... 167
The First Brown Report.................................................................................................. 167
The Second Brown Report.............................................................................................. 169

Hypothetical yield from development project..................................................................... 170
Conclusion — sales yield........................................................................................................ 173
The plaintiffs’ projected Development Costs....................................................................... 173

Specific Cost of Development Issues......................................................................................... 175

Specific Adjustments..................................................................................................................... 175

Contamination........................................................................................................................... 175
Extent of Acoustic Wall............................................................................................................ 175
Builders’ profit margin............................................................................................................. 177
Non-unionised site................................................................................................................... 177
Contingency............................................................................................................................... 179
Cost of road and earthworks................................................................................................... 180
Marketing and selling costs..................................................................................................... 180

Informed estimate.......................................................................................................................... 181

Mobil’s Submissions................................................................................................................. 182
Project form and project vehicle.................................................................................... 182

Plaintiffs’ Responses................................................................................................................. 184
Conclusions (form of development and type of corporate vehicle)................................. 185

The plaintiffs’ need for finance for the Residential Developments..................................... 186

Finance Costs.................................................................................................................................. 189

Recovery of Input Tax Credits................................................................................................ 189
Costs of Investigating the leak................................................................................................ 190
Mitigation................................................................................................................................... 190

Conclusion as to the loss of opportunity assessment.............................................................. 191

Damages for diminution in value of the land.......................................................................... 192

Summary of Findings.................................................................................................................... 196

HIS HONOUR:

Introduction

In around December 2006, in excess of 486,000 litres of petroleum hydrocarbon leaked from Pipeline No 1 near Champion Road, Altona (‘the leak’ or ‘the Mobil leak’).[1] Pipeline No 1 was owned and operated by the first defendant, Mobil Refining Australia Pty Ltd (‘Mobil’). The leak created a plume of petroleum hydrocarbon in the groundwater underneath nearby land, including the plaintiffs’ land. The contamination comprises petroleum hydrocarbons Light Non Aqueous Phase Liquid (‘LNAPL’) that floats on top of the groundwater, and dissolved phase pollution from the contact of the LNAPL with the groundwater in the form of Benzene, Toluene, Ethyl Benzene, Xylene and Naphthalene (the dissolved phase pollution).[2]
[1]Further Amended Defence [12], Mobil’s Outline of Argument [5].
[2]Plaintiffs’ Opening Submissions [3].

Mobil is currently in the process of cleaning up the petroleum plume in the groundwater in accordance with the Environment Protection Authority (‘EPA’) requirements.

The plaintiffs, Winky Pop Pty Ltd (‘Winky Pop’) and OR Australia Pty Ltd (‘OR’), are companies that form part of the Hallmarc Group; a vertically integrated group of companies that develop residential and commercial properties. The plaintiffs’ land currently lies vacant and at the time of the leak the plaintiffs were seeking to have the land rezoned from industrial to residential, so that it could be subdivided and developed residentially. The plaintiffs’ land is located in Akuna Drive, Williamstown North and comprises Lots A,[3] B,[4] 35[5] and 36.[6]
[3]Volume 10241 Folio 966 PS 221219C.
[4]Volume 10241 Folio 967 PS 221219C.
[5]Volume 10241 Folio 961 PS 221219C.
[6]Volume 10241 Folio 962 PS 221219C.

The plaintiffs make claims against Mobil in negligence, nuisance, and for compensation under s 151 of the Pipelines Act 2005 (Vic). The plaintiffs also make claims against the State of Victoria (the ‘State’) in negligence. Mobil admits that it has contaminated the plaintiffs’ land and Mobil has conceded responsibility for the leak and the ongoing clean up. The primary issue to be determined by this Court in this proceeding is the appropriate form of relief.

Initially, the plaintiffs sought a mandatory injunction against the defendants for the remediation of their land, beyond what was likely to be required by the EPA. During the course of the trial, the plaintiffs abandoned the claim for a mandatory injunction. The dispute then shifted to focus on the appropriate form and measure of damages.

The plaintiffs submit that the opportunity to develop the land residentially at some time in the future has now been lost on account of the leak. The plaintiffs contend that damages should be calculated on the basis of the value of the plaintiffs’ preferred residential development, less the cost of that development, less the residual value of the land following the leak.

The defendants dispute this categorisation and valuation of damages in a number of different ways. In summary, the defendants contend that the appropriate form of damages is the costs reasonably incurred by the plaintiffs in investigating the leak and the diminution in value of the plaintiffs’ land caused by the leak.

The plaintiffs paid $730,000 for the purchase of the plaintiffs’ land in April 1998. Since 1998 the plaintiffs’ land has stood as vacant unimproved land. However the plaintiffs’ case is that because of the Mobil leak it should be compensated for what it asserts is the lost opportunity to develop that land residentially. The plaintiffs contend that if their planned Higher Density Development was able to be successfully completed it would yield $304,200,000 in revenue ($276,545,455 after remittance of GST), at a cost of development of $116,732,888 ($106,120,807 after recovery of input tax credits), and therefore the plaintiffs have lost an opportunity which should be valued at $170,424,648 (inclusive of those GST adjustments), less the residual current value of Lots A and B of the plaintiffs’ land, namely $9,938,500.[7]
[7]This sum is taken from Mr Brown’s report dated 28 September 2011 CB.01978 at .02007. This sum is, in effect, the “salvage” value and should be deducted from the damages assessment.

Summary of Findings

For the reasons referred to below I have found that:

1. The proper basis for the measurement of damages in relation to the plaintiffs’ causes of action is diminution in the value of the plaintiffs’ land.

2. In this matter the assessment of damages on a loss of opportunity basis would be unacceptably uncertain and is more likely to lead to an unjust result than diminution of value damages and is also otherwise inappropriate.

3. Prior to the Mobil leak it was most unlikely that the plaintiffs’ land would be rezoned by the relevant planning authority so as to be able to be developed for residential use.

4. Prior to the Mobil leak it was most unlikely that the relevant planning authority would grant development permits for the plaintiffs to develop their land for residential purposes.

5. At the time of the Mobil leak and thereafter the plaintiffs have not established that they had, or but for the Mobil Leak would have had, the opportunity to develop the plaintiffs’ land residentially.

6. The plaintiffs have not lost the opportunity to develop the plaintiffs’ land because of the Mobil leak.

7. The opportunity to develop the plaintiffs’ land residentially, as identified by the plaintiffs, has no real prospect of being successfully pursued and is therefore of negligible or no value.

8. The Mobil leak, in itself, will not prevent or impair the plaintiffs’ ability to develop their land for residential purposes.

9. In case I am incorrect in relation to my above findings, I have also determined that in the event that the plaintiffs were entitled to damages on the bases which they assert (which I have rejected) the sum of those damages would be $66,829,900, subject to interest entitlements.[8]
[8]I note that ordinarily this amount would be discounted by a percentage amount to take into account the degree of probabilities inherent in the plaintiffs’ realisation of the asserted opportunity. However here I have not done so because I consider the opportunity to be of no or negligible value.

10. The plaintiffs are entitled to be paid the sum of $104,273.93 by Mobil in relation to the plaintiffs’ costs incurred in investigating the Mobil leak.

11. The plaintiffs are also entitled to interest, in relation to the sum of $104,273.93.

Chronology
Pre-leak

The plaintiffs are the registered proprietors of land in Williamstown North, more particularly described as Lots A, B, 35, and 36 of LP221219C (‘the plaintiffs’ land’).[9] Lot B was purchased on 2 July 1999 by Winky Pop, pursuant to a contract of sale entered into on 6 April 1998.[10] Lots A, 35 and 36 were purchased on 20 May 1999 by OR, pursuant to contracts of sale entered into on 6 April 1998.[11] The plaintiffs’ land was purchased for the sum of $730,000. At the time of sale the plaintiffs’ land was zoned Garden Industrial under the Williamstown Section of the City of Hobsons Bay Planning Scheme, and prior attempts to have the land zoned residential had failed.
[9]Plaintiffs’ Opening Submissions [1].
[10]Further Amended Statement of Claim [2]; CB9596.
[11]Ibid [4]; CB9596, 9678, 9724.

When the plaintiffs purchased the land, the vendor’s statement included an environmental audit report completed by Gutteridge Haskins & Davey Pty Ltd (‘GHD’) in December 1997.[12] The report noted the presence of polycyclic aromatic hydrocarbons and metals in excess of criteria for human health and asbestos on or beneath portions of the soil.[13] Groundwater testing was not undertaken as part of the report, although it was considered unlikely that the groundwater was contaminated “due to the likely depth to groundwater (10m), the clay soil and the low mobility of the contaminants”.[14]
[12]State’s Closing Submissions [9]; CB729.
[13]Ibid.
[14]CB739.

The contracts of sale were executed subject to the outcome of a due diligence report.[15] A report was obtained from PPK Environment and Infrastructure Pty Ltd (‘PPK’) on 15 April 1998.[16] The PPK report confirmed the presence of soil contamination of the type identified in the GHD report.[17] The PPK report also identified a number of risks and difficulties with regard to residential development on the land, including the need to have the land rezoned.[18] The report did not consider the condition of the groundwater.
[15]CB9602, 9683, 9729.
[16]CB1013.
[17]State’s Closing Submissions [11], CB1015.
[18]CB1016-1018.

At the time the plaintiffs purchased the land they were aware that it was contaminated and were also, more specifically, aware of the nature of that contamination.[19]
[19]T276.20-29; T277. 11-15 and CB 00738.

The plaintiffs have now abandoned their earlier intention to rezone and develop the land for residential purposes, because there is no reasonable prospect of the land being adequately remediated and decontaminated.[20]
[20]Plaintiffs’ Closing Submissions, [9]-[10], [15]-[16].

The land, both before and after it was purchased by the plaintiffs, has been the subject of numerous rezoning and development applications. Before going into the details of these rezoning and development applications, it is appropriate to say something about the planning law framework.

Planning law framework

Land use and development planning is given legislative authority by the Planning and Environment Act 1987 (Vic) (‘the Planning Act’). The Planning Act provides for the preparation and operation of planning schemes in each municipality. The overall framework, format and content of standard provisions for municipal planning schemes are provided by the Victorian Planning Provisions.[21]
[21]Milner Report CB2270.

Planning schemes and decision making is intended to be driven and influenced by both the State Planning Policy Framework and the Local Planning Policy Framework (SPPF and LPPF). This policy framework includes a Municipal Strategic Statement that is intended to provide a clear direction to the nature of land use and development outcomes to be achieved in a municipality over a ten year timeline.[22]
[22]Ibid.

Minister’s Direction No 1, published on 27 September 2001, addresses amendments to a planning scheme that may affect the permitted use of potentially contaminated land. The direction defines “sensitive use” as a residential use, amongst others. In accordance with the explanatory statement accompanying the direction, potentially contaminated land is considered to be land, amongst other things, used or known to have been used for industry, or the storage of chemicals, gas, wastes or liquid fuel.[23] This direction is relevant to the plaintiffs’ land, as it was previously the site of an abattoir between 1930 and 1989[24] and subsequent to 1989 the site had also been vacant and may have formed part of a refuse tip in the general area of Challis Street,[25] and some dumping of waste and fill appears to have occurred recently in the area immediately adjacent to the dead end of Akuna Drive.[26]
[23]State’s Outline of Submissions at [20].
[24]Milner Report CB2273.
[25]CMPS&F Report at CB767 (and at CB736 of the GHD Report which relies on the CMPS&F Report).
[26]At CB769 and at CB737.

This Direction, which is state-wide and of application to all Councils, requires the relevant planning authority, Hobsons Bay City Council (‘the Council’), to either: ensure that a Certificate of Environmental Audit or Statement of Environmental Audit with conditions that are suited to sensitive use has been issued; or, include a requirement in the amendment that such a Certificate or Statement be issued before a sensitive use, construction or works in association with the sensitive use commence.[27]
[27]State’s Outline of Submissions [21].

A planning application must go through a number of stages, including a panel hearing, approval by the planning authority and ultimately adoption and approval of any amendment by the Minister for Planning, where the Minister is not the planning authority seeking the amendment.[28]
[28]Ibid [24]; also Pt 3 of the Planning Act.

Planning history pre-leak
L14 Amendment

Amendment L14 went through an exhibition and panel process with a Panel Report being handed down January 1995.[29] The proposed rezoning of the plaintiffs’ land from Garden Industrial to Reserved Living was opposed by the Department of Business and Employment, the EPA, the Minister for Planning, and Mobil. The Panel considered Amendment L14 to be premature and recommended that it be abandoned by Council. The Panel’s recommendation was based on the desire to maintain the 2km buffer distance recommended by the EPA between sensitive uses and petrol refineries.[30]
[29]See Rob Milner Planning Evidence November 2011 at CB2257; Panel Report January 1995 at CB9065.
[30]This buffer distance is listed within the EPA publication Recommended Buffer Distances for Industrial Residual Air Emissions (dated July 1990). This publication is listed as a reference document at Clause 17.02 to the SPPF and the distance is reproduced at Clause 52.10 – Uses with Adverse Amenity Potential.

1998 Application for 107 warehouses

In September 1998, an application was lodged for 107 industrial warehouses with associated car parking on the plaintiffs’ land.[31] A number of objections were received as a result of the notification process and the Council requested further information from the applicant. The following C1 amendment was a modification of this earlier proposal.
[31]CB10021.

C1 Amendment

The C1 amendment for rezoning was accompanied by a proposed residential development (an Incorporated Plan Overlay), which was modified following the exhibition period to provide for 104 attached dwellings.[32] The C1 amendment was considered in the context of two contradicting land development strategies: the 1997 Hobsons Bay Industrial Land Management Strategy (ILMS), which identified the land as an area with potential for industrial expansion, and the 1999 Living in Hobsons Bay: Population & Housing Beyond 2000 - Our Changing Neighbourhoods, which recognised the potential for the land to be rezoned for residential purposes.[33] The Panel Report of March 2001 recommended that the amendment be abandoned. Reasons given for the recommendation were:
[32]Report of the Panel: March 2001 at CB10016.
[33]CB2274-2275.

(a) poor response to the strategic planning framework;

(b) loss of industrially zoned land;

(c) increase in traffic movement and volumes;

(d) inappropriate access opportunities and points;

(e) over development of the land;

(f) pressures may come to rezone other industrial land in the area;

(g) located within the 2km buffer zone of the Mobil complex; and

(h) proposal is in an insufficient state of readiness for approval and is premature.

2006 Application for 69 warehouses

The application for 69 warehouses and associated offices on Lot B was lodged with the Council on February 2006. The application was put on hold until 10 May 2010, when it was withdrawn by the plaintiffs upon the request of the Council.

The leak and clean-up response

By December 2006 the leak had been discovered. Mobil first learned of a possible hydrocarbon leak on 6 December 2006. On 12 December 2006, Mobil became aware that Pipeline No. 1 was likely to be the source of the leak.[34] Upon making this discovery, Mobil activated its emergency response procedures.[35] In the following days Mobil discovered a small pinhole leak in the pipeline, and on 20 December 2006, a 9.2 metre section of Pipeline No. 1 around where the pipeline passes under Champion Road was removed and replaced. Pipeline No. 1 subsequently passed a pressure test, and Mobil resumed using the pipeline.[36]
[34]Witness statement of James Hadwen, [9], CB194 at CB197.
[35]Ibid [10]: CB194 at CB197.
[36]Ibid [9]: CB194 at CB197.

Discovery of the leak led to a Clean-Up Notice (‘CUN’) being served on Mobil by the EPA on 9 February 2007 pursuant to s 62A of the Environment Protection Act 1970 (Vic) requiring Mobil to:[37]

(a)Actively clean up hydrocarbons discharged from Pipeline No.1 together with land and groundwater polluted by the hydrocarbons at specified locations and at any other location to which the pollution was found to spread and to prevent further migration until such time as a Remedial Action Plan (“RAP”) was approved;[38]
(b)Submit an environmental audit report addressing, among other things, recommended measures to reduce any risk of possible harm or detriment to a segment of the environment to an acceptable level;[39] and
(c)Submit a RAP for the clean-up of polluted land and groundwater and, upon instruction from the EPA, implement the plan.[40]

[37]Mobil’s Outline of Argument [8].

[38]CB214.

[39]CB215.

[40]CB216.

The plaintiffs were made aware of the leak and the contamination of their land at a meeting between Mr de Greene, an environmental engineer employed by Golder Associates, and Mr Cini, a director of both plaintiffs, held on 14 June 2007.[41] Although access to the plaintiffs’ land was sought at that meeting, Mobil was unable to gain access to the land and commence remediation of that part of the plume until June 2009.[42] At the time the plaintiffs were informed of the leak they were engaged in the process of having the land rezoned.[43]
[41]CB296-297, T319-321.
[42]CB204, CB298, T322.
[43]Plaintiffs’ Closing Submissions [60].

The CUN also required the submission of an environmental audit report by Mobil to the EPA. The report completed by LanePiper dated August 2007 provided:

(a)Mobil had carried out the immediate clean-up requirements set out in the CUN;[44]
(b)While the CUN did not require LanePiper as auditor to review and/or endorse the RAP, it did require the auditor to make recommendations to reduce risks to acceptable levels, which LanePiper did by reviewing the proposed remediation strategy, as it stood, prior to the issue of the RAP;[45] and
(c)The remediation strategy prepared proposed by Mobil’s consultant, Golder Associates, was generally sound and applicable.[46]

[44]CB15661.

[45]CB15674.

[46]CB15675.

The Remedial Action Plan (‘RAP’) (prepared by Golder Associates) was submitted to the EPA in September 2007 and an updated RAP was submitted on 14 January 2008, in compliance with the CUN.

Mobil is presently remediating the leak in accordance with the RAP; and has removed significant quantities of hydrocarbon from the groundwater through its various remediation activities and will continue its remediation until it achieves clean-up to the extent practicable (‘CUTEP’).[47]
[47]CUTEP (Clean Up To Extent Practicable) is evaluated and enforced by the EPA.

The EPA Information Bulletin — The Clean-up and Management of Polluted Groundwater[48] includes at 6.2, the statement that polluted groundwater should be cleaned up such that the protection of beneficial uses is restored. Where acceptable to the EPA, groundwater may be cleaned up to the extent practicable.[49]. Mr Mirkov outlines the CUTEP processes at [71]-[77] of his Report dated October 2011.[50]
[48]CB08663.
[49]Bulletin [6.2] CB 08669.
[50]CB 01804 at 01818-01819.

Planning history post-leak
C33 Amendment

Amendment C33 to the Hobsons Bay Planning Scheme sought to adopt the updated 2007 ILMS as a reference document to the scheme and make associated changes to local planning policy.[51] Amendment C33 related to all industrially zoned land in the City of Hobsons Bay. The Council submitted that all the industrial land in Precinct 13 (including the plaintiffs’ land) be included in the Strategic Redevelopment Area (‘SRA’) with its preferred future zoning being Residential 1. However, the Panel recommended that the area in Precinct 13 to be included in the SRA be limited to two parcels of land owned by Arundel Stud Farm and Tedesco and Piccolo. The Panel’s recommendation took into account Mobil’s opposition to the rezoning (both of its land at Maddocks Road and the plaintiffs’ land), that the various matters raised by the C1 Panel had not been addressed, and the existence of the plaintiffs’ land within the buffer zone.
[51]Panel Report: June 2007 at CB11903.

Following a legal process in relation to Amendment C33,[52] the Council’s final decision was not to follow the recommendations of the C33 Panel, but rather to designate all land within Precinct 13 (excluding the Akuna Drive industrial estate including lots 35 and 36) as within the SRA.[53]
[52]See Winky Pop Pty Ltd & Anor v Hobsons Bay City Council [2007] VSC 468.
[53]CB2277 and CB17434.

Relevantly the June 2008 Hobsons Bay Planning Scheme ILMS included the following statements which emphasise both the intention of the Planning Authority to support the continued operation of the Mobil Refinery and the significance of the EPA Buffer and reducing the impacts on residential amenity and environment.

The Strategy
2.1 Future Industrial Land Use Framework
In many cases, there will remain existing industries that wish to operate within the precinct for the short to medium term, or even the long term. The Council must ensure that any redevelopment of sites with existing industry must protect the existing and ongoing viable industrial uses and further intensification for as long as they wish to remain in the area. This may mean that areas close to the industries cannot be fully redeveloped until the industry relocates or that they must include measures that mitigate the impact of the industry.[54]
Site specific rezoning of industrial land may be appropriate as a means of allowing a gradual change, whilst providing the maximum support for existing viable industrial businesses to continue to operate.[55]

2.3.4 Part Precinct 13 – Land at corner of Maddox Road and Kororoit Creek Road, excluding existing Akuna Drive industrial developments. Includes 92-100 Champion Road, Williamstown North. (See Industrial Land and Future Directions map page 25)
Therefore a residential outcome for the majority of the precinct could be considered, provided appropriate justification for a residential outcome can be provided to the Council. This new neighbourhood should link in with the existing residential area to the immediate east by road and pedestrian access, provide signalised road access to Kororoit Creek Road. It will also be necessary to provide appropriate social and community infrastructure as determined by a social impact assessment. Provision of affordable housing, with a range of dwelling sizes and types must also be provided.[56]
The development of the new residential area will also have to take into consideration the treatment along Maddox Road to buffer against existing industry and provide appropriate links to Maddox Road for vehicle, bicycle and pedestrian movements. A landscape buffer should be provided along Maddox Road. An Industrial 3 rezoning of Part Precinct 12 from Orange Street to Maddox Road will provide a land use buffer for the new residential area.[57]
Akuna Drive Industrial Estate will be allowed to remain in its current form, but be appropriately buffered from any other land use proposed on the land south and west. This could be achieved through a variety of techniques, including landscaping and rear garage access for new residences.[58]
[54]CB17330.
[55]CB17331.
[56]CB17335.
[57]Ibid.
[58]Ibid.

3.10 Mobil Petroleum Refinery, Altona – Precinct 10
Strategic Action / Objectives
·Support the ongoing operation of the Core Petroleum Refining Industry in Altona.
·Reduce impacts on residential amenity and the environment.[59]

[59]CB17373.

Although the June 2008 ILMS was produced more than two years after the leak, it emphasises the Planning Authority’s obligations and objectives. The plaintiffs’ land forms part of Precinct 13.

C74 Amendment

Soon after the Council came to its final decision, the plaintiffs lodged an application for rezoning and residential development on 10 September 2008.[60] Council’s initial response to this application in a letter dated 23 February 2009 noted the outstanding issues for the land and the fact that an Outline Development Plan (‘ODP’) would be required for the SRA as a whole before residential rezoning could take place in Precinct 13.[61]
[60]CB2277 and CB17587.
[61]CB18700.

On 23 December 2009, the plaintiffs sent an amended application to the Council, containing additional information and a concept ODP.[62] Ongoing consultation and correspondence led to an ODP for Precinct 13, prepared by Hansen Partnership, being presented to the Council in early 2011, aspects of which the plaintiffs did not support.[63] The ODP and a request to rezone the plaintiffs’ land were considered by the Council in February and April 2011. Amendment C74 has yet to be authorised for exhibition.[64]
[62]CB19931.
[63]CB1465 and CB20627.
[64]CB2278.

As the C74 amendment application appeared to stagnate, the plaintiffs first sought the Minister for Planning’s intervention by letter dated 2 February 2011. Following ongoing correspondence and a ministerial briefing, the Minister declined to intervene by letter dated 25 October 2013. This leaves the application in the hands of the Council. The Council’s concerns with the application relate to contamination, industrial interface, access, traffic, drainage, and buffer issues.[65]
[65]Mobil’s Closing Submissions [129].

The plaintiffs’ pleaded case

In their Further Amended Statement of Claim, the plaintiffs sought against Mobil damages in negligence, an injunction abating the nuisance or damages in nuisance in lieu of an injunction, and compensation under s 151 of the Pipelines Act 2005 (Vic). After the close of evidence they abandoned their claim for a mandatory injunction and sought damages instead. Against the State the plaintiffs sought an injunction abating the nuisance and damages in negligence. As with Mobil, the plaintiffs abandoned their claim for a mandatory injunction against the State. Against the State, the plaintiffs now seek damages in negligence only.

That leaves to be determined the plaintiffs’ claim for damages:

(a) in negligence against Mobil and the State;

(b) in nuisance against Mobil; and

(c) for breach by Mobil of s 151 of the Pipelines Act 2005 (Vic).

The plaintiffs claimed the same heads of damages in their negligence and s 151 claims. In those claims, they claimed that they have suffered loss and damage in the form of:

(a) costs of investigating the contamination of the land;

(b) costs of remediating the land;

(c) the diminution in the value of the land; and

(d) loss of profits that would have been realised from development of the land but for the contamination.

In the nuisance claim, the plaintiffs claimed those four heads of damages, and the following additional heads of damages:

(a) damage to the land; and

(b) unlawful interference with the use and enjoyment of the land.[66]

[66]Further Amended Statement of Claim [25].

In the nuisance claim, the plaintiffs also sought damages in lieu of an injunction abating the nuisance.[67] However, the damages sought in lieu of the mandatory injunction were damages for loss of opportunity; a head of damage already pleaded.[68] Accordingly, the damages in lieu of an injunction did not represent a separate head of damages.
[67]Ibid [26].
[68]Plaintiffs’ Opening Submissions [17]; T1536.16-30; T1550.21-27. See also T1394.30-31, T1395.1-3, T1396.9-12 and T1404.19-21.

The plaintiffs abandoned their claim for damages for the costs of remediating the land. The plaintiffs ultimately sought only damages for loss of opportunity.[69] This was the focus of their case. They submitted that the diminution in value principle was not applicable when assessing loss of opportunity.[70]
[69]Plaintiffs’ Closing Submissions [3], [11], [16], [17], [34], [42], [169], [198]; Plaintiffs’ Reply Submissions [41].
[70]T1553.22-31, T1554.1-5.

In relation to the loss of profits head of damages, the plaintiffs pleaded that the loss of profits was equal to A less B less C. ‘A’ is the gross sum the plaintiffs would have realised by developing the land, ‘B’ is the cost to the plaintiffs of the completed development, and ‘C’ is the post-leak value of the land. They say C takes into account the fact that the land cannot now be developed for residential purposes. The example given for A is the expected gross return on the subdivision and 121 residence development proposal in the C33 application; not less than $120m. The example given for B is the expected cost of that development; approximately $35m.

Importantly, the plaintiffs claim damages for loss of profits. In their pleadings they do not claim damages for loss of a valuable opportunity. Ultimately their case at trial was that one particular development, the higher density residential development, would have been completed but for the leak, and they claimed damages for loss of the profits they would have derived from that development. As will be seen below, the plaintiffs’ case at trial was framed in terms of loss of a valuable opportunity to develop residentially, rather than loss of profits. Given the defendants conducted their defence on the basis of loss of opportunity, I will determine the case on that basis, rather than the pleaded loss of profits claim.

The plaintiffs have not claimed damages for delay in any proposed development. The loss of opportunity claim did not have any time element. That is, the plaintiffs did not claim that the opportunity was to develop the land residentially within the next ten years, or any other specific period of time. At trial, the claim was put in absolute terms. The plaintiffs now claim that because of the leak, development is not possible at all, and will never be possible. Time and delay form no part of the plaintiffs’ case. Accordingly, if it is found that residential development was possible before the leak, but because of the leak it will not be possible until some point in the future, the plaintiffs will not be entitled to damages for the delay in development occasioned by the leak.

Mobil’s pleaded case

Mobil conceded liability in negligence, and under the Pipelines Act 2005 (Vic), but has denied liability in nuisance. Mobil pleaded that since December 2006 it has undertaken remediation works to minimise the risk of damage to the land from the leak. Remediation works on the land did not begin for some time after that, because between about 1 May 2007 and about 2 June 2009, the plaintiffs denied Mobil access to the land. Mobil also denied any liability to clean up the contamination to a standard that would permit the alleged intended use of the land for residential development.

Mobil admitted that the land is contaminated with petroleum hydrocarbons and their breakdown products, but denied that the extent of the contamination is not fully defined or that the contamination continues to spread. Mobil admitted that a source of the contamination was petroleum hydrocarbon products from the leak.[71] This was in response to the plaintiffs’ pleading that the source of the contamination of the land was the leak.[72]
[71]Mobil’s Defence [15].
[72]Further Amended Statement of Claim [15].

Mobil denied that the plaintiffs have suffered loss and damage in the forms pleaded in relation to the negligence, s 151 and nuisance claims.[73] Mobil also denied that such loss and damage was a natural and foreseeable consequence of Mobil’s breaches of its duty of care.[74]
[73]Mobil’s Defence [19], [25], [28]. See also Mobil’s Opening Submissions [17].
[74]Ibid [19A].

In its submissions Mobil largely accepted the plaintiffs’ claim for the costs of investigating the contamination of the land. Mobil accepted that the plaintiffs are entitled to damages for the diminution in value of the land, but denied that this should be calculated by reference to lost profits. Mobil denied that the plaintiffs are entitled to damages for loss of opportunity. Mobil denied that the plaintiffs are entitled to damages for interference with the use and enjoyment of the land.[75]
[75]See Mobil’s Opening Submissions [59].

In relation to the nuisance claim, Mobil denied that the plaintiffs have suffered the additional damages of damage to the land and unlawful interference with the use and enjoyment of the plaintiffs’ land.[76] Mobil also denied that the presence of petroleum hydrocarbons beneath the land constitutes a continuing nuisance.[77]
[76]Mobil’s Defence [25].
[77]Ibid [22].

State’s liability to be determined separately

In their written closing submissions, the plaintiffs submitted that on the State’s application, the Court ordered that issues of liability and relief against the State be split and the issue of relief be heard first, concurrently with the hearing of those issues against Mobil.[78] The plaintiffs submit that for the purposes of this trial, the liability of Mobil is established and the liability of the State (for breaches of the State’s duty to the plaintiffs) is to be assumed. Accordingly, the plaintiffs submit that the only issue before the Court is what relief is appropriate against each defendant.[79]
[78]Plaintiffs’ Closing Submissions [1].
[79]Ibid.

The State submitted that this is the trial of the proceeding brought against the first defendant, though the State will be bound by necessary and indispensable findings of fact relevant to the proceeding against it and, in particular, as to loss and damage.[80] Put another way, the current trial involves the case on liability and quantum against Mobil, and affects the plaintiffs’ case on quantum against the State only to the extent indicated by Dixon J in Blair v Curran.[81]
[80]State’s Closing Submissions [1], [156] citing Blair v Curran (1939) 62 CLR 464 at 531-533 per Dixon J. See also State’s Opening Submissions [4].
[81]State’s Reply Submissions [1].

During closing submissions, the State explained that the plaintiffs’ submission that issues of liability and relief against the State have been split and that the issue of relief is being heard first, is incorrect.[82]
[82]T1466.18-22.

On 14 December 2012 Daly AsJ ordered, among other things, that ‘Save for the filing of a defence … the second defendant be relieved of the obligations to take any further steps in the proceeding until the hearing and determination of the proceeding against the first defendant, or further order, save that the second defendant will be bound by any findings made in the trial against the first defendant’.[83] In the ‘Other Matters’ section of the orders it was stated that ‘It is in the interests of efficiency and the prompt resolution of the main issues in dispute for the trial to proceed, in the first instance, against the first defendant alone’.
[83]Orders of Daly AsJ, 14 December 2012 [3].

The State explained that the loss and damage claimed against Mobil and the State is identical. The State was joined as a party to the proceeding by an order made at the end of November 2012, and was invited to participate in this trial. The State decided to participate, and will suffer the estoppels that are outlined by Dixon J in Blair v Curran.[84] The State explained that because of the stage the proceeding was at when the State was joined as a party, and the fact that the relief sought against the two defendants was the same, it was decided that the plaintiffs should first go to trial against Mobil alone.[85] The liability and quantum issues are being run against Mobil, but not the State. The State had an opportunity to be heard on the quantum issue, and will be bound as described by Dixon J in Blair v Curran.[86] The State submitted that it entered into the debate on the appropriate measure of damages and the quantum of the plaintiffs’ loss only insofar as it was necessary to protect its interests.[87]
[84](1939) 62 CLR 464. See T1466.23-30.
[85]T1467.21-26.
[86]T1467.27-31; T1468.1-3.
[87]State’s Closing Submissions [3].

In closing submissions, the State said that this was the State’s formal position on its involvement in the proceeding,[88] and that was made clear at the directions hearing on 23 May 2013 and at the start of the trial.
[88]T1496.10-11.

At the directions hearing on 23 May 2013, the State said that the orders of 14 December 2012 meant that the trial would proceed against Mobil. The State accepted that it would suffer issue estoppel in respect of the issues in this proceeding that affect the State in its case. Those issues would be predominantly the quantum issues, because the same damages were sought from Mobil and the State. The State said it was prepared to take part in the trial in relation to those issues and other factual issues relevant to relief.[89]
[89]Transcript of directions hearing 23 May 2013, T19.29-31, T20.1-9.

In its opening submissions, the State submitted that in this trial of Mobil’s liability, the State is concerned principally with the defence in relation to quantum, and in those circumstances, in any subsequent action or in the liability case against the State, there will be issue estoppel in relation to the necessary findings made in this proceeding. The State said that the issue estoppel was the reason for the State’s presence in this trial.[90]
[90]T197.9-15.

In closing submissions, the State submitted that a consequence of the loss and damage claim against the defendants being identical, is that the Court’s ability to draw inferences from the State’s failure to call certain evidence is constrained.[91] Where two parties have interests which are the same in respect of the issue before the court, and where at least one of those parties has called evidence on a subject, an inference cannot arise against the other party because there is no relevant gap in the evidence from which such inference might arise.[92]
[91]T1468.17-25.
[92]T1469.3-8.

The plaintiffs had a different understanding of the orders of Daly AsJ made on 14 December 2012. In closing submissions the plaintiffs said that they opposed the making of the relevant order, which was made because the State said it was not ready for the trial as then scheduled. The plaintiffs emphasised the words ‘any findings’ in the order ‘that the second defendant will be bound by any findings made in the trial against the first defendant’.[93]
[93]T1497.15-18.

The plaintiffs said that Blair v Curran dealt with judgment estoppel.[94] There is no judgment estoppel in this case. Rather, the State is bound by any findings, not just the findings that would be encompassed by a judgment estoppel.[95] For example, if the Court finds that the plaintiffs lost the opportunity to develop the land, that finding will bind the State. The State cannot go behind any findings the Court makes in this case.[96] That is the reason for the State’s participation in the trial. The plaintiffs conceded, however, that there must be a separate trial against the State to establish its liability.[97]
[94]T1497.L20-21.
[95]T1497.22-25.
[96]T1497.29-31.
[97]T1497.28-29.

The plaintiffs accepted that their written closing submissions[98] misstated the position,[99] but they disagreed with the State’s description of its position in this trial. They said their closing submissions should read ‘for the purposes of this trial, the liability of Mobil is established and the liability of the State (for breaches of the State’s duty to the plaintiffs) is to be determined later, with the State being bound by any findings made against Mobil in this trial’.[100]
[98]Plaintiffs’ Closing Submissions [1].
[99]T1498.1-4.
[100]T1498.5-12.

In response to this, the State said its formal position on its involvement in this trial was put on the transcript as early as 23 May 2013 and then again on 4 June 2013 (day two of trial), but there was no response or comment by the plaintiffs until 13 February 2014, the last day of trial.[101]
[101]T1496.8-19; T1499.8-10.

The State said that the argument put to Daly AsJ before the making of the 14 December 2012 orders made reference to Blair v Curran, and the argument was accepted by her Honour.[102] The State submitted that the meaning of paragraph 3 of the 14 December 2012 orders and the extent to which the State is bound by any determination of fact made in this proceeding, may be a matter for another day.[103]
[102]T1499.12-15.
[103]T1499.16-19.

Finally on this matter, the State submitted that in referring to Blair v Curran, the State was not raising matters of judgment estoppel or res judicata. This part of the proceeding is not a part which will result in a judgment against the State. So, the estoppel arising from judgment in this part of the proceeding must be the second layer of issue estoppel.[104] The State submitted that if there is a need to reopen the order of Daly AsJ, that will be done if appropriate.[105]
[104]T1499.19-24.
[105]T1499.25-26.

What is clear is that this part of the proceeding will determine the main issues as between the plaintiffs and Mobil. That is, it will determine liability and quantum in respect of Mobil. It is also clear that this part of the proceeding will not determine whether the State is liable. What is not clear is the extent to which findings against Mobil in relation to quantum will bind the State.

In my view it is unnecessary to determine at this stage which findings in this part of the proceeding will bind the State in the next part of the proceeding concerning the State’s liability. The extent to which the State is bound by findings in these reasons for judgment will be determined if and when the State’s liability is decided upon.

Also to be determined at that stage is the State’s proportionate liability claim against Mobil. The State pleaded that if any act or omission of the State caused the alleged loss and damage, then the plaintiffs’ claims against the State are apportionable claims within Pt IVAA of the Wrongs Act 1958 (Vic).[106] Mobil is a concurrent wrongdoer, and the State’s liability is limited to an amount reflecting the proportion of the loss or damage that the Court considers just and equitable having regard to the extent of the State’s responsibility for the loss or damage.[107] The State pleaded that it is just and equitable that Mobil be liable to the plaintiffs for the whole of any proven loss or damage.[108]
[106]State’s Defence [41].
[107]Ibid.
[108]Ibid.

In its opening submissions, the State noted that for the purposes of this trial, the State has alleged proportionate liability as against Mobil.[109] Neither the plaintiffs nor Mobil dealt with the State’s proportionate liability claim in pleadings or in oral or written submissions. This is not surprising, given this part of the proceeding deals only with the extent of loss and damage suffered by the plaintiffs (if any), and does not determine whether the State is liable.
[109]T196.12-15.

If the plaintiffs bring their liability claim against the State and the State is found liable, the State’s proportionate liability claim against Mobil will be decided at that stage. It would be expected that Mobil would address the Court on proportionate liability. Given this part of the proceeding does not concern the State’s liability, and Mobil has not addressed the Court on proportionate liability, it would be inappropriate to determine the State’s proportionate liability claim at this stage.

The plaintiffs’ submission calling for inferences to be drawn against the State

Adverse inference sought in relation to potential rezoning evidence

The plaintiffs submitted that the State, being seized of the rezoning application and therefore the most relevant knowledge, could have called evidence as to the likelihood of rezoning.[110] Accordingly, on the plaintiffs’ case, the Court should conclude that such evidence would not have advanced the defendants’ case. The responsible Minister is no longer considering the application to re-zone the plaintiffs’ land, having declined to intervene.
[110]Plaintiffs’ Closing Submissions, [89].

The State submitted that no adverse inference can or should be drawn against the State for the absence of an EPA or Ministerial witness.[111]
[111]State’s Reply Submissions, [4]-[5].

In my view no adverse inference of the type sought by the plaintiffs should be drawn because such witnesses were not called. This is because the subject witnesses were likely to have been addressing the very complex array of considerations relevant to any course that may have been considered possible or likely by such witnesses in relation to the rezoning and EPA related question raised in this proceeding. Furthermore, evidence likely to be available from such witnesses would concern the discretion reposed in both the EPA and the Minister in relation to environmental provisions and conditions and re-zoning decisions and related conditions respectively. Because of these likely complexities and discretionary considerations, I consider that it is not safe or appropriate to speculate as to what evidence might, or might not have been given by such witnesses.[112] For the same reasons, I am not willing to draw any inferences in relation to the Minister’s decision not to intervene.
[112]Plaintiffs’ Closing Submissions [166]-[169].

The State’s pleaded case

As discussed above,[113] this part of the proceeding does not concern the State’s liability. However, given the State has filed a defence, I will briefly set out the State’s pleaded case.
[113][53]-[69].

The State denied liability in negligence. The State opposed the plaintiffs’ claim against it for injunctive relief on the basis that the plaintiffs did not allege nuisance against the State, so no order for abatement could be made. As above,[114] the plaintiffs no longer press the claim for a mandatory injunction.
[114][39].

The State admitted that the land is contaminated with petroleum hydrocarbons and their breakdown products, but denied that the extent of the contamination is not fully defined or that the contamination continues to spread. The State admitted that a source of the contamination was petroleum hydrocarbon products from the leak. However, the State denied that the plaintiffs have suffered loss and damage by reason of Mobil’s breach of duties. The State also denied that the plaintiffs have suffered loss and damage as a result of the State’s alleged breaches of duty, and denied that any such loss and damage was a natural and foreseeable consequence of those alleged breaches.

The State also pleaded that any damage to the plaintiffs was caused by Mobil’s breach of duty. If the State breached any duty of care to the plaintiffs, Mobil’s negligence in failing to repair the pipeline to avoid the leak was an intervening cause wholly responsible for any loss and damage suffered by the plaintiffs.

The State pleaded that in any event, the land’s residential development potential was subject to pre-existing contamination, therefore no damages as alleged by the plaintiffs properly arise by reason of the leak. The State particularised several reasons why the land was unsuitable for residential development. Those particulars included that by reason of the pre-existing contamination the land would not have been suited to ‘sensitive use’, defined to include residential use, within the meaning of Ministerial Direction No 1. It would not have been practicable to remediate the pre-existing contamination to the standard required for the issue of a Certificate of Environmental Audit and/or a Statement of Environmental Audit. Further, the land is within the 2km buffer distance recommended by the EPA for industrial residual air emissions. For those reasons, it would not have been commercial for the plaintiffs to remediate the land for residential development before the leak. The particulars also referred to the plaintiffs’ inability, since 1999, to achieve rezoning of the land or a planning scheme amendment to allow residential development.

The State’s case on damages is that the constraints on the plaintiffs’ land are such that the Court cannot be satisfied that the plaintiffs’ land would have been developed for residential purposes in the way asserted by the plaintiffs. The State contends that the circumstances do not favour the grant of an injunction and the true measure of the plaintiffs’ loss is any diminution in the value of the plaintiffs’ land.[115] As earlier noted[116] the State’s response to the plaintiffs’ initially instigated injunction application is now not relevant.
[115]State’s Opening Submissions at [6].
[116]See [39].

In respect of the heads of damage claimed by the plaintiffs, the State outlines its position as follows:

(a)any cost of investigating the contamination by the plaintiffs should not include investigation costs the plaintiffs would have undertaken in any event, including the AECOM environmental assessment analysis which was relied upon for the purpose of the C74 amendment application;
(b)the plaintiffs have not incurred and are not, on balance, likely to incur, any cost for remediating groundwater by reason of the first defendant’s clean-up;
(c)no allowance should be made for damage to the plaintiffs’ land in nuisance because the damage is being remediated to CUTEP;
(d)the costs of remediating the pre-existing contamination should be deducted from any damages awarded;
(e)no allowance should be made for the claimed unlawful interference with the use and enjoyment of the plaintiffs’ land in circumstances where the land has been vacant at all material times and the plaintiffs’ claimed desire to develop the land for residential purposes has not been impeded by the Mobil leak. Alternatively, any damage assessed under this head should be nominal.[117]

[117]State’s Opening Submissions [42].

With regards to the plaintiffs’ claim for loss of opportunity damages, the State submits that the opportunity has not been lost.[118] The planning history of the land shows that the most significant advances in the plaintiffs’ efforts to develop the land occurred post-leak, with its inclusion in the SRA as part of Amendment C33.
[118]State’s Closing Submissions [150].

Alternatively, the State submits that even if the plaintiffs were able to prove the opportunity which they identify had been lost, the State argues that the available evidence is insufficient to found a Sellars analysis.[119] The State points out in this regard that the Court would have to be satisfied that the negligence or other wrongdoing caused the loss of the chance on the balance of probabilities.[120] The State submits that the constraints on the land are such that the Court cannot be satisfied that but for the contamination of the groundwater beneath the land, the plaintiffs would have developed the land for residential use for the profits claimed. Alternatively, the State claims that the first defendant’s remediation of the plaintiffs’ land to CUTEP likewise means causation cannot be established.[121]
[119]Ibid [151].
[120]Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355 per Mason CJ, Dawson, Toohey and Gaudron JJ.
[121]State’s Opening Submissions [40].

Negligence and nuisance

In this proceeding, Mobil has conceded liability in negligence. The plaintiffs also allege that Mobil has caused a private nuisance. Mobil denied liability in nuisance. Negligence and nuisance may overlap, however, private nuisance remains a distinct tort and has not been assimilated into the law of negligence.

To establish a claim in negligence, a plaintiff must establish that the defendant owed him/her a duty of care, that the defendant breached that duty of care, and that the plaintiff suffered damage. That damage must satisfy the tests for causation and remoteness.

The plaintiffs pleaded their negligence claim against Mobil as follows. Mobil owed a duty of care at common law to persons such as the plaintiffs who it was reasonably foreseeable would suffer loss or damage from the leakage of petroleum hydrocarbon product from the Mobil pipeline.[122] That duty required Mobil to carry out repairs properly and promptly to prevent or minimise leakage, whenever Mobil became aware that such repairs were necessary.[123] Mobil breached that duty by failing to maintain the pipeline to prevent or minimise leakage, and by failing to carry out necessary repairs properly and promptly to prevent or minimise the leakage.[124] By reason of the breach of duty, the plaintiffs suffered the loss and damage set out above.[125] The plaintiffs pleaded that the contamination of the land and the loss and damage suffered by the plaintiffs as a consequence of the contamination, were natural and foreseeable consequences of Mobil’s breaches of duty.[126]
[122]Further Amended Statement of Claim [16].
[123]Ibid [17].
[124]Ibid [18].
[125]Ibid [19].
[126]Ibid [19A].

Mobil admitted liability in negligence. It pleaded that it had a duty of care to exercise reasonable care in the management and operation of the Mobil pipeline so as to prevent property damage arising from the operation of the pipeline.[127] Mobil admitted that the leak was the result of its breach of that duty and/or its failure to manage the operation of the pipeline in accordance with the requirements of s 124 of the Pipelines Act 2005 (Vic), and that the leak caused some of the contamination of the land.[128] Mobil denied that its duty of care required it to carry out repairs properly and promptly to prevent or minimise leakage, whenever Mobil became aware that such repairs were necessary.[129] Mobil denied that the plaintiffs suffered loss and damage as pleaded in the Further Amended Statement of Claim.[130] Mobil admitted that the land was contaminated with some petroleum hydrocarbons and their breakdown products, and that the leak caused some of that contamination, but otherwise denied that the contamination of the land and the loss and damage suffered by the plaintiffs were reasonably foreseeable consequences of Mobil’s breaches of duty.[131]
[127]Mobil’s Defence [16].
[128]Ibid [18].
[129]Ibid [17].
[130]Ibid [19].
[131]Ibid [19A].

The tort of nuisance is essentially concerned with interference with the enjoyment of rights or interests in land. The types of acts that are recognised by the law as constituting a nuisance are acts causing:

(a) physical injury to land;

(b) unreasonable and substantial interference with the use and enjoyment of land; or

(c) encroachment onto land.[132]

[132]Robson v Leischke (2008) 72 NSWLR 98, [54]. As to the first two categories, see also Qantas Airways Ltd v Mascot Galvanising (Holdings) Pty Ltd (Unreported, Supreme Court of New South Wales, Windeyer J, 17 December 1998), [43]-[44]; and Hunter v Canary Wharf Ltd [1997] AC 655, 695 (Lord Lloyd). See also R P Balkin and J L R Davis, Law of Torts (LexisNexis Butterworths, 5^th ed, 2013), [14.7] 466.

Where physical injury is relied upon, the plaintiff must prove that his/her property has suffered a sensible material injury that is not merely trifling in nature and that results in a diminution of the value of the property.[133] Diminution in value of the land is not in itself ‘material injury’ to the property.[134]
[133]Balkin and Davis, above n 132, [14.8] 466.
[134]Ibid [14.9] 467.

Where unreasonable and substantial interference with the use and enjoyment of land is relied on, courts may consider the locality where the act is performed in order to determine whether the interference is unreasonable and substantial.[135] When assessing reasonableness, courts will usually weigh the nature and circumstances of the defendant’s activity against the nature and extent of the resulting interference with the plaintiff.
[135]Ibid [14.15] 470.

The plaintiffs pleaded their nuisance claim against Mobil as follows. On a date unknown but believed to be before 6 December 2006 and continuing thereafter, petroleum hydrocarbons and their breakdown products were present beneath the land.[136] Those petroleum hydrocarbons and their breakdown products had escaped from the Mobil pipeline into the surrounding environment, were continuing to spread to the surrounding soil and groundwater including onto the land, and unreasonably interfered with the plaintiffs’ use and enjoyment of their land.[137] The plaintiffs called this the petroleum hydrocarbon nuisance. They pleaded that Mobil created the petroleum hydrocarbon nuisance.[138] They claimed that Mobil continued the petroleum hydrocarbon nuisance at all times from 6 December 2006, and failed to abate it within a reasonable time from 6 December 2006.[139]
[136]Further Amended Statement of Claim [20].
[137]Ibid.
[138]Ibid [21].
[139]Ibid [22], [24].

Further and in the alternative, the plaintiffs pleaded that it was reasonably foreseeable to Mobil that unless the nuisance was abated, the plaintiffs were in a class of persons likely to suffer loss and damage due to damage to the land and the unreasonable interference with the use and enjoyment of the land (and rights connected to it) caused by the unabated nuisance.[140]
[140]Ibid [23].

The plaintiffs pleaded that as a result of the nuisance they suffered the loss and damage set out above.[141] They sought an injunction abating the nuisance, or alternatively damages.[142] As discussed above,[143] the plaintiffs no longer seek a mandatory injunction.
[141]Ibid [25]. See [41]-[43] above.
[142]Further Amended Statement of Claim [26].
[143][39].

In their pleadings, the plaintiffs defined ‘the petroleum hydrocarbon nuisance’ as the hydrocarbons and their breakdown products that escaped from the Mobil pipeline into the land, continued to spread to the soil and groundwater on the land, and unreasonably interfered with the plaintiffs’ use and enjoyment of the land.[144] It appears, therefore, that in their nuisance claim the plaintiffs relied on substantial interference with use and enjoyment, rather than on physical injury to land. When it came to damages for nuisance, the plaintiffs pleaded that they suffered and continue to suffer loss and damage in the form of, among others, damage to the land, substantial interference with the use and enjoyment of the land, and diminution in value of the land.[145] The pleadings there suggest that the plaintiffs relied on physical injury to the land and substantial interference with the use and enjoyment of the land, as constituting the nuisance. However, had the plaintiffs sought to rely on physical injury to land, it would be expected that they would have led evidence as to the sensible material injury to the land, namely the diminution in value. They did not lead any such evidence, because they sought loss of opportunity damages, not damages for diminution in value. It seems, therefore, that the plaintiffs’ nuisance claim relied on substantial interference with use and enjoyment, and not physical injury to the land, the interference being the rendering of the land unsuitable for the residential development the plaintiffs claim they intended to pursue.
[144]Further Amended Statement of Claim [20].
[145]Ibid [25].

As to the plaintiffs’ nuisance claim, Mobil admitted that the land was contaminated with some petroleum hydrocarbons and their breakdown products, and that the leak caused some of that contamination.[146] Mobil denied that the petroleum hydrocarbons and their breakdown products were continuing to spread to the surrounding soil and groundwater including onto the land.[147] Mobil also denied that the petroleum hydrocarbons and their breakdown products unreasonably interfered with the plaintiffs’ use and enjoyment of the land.[148] By denying that the contamination caused by the leak unreasonably interfered with the plaintiffs’ use and enjoyment of the land, Mobil denied liability in nuisance.
[146]Mobil’s Defence [20(a)].
[147]Ibid [20(b)].
[148]Ibid [20(b)].

Mobil denied that it continued the ‘petroleum hydrocarbon nuisance’ at all times from 6 December 2006, and that it failed to abate the alleged nuisance within a reasonable time from 6 December 2006.[149] Mobil pleaded that since 6 December 2006 it carried out remediation works to minimise the risk of damage to the land from the leak, and from about 1 May 2007 to 2 June 2009, the plaintiffs denied Mobil access to the land and thereby prevented Mobil from undertaking remediation works on the land in that period.[150]
[149]Ibid [22].
[150]Ibid [22].

Mobil also denied that it was reasonably foreseeable to Mobil on and from 6 December 2006 that unless the alleged nuisance was abated, the plaintiffs were in a class of persons likely to suffer the pleaded loss and damage.[151]
[151]Ibid [23].

However, the parties’ submissions did not deal with the nuisance claim in any detail. This appears to be due to the fact that the plaintiffs no longer seek a mandatory injunction.

In their opening submissions the plaintiffs submitted that Mobil’s unlawful acts interfered with the plaintiffs’ use and enjoyment of the land and the opportunity to develop the land for profit.[152] They submitted that that interference will continue until the contamination is removed, and having established the interference, the plaintiffs are entitled to an injunction preventing such continuation or repetition.[153] The plaintiffs submitted that the fact that Mobil had repaired the leak did not preclude the grant of an injunction because the repair did not address the loss and damage being caused as a consequence of the leak, which is ongoing and continues as long as the land is contaminated.[154] The plaintiffs’ opening submissions went on to outline the reasons why confining the plaintiffs’ remedy for the harm caused by the defendants to damages would produce substantial injustice, and why the Court should exercise its discretion to grant an injunction. The plaintiffs submitted that as an alternative to an injunction, they sought damages for the losses they have sustained as a consequence of the contamination of the land, calculated on the basis of loss of opportunity.[155]
[152]Plaintiffs’ Opening Submissions [9(a)].
[153]Ibid [9(b)].
[154]Ibid [10].
[155]Ibid [17]-[19].

Originally, the primary relief sought by the plaintiffs was a mandatory injunction that the defendants remove the contamination for which they are responsible. Mandatory injunctions are a form of relief available for nuisance. Now that the plaintiffs have abandoned their claim for a mandatory injunction, and seek only damages for loss of opportunity, the nuisance claim loses its importance to the plaintiffs’ case. This is because the loss of opportunity damages are available for negligence as well as for nuisance. As Mobil has admitted liability in negligence, the plaintiffs may be entitled to the claimed damages in their negligence case. Accordingly, the plaintiffs do not now need to establish their nuisance claim against Mobil in order to obtain the relief they seek.

The plaintiffs’ closing submissions only dealt with nuisance in terms of the appropriate measure of damages.[156] They did not deal with whether the contamination of the land from the leak amounted to an unreasonable and substantial interference with their use and enjoyment of the land.
[156]See Plaintiffs’ Closing Submissions [18]-[42].

I consider that in light of the timing and nature of Mr Stewart’s concession that a design contingency could be taken out of the plaintiffs’ costing, it is appropriate to disregard that concession and focus on Mr Stewart’s original assessment that a 3 per cent design contingency was appropriate.

I accept Mr Stewart’s evidence, which I consider to be inherently more probable, that Hallmarc, which did not have the benefit of its own architects or engineers, may incur design costs during construction. The evidence was also that the existing prospect drawings are only conceptual and that the design for services and structure has not been undertaken. Mr Stewart also stated that it was usual to allow for these design contingencies.[691]
[691] T1335-1336.

I consider that for the above reasons a design contingency of 3 per cent, namely $1,762,383, for the Terrace House development and $3,070,715 for the Higher Density development should be added to the plaintiffs’ costing.

Cost of road and earthworks

The plaintiffs submit that the difference on this item is between Mr Keighran’s cost of $3,180,000 and Mr Stewart’s cost of $3,424,253 and that the Court should split the $244,253 difference.

Mobil’s submissions in reply on this item, in essence refer to the plaintiffs’ proposed resolution by the Court splitting the difference between the experts’ evaluations.

I consider, given the above approach of the parties, that with this relatively modest item I am justified in following the plaintiffs’ submitted approach. Accordingly, I determine that the sum of $3,302,126.50 (being the average of Mr Keighran’s adjusted allowance of $3,180,000 and Mr Stewart’s $3,4224,253) represents the cost of road and earthworks.

For the above reasons the same adjustment, by adding a further $122,100.00, could be made both for the Terrace House and the Higher Density Construction Costs.

Marketing and selling costs

In relation to the 121 lot subdivision and the Terrace House scenarios, Mr Keighran applies a 2 per cent sale cost for what he describes as marketing and sales costs. Mr Keighran’s calculation applied to the selling costs. Mr Stewart conceded that in Hallmarc Constructions’ case, the calculations of marketing and sales costs as a percentage of selling costs may be more appropriate. Mr Stewart applies 8 per cent of the costs of construction to calculate this item. Further, discrepancy arises between Mr Keighran and Mr Stewart on this item because Mr Stewart applies his chosen percentage to costs calculated with unionised labour.

In my view, Mr Stewart accepted, during his evidence at the joint expert “hot tub” with Mr Keighran, that Hallmarc was in a special position in relation to the way it deals with marketing and selling, and was probably particularly well able to minimise those costs which related to controllable internal aspects of its operation and associated costs. For this reason, I accept Mr Keighran’s calculation of marketing and selling expenses and that those costs should be calculated at 2 per cent of the cost of sale.

Accordingly, I consider that the sum of 2 per cent of the middle sales yield of the Higher Density development should be added to the plaintiffs’ overall development costs. That additional sum is $4,260,000.

Informed estimate

The plaintiffs submit that if the Court accepts the plaintiffs’ submissions on the costs of development issues above, the total construction cost of the High Density Development (including marketing and sales) is $116,732,888 (and that this sum will reduce to $106,120,807 after recovery of input tax credits).[692]
[692]See Keighran’s individual valuations at CB21961-CB21965 and the valuations contained in the Joint Report of Keighran and Stewart at CB21965_C – CB21965_L.

Mobil submits in relation to the plaintiffs’ damages case that:

Any award of damages for the plaintiffs’ loss of opportunity claim requires the Court to estimate the difference between the profit that would be made on the plaintiffs desired and approved development proposal and the development which it is able to undertake; be it a less profitable residential development or an industrial development.[693]

[693]Mobil’s Closing Submissions [151].

Mobil submits that there needs to be an evidentiary basis for an informed estimation of the value of the lost opportunity.

Mobil says the plaintiffs’ losses are the difference between:

(xliii) the hypothetical profit on the plaintiffs’ desired development opportunity; and

(xliv) the profit which could be achieved on a development that the plaintiffs can undertake, notwithstanding residual contamination;

discounted by the relevant contingencies.

Mobil says that any attempt to measure loss in the above manner would be impossible and also submits that this position reinforces that the normal measure of loss for damage, diminution in value, should be applied.[694]
[694]Ibid [155].

Mobil also points out in its submissions that the plaintiffs did not lead any evidence as to the current value of their land.[695]
[695]Ibid [Schedule 6].

I have earlier[696] dealt with this issue as it arose at a point of principle. For the reasons explained above, I reject this argument by Mobil.
[696]See [252]-[259].

Mobil’s Submissions
Project form and project vehicle

Mobil highlights that the plaintiffs’ evidence is that the residential development proposal before the Council is unlikely to be the form of residential development which the plaintiffs would pursue.

Mobil also highlights that at the time of the leak, and throughout most of this proceeding, the plaintiffs were unable to say in what form their residential development would be undertaken. Mr Cini was of the view that if amendment C74 was accepted, it was “unlikely” that he would proceed with the 121 Lot subdivision attached to that application.[697]
[697]T337.10-15.

The plaintiffs have, in their final submissions, submitted that they have now decided that it is pointless to pursue their residential development plans and they have therefore abandoned those plans.

Mobil also points to the history of the plaintiffs’ applications to develop their land and the various types of proposed industrial and residential developments the plaintiffs have put forward since 1998. Mobil submits that this history underscores the unpredictable nature of the plaintiffs’ development plans. Mobil also points to Mr Keighran’s evidence as to the different ways of staging the plaintiffs’ development[698] and highlights that, depending on how a future project is staged, there will be uncertainties as to cost.
[698]CB21959-60; T1383.12-20.

Mobil submits that the constraints and other issues presently standing in the way of planning approval for the residential development of the land would probably result in future changes to any residential development the plaintiffs may pursue.

Mobil submits that to establish the loss of opportunity claim the plaintiffs pursue, the plaintiffs must prove not only the type of development they are likely to undertake but also the corporate structure and development plan by which the development will be undertaken.

Mobil submits that Mr Keighran’s costing is based on a corporate structure wherein the developer entity makes no profit, and a development vehicle which can reduce profits by means of tax contribution.

Mobil submits that because in this proceeding the plaintiffs have not adduced evidence about the likely corporate structure of the development, the Court cannot be confident that the plaintiffs will make any development profits, nor can it be confident about what those profits might be.

Mobil submits that given Hallmarc’s development structures for the Highett and St Albans projects, the Court should regard the plaintiffs’ most likely corporate structure for the development of the land as one where all profits accrue to entities other than the plaintiffs.

Mobil submits in Schedule 5 of its Closing Submissions that Mr Keighran’s evidence as to the costs of the plaintiffs’ three development scenarios is flawed because:

(xlv) Mr Keighran’s costing experience appears to be based on different types of earlier development; and

(xlvi) His experience was with earlier developments that were undertaken using different corporate and tax structures.

Mobil submits that given the history of other projects undertaken by Hallmarc, the Court should conclude that as with two relatively recent development projects, the plaintiffs will ultimately develop the land via a project specific joint venture vehicle. Mobil contends that if such a joint venture vehicle were used to develop the plaintiffs’ land, the profits from such a development would accrue to a joint venture partnership and would be distributed to the Hallmarc Group entity which participates in the partnership.

Mobil also poses other hypotheses, namely the plaintiffs may be mere custodians for the type of joint venture partnership referred to above and not themselves take any profits from the development. Alternatively, the plaintiffs may become 100% subsidiaries of Hallmarc and members of a tax consolidation group and take certain tax effective steps which may result in a material reduction in the plaintiffs’ profits (within the Group structure) as a result of the plaintiffs’ deductable expenses being increased as part of the overall Group accounting practices.

Plaintiffs’ Responses

The plaintiffs submit that Mr Cini’s unchallenged evidence was that the plaintiffs would themselves develop their land. The plaintiffs also submit that they are not required to establish the detail of every element of the proposed developments to meet the onus that the prospects of realising the development were on the balance of probabilities, likely.[699]
[699]Plaintiffs’ Reply Submissions [69].

The plaintiffs submit that Mr Cini’s evidence was that each of the developments undertaken by his companies was profitable. The plaintiffs also submit that the utilisation of other structures for other developments does not provide a basis to say that those historical structures will be used in relation to the development of the plaintiffs’ land.

The plaintiffs also submit that Mr Keighran’s evidence about the staging of the project did not establish significant uncertainties, but rather illustrated that there were different ways for a “self-funding” development to proceed.

The plaintiffs argue that the corporate tax structures they may have used on earlier developments are irrelevant to their costing of the present three development scenarios. The plaintiffs also point out that the matters Mobil now submits as to the possible corporate structures the plaintiffs might adopt for the development were not put to Mr Cini.

Conclusions (form of development and type of corporate vehicle)

In my view the uncertainty in the form of residential development which might ultimately be permitted by the relevant authorities and decided upon by the plaintiffs, and the obvious consequential uncertainty which is likely to flow including in relation to development costs, strongly indicate that the conventional method of assessing damage in relation to injured land, namely damages for diminution of value, is the more suitable method. This is because a diminution in value basis for assessing damages largely obviates the considerable uncertainties, to which I have referred, in relation to what in fact the plaintiffs would be able to residentially develop in the future. Damages for diminution in value, were they addressed and sought by the plaintiffs, could be more predictably evaluated and evaluated by reference to a specific point in time and would represent a damages calculation more directly informed by the market for the plaintiffs’ land at the relevant time.

However, I am unpersuaded that the plaintiffs are required, in the proof of their loss of opportunity damages claim, to define the precise corporate and tax structure which the plaintiffs would employ to undertake their development.

Save for the matters I have addressed elsewhere in relation to the Builders’ Margin,[700] in relation to the projected construction costs of the plaintiffs’ development, in my view the plaintiffs’ costing directed to the establishment of projected profits[701] are in terms of their structure and logic adequate to address all the necessary elements of the type of financial claim made by the plaintiffs. That is, subject to the adjustments to those costs which I have determined above[702] and also subject to my views about the ill-defined financing cost which the second and third development scenarios will probably generate.
[700]See [656]-[659].
[701]CB1727-CB1772; CB21792-CB21829; CB21956-CB21965.
[702]See [646]-[676].

Likewise, I am not persuaded that earlier Hallmarc Group developments bear upon, or are probative of the likely corporate structure the plaintiffs would employ to residentially develop their land in the future. Mr Cini said, and I accept, that the plaintiffs would themselves develop the plaintiffs’ land. That evidence was not challenged, nor was Mr Cini cross-examined as to the various Mobil hypotheses referred to above,[703] as to the corporate and tax structures the plaintiffs might employ to undertake the relevant development.
[703]See [694]-[695].

Finally, in relation to Mobil’s criticisms of Mr Keighran, in my view the types of projects and prior cost estimating work undertaken by him were sufficiently analogous to enable him to give the expert evidence he did in this proceeding. Further, the fact that his past project cost experience may have been in relation to projects undertaken with different corporate and tax structures and perhaps structures which may prove to be different to that used by the plaintiffs to develop their land in due course does not, in my view, in itself in any way diminish the weight to be given to Mr Keighran’s evidence in this proceeding. However, for the reasons I have earlier explained,[704] in areas of conflict of evidence between Mr Stewart and Mr Keighran, I have given less weight to Mr Keighran’s evidence.
[704]See [642]-[643].

The plaintiffs’ need for finance for the Residential Developments

The plaintiffs submit that the only evidence before the Court is that financing will not be required because the development is likely to be staged. The plaintiffs also point out that Mr Cini was not cross-examined on this issue.

The plaintiffs also submit that Mobil has not called any evidence which establishes, or supports the proposition that the plaintiffs will require finance to undertake the development scenarios, nor has Mobil put on any evidence as to the cost of such finance and its impact on the feasibility of the possible developments.

The plaintiffs also submit that reference to financial requirements for other Hallmarc projects is not probative of any requirement for finance for the plaintiffs’ proposed project. Mr Keighran’s evidence in cross-examination as to certain loans for development was equivocal and his evidence in cross-examination in relation to various Hallmarc accounts was not probative because he was not conversant with those accounts.

The plaintiffs also submit that they are financially strong and that there is no established basis for the Court to conclude that the plaintiffs would have any difficulty financing the development scenarios they have put forward.

Mr Cini in his Supplementary Witness Statement refers to Hallmarc’s statutory audited accounts that disclose net equity of the Hallmarc Group in excess of $50,000,000. While I accept this rough estimate, that is less than half the amount that will ultimately be required in construction costs. Further, the Hallmarc Group financial statements disclose that only a small portion of this net equity of $50,000,000 is in cash or cash equivalents, with the rest of this net equity tied up in investment properties held by Hallmarc. Accordingly, I consider it likely that Hallmarc would need to seek finance for the Higher Density development.

Mr Keighran also sought to establish that the plaintiffs would not require finance to fund the proposed development. Mr Keighran was however not able to speak to this position from his own direct knowledge.[705]
[705]T1360-T1361, T1369, T1374, T1379, T1382-T1383.

Furthermore, the evidence was that the Hallmarc Group has, on a number of relatively recent occasions, required third party finance to fund its projects,[706] even when those projects were undertaken in stages.[707]
[706]T1373-1376.
[707]T1369-T1370, T1375, T1378.

Mr Cini did not give evidence on this issue, and did not seek to establish that the plaintiffs and the Hallmarc Group would not require finance to pursue the three development scenarios.

Mobil also made the overarching submission that even with the adjustments to the plaintiffs’ costs (of development) for which Mobil argue, the plaintiffs’ proofs are incomplete and do not provide a reliable basis for evaluating the amount or value of the plaintiffs’ asserted lost opportunity.

Mobil submits that the plaintiffs’ estimates do not make any allowance for:

(xlvii) the plaintiffs’ purchase of the plaintiffs’ land; and

(xlviii) the holding costs associated with the plaintiffs’ land since purchase.

Curiously, Mr Keighran stated that he was instructed to make no allowance for the above costs. Moreover, no other witness addressed these costs, nor did any evidence address the plaintiffs’ costs associated with consultants who assisted with the rezoning and associated presentations and applications, costs which appear to be in the nature of development costs.

I am not however persuaded that, in themselves, these cost omissions are such as to render the plaintiffs’ proofs in this area so uncertain that the Court would be forced to speculate as to the plaintiffs’ real damage.

The cost of the plaintiffs’ purchase of Lots A and B is $630,000,[708] and that expenditure does not appear to be contested. The plaintiffs’ costs associated with purchasing Lots A and B and holding costs are, given the purchase price, likely to be a relatively small sum in comparison with the overall development cost integers. Further, the consultants’ costs associated with rezoning applications and the like are unknown, but are also likely to be relatively small.
[708]CB9596.

Finally, I note that I have earlier[709] decided that given Mr Cini’s evidence as to the plaintiffs’ financial position, and the Hallmarc Group accounts tendered at trial,[710] it appears likely that the Hallmarc Group, and the plaintiffs as part of that group, would have to borrow to fund the development even in stages.
[709]See [709]-[712].
[710]See Cini Supplementary Witness Statement, [2](c), in which he states that the Hallmarc Group has net equity in excess of $50,000,000. The Hallmarc Group accounts disclose $3,300,824 in cash and cash equivalents, with some equity in investment properties (CB22265).

I therefore consider that upon the material tendered in relation to the financial position of the Hallmarc Group,[711] it is likely that Hallmarc, including the plaintiffs, would need to seek finance to fund the residential developments proposed on the plaintiffs’ land.[712]
[711]CB26.22278, T1387, T1388.
[712]It is worth noting that each of the three feasibility reports for the alternative development scenarios contained under the section “finance cost” a sub-section “valuation fee” of $10,000, presumably because finance would eventually be required (CB1384; 1386; 1388).

Further, as I have observed elsewhere,[713] Mobil did not adduce any evidence to establish that the plaintiffs would require finance to pursue their development plans and Mr Cini was not cross-examined by the defendants about the plaintiffs’ or Hallmarc’s ability to finance the proposed residential developments.
[713]See [705]-[706], [712].

Finance Costs

In my view it is more probable than not that given the above evidence in relation to the Hallmarc accounts, the Hallmarc Group (and the plaintiffs as part of that Group) will require finance to develop the Higher Density residential development even were it to be staged. However, there is insufficient evidence available for me to determine the likely amount of finance required.

Recovery of Input Tax Credits

The parties did not provide the Court with any material or submissions upon which it could understand the detail of, factor in, or make appropriate adjustments for the recovery of any applicable input tax credits.[714]
[714]Plaintiffs’ Closing Submissions, [225].

Costs of Investigating the leak

The plaintiffs’ claim under this head is for $122,093.95.

Mobil accepts that $104,273.95 of the above claim represents the reasonable cost of investigating the leak. However Mobil submits in relation to one invoice[715] that the Soil and Groundwater Consulting invoiced Hallmarc Group, not the plaintiffs, and it presumes that invoice was paid by Hallmarc Group. Mobil points out that the Hallmarc Group is not a party to this proceeding. Mobil submits that there is no evidence that this cost has or will pass to either of the plaintiffs.[716] Mobil also disputes that the difference between the two above sums, namely $17,820, relates to leak investigation costs.[717]
[715]CB20402.
[716]Mobil’s Closing Submissions [160]-[161].
[717]See Mr Cini T347.15-24; Mobil’s Closing Submissions [162].

The plaintiffs make no reply submission to Mobil’s above arguments.

I consider that the plaintiffs are entitled to be paid the sum of $104,273.93 by Mobil on account of the above disbursements.

I anticipate that the plaintiffs and Mobil will agree and submit the amount of interest payable to the plaintiffs in relation to the sum of $104,273.93.

Mitigation

Mobil submitted that the value of the lost opportunity must be reduced to account for any development that is still possible on the land. Mobil also submitted that when assessing damages for loss of opportunity, the Court must consider the difference between the hypothetical profit that would have been made and the profit that could be achieved on a development that the plaintiffs could currently proceed with (the comparative scenario), discounted by the various contingencies in the way of achieving the hypothetical profit.[718]
[718]Mobil’s Closing Submissions [151]-[159]; Mobil’s Reply Submissions [7(c)], [8(d)], [10(f)], [23]-[24], and [128] of Schedule C.

The plaintiffs submitted that Mobil has not established that any comparative scenarios were available to the plaintiffs and that in any event the ‘so-called unknown comparative scenarios are irrelevant to the Court’s task in assessing the damages for loss of opportunity of the three alternative development scenarios’.[719] The plaintiffs allowed a ‘salvage’ amount of up to $9.9m, which they submitted appropriately accounts for any development with which a less risk-averse developer might proceed.[720]
[719]Plaintiffs’ Reply Submissions, [76].
[720]Plaintiffs’ Reply Submissions, [76].

Mobil submitted that the plaintiffs’ submission about the defendants failing to establish the possibility of any development on the land reversed the onus of proof.[721]
[721]Mobil’s Reply Submissions, [24].

I note that I have also dealt with this earlier in these reasons.[722]
[722]See [252]-[259], [464]-[467].

Conclusion as to the loss of opportunity assessment

If it was appropriate to be undertaking a calculation of the plaintiffs’ loss of opportunity damages because it had established an entitlement thereto, I conclude that the following ultimate financial position is reached on the evidence. I mention again that I have undertaken the determination of this part of the plaintiffs’ case to assist if I am wrong as to my above finding[723] on the key liability issues.
[723]See [185]-[207], [439]-[453], [563]-[576], [584]-[586].

Sales Revenue	$213,000,000
(less) Construction and Associated costs	$131,849,500[724]
(less) Adjustment for Road and Earthworks	$122,100
(less) Adjustment for Marketing and Selling Costs	$4,260,000[725]
(less) Finance Cost	(-)
(less) Residual Value of the plaintiffs’ land	$9,938,500
Loss of Profit	$66,829,900

[724]See CB21965_K, total of WT Partnership (ex GST) estimates.

[725]Sales Revenue x 0.02.

Damages for diminution in value of the land

The plaintiffs would be more appropriately entitled to damages for diminution in value of the land. So much was conceded by both Mobil and the State.[726] However, the plaintiffs have not pleaded or submitted nor adduced evidence to support their entitlements to damages for diminution of their land. The plaintiffs’ initial reference in their pleadings to a diminution in value claim was ultimately clarified by particularisation, to be a claim for the loss of profits caused by their loss of opportunity to develop the plaintiffs’ land residentially. Further, the plaintiffs did not adduce any evidence as to the pre-leak or post-leak value of the land. The plaintiffs did however rely on evidence given by Mr Brown, a Mobil expert witness, to identify the residual value of the land. The plaintiffs in their case have deducted from their value of the lost opportunity the Brown Report residual value of the plaintiffs’ land at $9.9m.[727]
[726]Mobil’s Closing Submissions, [56]-[60]; State’s Closing Submissions, [147].
[727]Plaintiffs’ Closing Submissions [17].

The plaintiffs submit that valuing the plaintiffs’ loss by reference to the market value of the land alone and ignoring the plaintiffs’ opportunity to develop the land for profit would significantly under-compensate the plaintiffs for the wrong that they have suffered from the conduct of the defendants.[728]
[728]Plaintiffs’ Opening Submissions [21].

By their Further Amended Statement of Claim dated 18 December 2012, the plaintiffs seek damages in negligence. Those damages have been particularised under four heads:

(xlix) Costs of investigating the contamination of the plaintiffs’ land.

(l) Costs of remediating the plaintiffs’ land.

(li) The diminution in the value of the plaintiffs’ land.

(lii) Loss of profits that the plaintiffs would have realised from the development of the plaintiffs’ land but for the contamination.[729]

[729]Further Amended Statement of Claim, [19].

Heads of damages (ii)-(iv) have not been pleaded in the alternative, although to award the plaintiffs damages under each of those three heads would probably result in the plaintiffs being overcompensated. Further particulars of these damages were to be provided prior to trial.

The plaintiffs’ Response to Request for Further and Better Particulars dated 19 October 2011 provided that the diminution in the value of the plaintiffs’ land is equal to the loss of profits particularised in the plaintiffs’ Statement of Claim.[730] In summary, loss of profits, as pleaded and submitted by the plaintiffs, is to be calculated as the gross revenue of the residential development, minus the costs associated with the residential development, minus residual value of the land.[731]
[730]Plaintiffs’ Response to Request for Further and Better Particulars dated 19 October 2011, [2(b)].
[731]See above; Further Amended Statement of Claim, [19].

The plaintiffs chose not to lead evidence as to the residual value of the land, despite the fact that it was an element of their loss of profits analysis.

Although it is somewhat unclear, it appears that the plaintiffs rely upon the evidence of Mr Brown, Mobil’s expert valuation witness, as establishing the residual value of the land to be incorporated in the loss of profits analysis. It is now necessary to turn to the expert valuation evidence of Mr Brown.

As part of his first report, Mr Brown valued the plaintiffs’ land in around April or May 2007 and as at September 2011. These valuations assumed that there was no contamination from the leak and that the land was zoned Industrial 3, and disregarded the plaintiffs’ rezoning application and the allegedly proposed residential developments. Mr Brown was also required to consider and state whether the assessment of the condition of the plaintiffs’ land as set out in the AECOM Report dated 10 April 2010 was relevant to his opinion.

Having considered the AECOM Report, Mr Brown was of the opinion that it was not relevant to his valuation because it addressed environmental issues not relevant to an industrial zone and development. Taking into account his instructions, Mr Brown’s valuation assumed that the highest and best use for the site was an industrial development.

Mr Brown employed a direct comparison approach, whereby he used comparable site sales in 2007 and 2011 to determine the price paid per square metre of land area in those respective years. From this sales evidence, for the valuation as at April/May 2007, he adopted a rate of $150 per square metre of land for Lots A and B and a higher rate of $400 per square metre for Lots 35 and 36, leading to a rounded estimated value of $13,000,000. For September 2011, the respective figures adopted were $130 and $350 per square metre, leading to a rounded estimated value of $11,300,000.

As part of his second report, Mr Brown gave valuations of the land if the leak had not occurred, as of April/May 2007 and April 2013. Mr Brown adopted the same figures he had used in his first report for the September 2011 valuation for the April 2013 valuation, resulting in the same rounded estimated value of $11,300,000.

In cross examination, the plaintiffs handed an information memorandum for 240 Kororoit Creek Road (also known as the Arundel Stud Farm) to Mr Brown, which included evidence of two transfers of the property in 2012.[732] Mr Brown was not aware of any sales for 240 Kororoit Creek Road since the 2011 valuation date of 28 September 2011.[733] Mr Brown acknowledged that he would have regard to the 240 Kororoit Creek Road transactions if he were now to do a valuation of the plaintiffs’ land.[734]
[732]Plaintiffs’ Closing Submissions [210]; T1086, T1089.
[733]Ibid [210]; T1084.
[734]Ibid [210]; T1092, T1101.

On the one hand, the plaintiffs seek to adopt Mr Brown’s valuation of the plaintiffs’ land post-leak of $9,938,500 as the residual value of the land for the loss of profits analysis.[735] On the other, they dispute Mr Brown’s valuation method for not having taken into account comparable sales and as overvaluing the land when taking into account Mr Williams’ evidence that he would not touch the land.[736] The plaintiffs submit that $9,938,500 overvalues the true market value of Lots A and B post-leak, but no other figure was put to the Court by the plaintiffs even though it is an essential element of their loss of profits analysis.[737]
[735]Ibid [17].
[736]Ibid [206], [210].
[737]Ibid [206].

Both Mobil and the State submit that the plaintiffs’ damages should be measured on the basis of diminution in value, in accordance with accepted principles.

Mobil submits that Mr Brown’s valuation evidence establishes that the diminution in value of the plaintiffs’ land, taking into account all potentialities for the land, is no more than $1,000,000.[738]
[738]Mobil’s Closing Submissions [59].

Mobil points out that the plaintiffs have not filed any valuation evidence prepared in accordance with these accepted principles as to diminution in value. Rather, they claimed:

(a) Mobil should be enjoined to remove from the land all its contamination. This claim was abandoned by the plaintiffs late in the proceeding; and alternatively

(b) the diminution in value by reference to the lost opportunity to make a profit from development of the land for residential purposes.[739]

[739]Ibid [60].

The State accepts that there has been some diminution of market value as a result of the leak.[740] The State’s position is that the loss is capable of quantification and that the Arundel Estate sales information provides evidence for a rough estimation of value, as it is proximate industrial three zoned land with a similar future potential use for residential.[741] Mr Brown, who was provided with the Arundel Estate sales data in cross examination, accepted that it would be comparable sales evidence if the plaintiffs land’s highest and best use is residential.[742]
[740]State’s Closing Submissions [153].
[741]Ibid.
[742]Ibid.

The State concedes that the plaintiffs are entitled to:

(a) damages assessed using the diminution in market value measure; and

(b) the sum of $104,273.95 to compensate the plaintiffs for the reasonable costs of investigating the leak.[743]

[743]Ibid [154].

The plaintiffs did not accept that the land could be developed as industrial land, and said that Mr Brown’s ‘as is’ valuation of the land was not accurate because he assumed that the land could be developed industrially.[744]
[744]Plaintiffs’ Closing Submissions [206].

I do not consider however that it is appropriate to endeavour to decide what, if any, sum the plaintiffs would be entitled to, assessed as I have found damages should be in the circumstances of this case. That is because the plaintiffs do not plead (as explained above),[745] or submit, nor have they adduced any evidence in support of, an entitlement to damages based on diminution of the value of their land. Furthermore, the evidence referred to above,[746] to which Mobil refers in its Closing Submissions concerning diminution damages, has not been put forward by any expert witness who has explained the basis for and comprehensiveness and accuracy of his or her calculation of such damages. In the result the scant evidence to which Mobil refers, does not provide a sound and safe basis for the Court to be satisfied as to the proper quantum of the plaintiffs’ damages and the plaintiffs do not seek to be compensated on a diminution of value basis.
[745]See [733]-[738].
[746]See [747].