Bluth v Boyded Industries Pty Ltd

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] The appellants are a firm of solicitors trading as HWL Ebsworth Lawyers (HWLE). The respondent, Boyded Industries Pty Ltd (Boyded), is a family-owned business that operated several car dealerships across New South Wales. Kieran Turner (Mr Turner) is the CEO of Boyded. In 2015-2016, Boyded entered into a series of contracts to sell three blocks of land to various entities known as the Gateway Group, which belonged to the Dyldam Group. Sam Fayad was the CEO of the Dyldam group and the sole director of the relevant Gateway entities. In December 2016, a dispute arose between Boyded and an entity in the Gateway Group regarding the sale of land. The settlement of those proceedings in February 2017 resulted in, among other things, an extension of time for Gateway to complete the purchase of land, and importantly, the grant of a call option to Boyded over a proposed lot to be created on the land as part of a planned development known as the car show room (the Deed of Call Option). The Deed of Call Option was executed in May 2017 and the Gateway entities completed the purchase of the land. Clause 37 contained an express prohibition on Boyded lodging a caveat over the land and granted Gateway a right to terminate the deed if Boyded did so. Clause 14.2 stipulated that Boyded was to receive $3.5 million in the event it rescinded the Deed of Call Option in the event the car showroom was not ready for development by 15 May 2020. In July 2018, contrary to the terms of the Deed, Mr Turner instructed HWLE to lodge a caveat over the land. In lodging the caveat at Mr Turner's instructions, HWLE conceded that failing to advise Mr Turner about the prohibition against lodging a caveat amounted to a breach of duty of care to Boyded. In August 2019, Gateway became aware of the caveat and terminated the Deed of Call Option. After unsuccessfully commencing proceedings challenging the termination, Boyded subsequently sued HWLE claiming damages for negligence and breach of retainer. The primary judge was asked to consider what Boyded would have done with its call option if it had not been terminated. This first question required the primary judge to consider two counterfactuals, namely, whether Boyded would have rescinded the call option pursuant to cl 14.2 of the Deed of Call Option if the car showroom was not ready to be developed by 15 May 2020 (thereby entitling it to $3.5 million), or whether it would have sought to negotiate an extension of the sunset date for the call option that expired on 15 May 2020. The second question was what the owners of the land (and their guarantors) would have done, namely, whether they were willing and able to pay Boyded the $3.5 million in the event Boyded exercised its right of recission, and whether the loss of the chance to exercise the right was of some non-negligible value. The primary judge concluded that, but for the breach, Mr Turner would have sought to rescind the Deed of Call Option, that Boyded lost the opportunity to recover $3.5 million from Gateway and Mr Fayad (with that opportunity having some non-negligible value), and that Gateway and Mr Fayad were both willing and able to pay the $3.5 million in May or June 2020. HWLE appealed from the primary judgment on six grounds, namely that: (1) The trial judge erred in finding that Boyded would have rescinded the Deed of Call Option when the Strata Documents were not registered by 15 May 2020. (2) The trial judge erred in not finding that Boyded would have instead extended the Deed of Call Option. (3) By reason of these matters, the trial judge erred in finding that HWLE's breach of duty / negligence caused loss. (4) The trial judge erred in finding that, in May or June 2020, the Gateway companies had both a willingness and an ability to pay $3.5 million under the Deed of Call Option. (5) The trial judge erred in finding that, in May or June 2020, Mr Fayad had both a willingness and an ability to pay $3.5 million under the Guarantee. (6) The trial judge erred in finding that Boyded had proved that the right under the Deed of Call Option to be paid $3.5 million by the Gateway companies and Mr Fayad was an opportunity of some value, not being a negligible or speculative value. Boyded cross-appealed on the basis that the primary judge erred in holding that Boyded's loss was limited to $2 million when: (7) Having found that Boyded would have instructed HWLE not to lodge a caveat and that it would have rescinded the deed, and having found that each of the Gateway entities and Mr Fayad had an ability to pay the full amount, Boyded contended that the primary judge ought to have held that Boyded's loss caused by HWLE's negligence was $3.5 million. The Court held (Harrison JA, Bell CJ and Gleeson JA agreeing), allowing the appeal and dismissing the cross-appeal: (1) The primary judge found Mr Turner to be a savvy businessman who undoubtedly would have pursued an outcome most favourable to Boyded. Notwithstanding evidence that the car showroom held sentimental value to Mr Turner as Boyded's "spiritual home", the primary judge was entitled to accept that the preference for the car showroom was not fixed, and that Mr Turner would have prioritised Boyded's commercial interests. Accordingly, Boyded would have rescinded the Deed of Call Option when the Strata Documents were not registered by 15 May 2020: [67], [72]. Fox v Percy (2003) 214 CLR 118, Lee v Lee (2019) 266 CLR 129, considered. (2) HWLE were required to point to some glaring improbability in the primary judge's findings or some compelling inference to the contrary of the finding that Boyded would have rescinded the call option and not sought to negotiate an extension. HWLE instead sought to portray irreconcilable differences, or at least inconsistencies, in Mr Turner's affidavit suggesting on the one hand that he would have tried to negotiate an extension of the call option, and his oral evidence that he would have instead exercised his right to recission to obtain the $3.5 million if the conditions Deed of Call option had not been satisfied by 15 May 2020. There was no discernible error in the primary judge's finding that the apparently contradictory reference in Mr Turner's affidavit to negotiating an extension of the call option was always tied or subject to him understanding the reasons why Gateway would have failed to satisfy the conditions listed in the Deed of Call Option before the expiry date on 15 May 2020: [69]-[70], [72]. Fox v Percy (2003) 214 CLR 118, Lee v Lee (2019) 266 CLR 129, considered. (3) The breach of duty resulted in the loss of the right under the option deed to receive $3.5 million. Mr Turner's evidence was that if Gateway failed to satisfy the conditions in cl 2.9(a)(i)-(iii) of the Deed of Call option by the sunset clause, he would need to know why the conditions were not met to consider whether he would consider negotiating an extension. It was open to the primary judge to conclude, having regard to Mr Turner's evidence and impression of him as a savvy businessman that would have pursued the financial position most advantageous to Boyded, namely, exercising the right to a recission rather than negotiating to extend the option deed: [72]. Fox v Percy (2003) 214 CLR 118, Lee v Lee (2019) 266 CLR 129, considered. (4) The Gateway companies had a willingness to pay $3.5 million in May or June 2020. However, the primary judge erred in finding that there was evidence rising higher than speculation or surmise that Gateway had the ability to pay $3.5 million. Boyded was required to lead sufficient evidence from which Gateway's ability to pay could be inferred. All three properties were encumbered with mortgages, yet none of the mortgages or their terms was in evidence. The Gateway balance sheet only described the financial positions of two of the three relevant Gateway entities, and did not include the most valuable entity. There was no evidence about the income of the companies. The only significant source of any positive change to the companies' debt to equity ratio could have been capital gains, yet the balance sheet demonstrated the value of the two parcels of land remained constant from the date of the purchase. The balance sheet also demonstrated that they were in a financial position at all times either alone or in aggregate that had liabilities which exceeded their assets. While this does not necessarily mean they lacked the capacity to borrow further funds, no inferences in favour of the existence of an ability to pay $3.5 million could be drawn from the evidence: [79], [95]-[103]. Miles v Luneburger Franchising Pty Ltd [2021] NSWCA 248, considered. (5) Mr Fayad had a willingness to pay $3.5 million May or June 2020. However, the primary judge erred in finding that there was evidence rising higher than speculation or surmise that Mr Fayad had the ability to pay $3.5 million. There was no evidence that Mr Fayad had any equity in his Constitution Hill residence, and he had not paid his land tax assessment in 2020 or in 2021. Mr Fayad's $14 million loan to Gateway in 2017 was undischarged as late as 2023. Without more, evidence of the ability to make a substantial loan in 2017 does not support an inference that Mr Fayad was in a position to pay $3.5 million in 2020: [79], [95], [104]-[109]. (6) It was unnecessary to deal with the cross-appeal having regard to the decision reached on appeal: [111].