Breese v Cowper

5425/02 - PETER CRAIG LLEWELLYN BREESE & ANOR v WAYNE ROBERT COWPER & 5 ORS (NO 2) JUDGMENT ON DAMAGES 1 In the judgment published on 19 December 2002 ([2002] NSWSC 1225), I concluded that the plaintiffs were entitled to damages, as against the first and second defendants, for breach of the contract to which the plaintiffs and all four defendants were party. The breach consisted of wrongful repudiation by the first and second defendants. The contract was an informal joint venture agreement for the acquisition, re-development and re-sale of a residential lot at Warriewood. In relation to damages, I said in that judgment (at [80]): "In conceptual terms, the amount to be paid is the value of the lost opportunity to be a participant in the venture." 2 In accordance with directions, written submissions on assessment of damages have been filed by the plaintiffs and by the first and second defendants. The plaintiffs sought leave to adduce further evidence relevant to damages. I refused that application on 20 February 2002. 3 The first and second defendants submit, and I accept, that the question before the court at this point is: what is the degree of probability that the joint venture would have resulted in any profit and, if so, what profit? This indicates the worth of the chance to make a profit. I also accept that the question must be approached by reference to the content and objectives of the joint venture the subject of the parties' agreement (that is, to acquire, re-develop and re-sell) and not by reference to alternative courses of action that were open to the parties (for example, acquire and re-sell in existing state or acquire, obtain development consent and re-sell without development). 4 I consider first what the profit would have been had the venture been carried through to completion. 5 There are, in essence, three financial components of any profit from the venture, of which one is known. The known is the cost of the property which, inclusive of stamp duty, may be accepted as $750,000. The other two are the cost of development and construction and the eventual re-sale price, both of which are unknown and therefore need to be approached on the basis of the evidence available. 6 The only evidence of the expected or possible cost of construction is a reference by the first defendant at the meeting of 5 October 2002 to "about $450,000" as the sum for which "we should be able to build a contemporary beach house out of steel with a modern look". That figure was carried over into the feasibility studies carried out by Mr Page of Cornerstone Property Group. The first defendant is an experienced builder. I accept his figure of $450,000 as an appropriate one on which to progress the calculation of profit. 7 As to the likely or possible selling price of the re-developed property, the evidence is, not unnaturally, somewhat sparse. It is clear, nevertheless, that the parties themselves expressed expectations of sale in the vicinity of $1,500,000. Mr Page's studies were based on four alternative selling prices, being $1,400,000, $1,500,000, $1,600,000 and $1,700,000. In view of what appears to me to be appropriately regarded as the parties' mutual expectation, I accept the $1,500,000 figure. 8 The feasibility studies prepared by Mr Page identify a number of costs that would have been incurred in any development project. Two of them call for comment. One is the interest rate applied to arrive at the financing cost; the other the expense for selling agent's commission. 9 The interest rate employed by Mr Page was 7.5%. The first plaintiff contended that this was too high and that finance would have been obtainable at 6.07% as shown in a fax obtained at the time from Mr Whitehead, a finance broker. However, that lower rate applied to only one of the financing packages outlined by the broker. The other involved a higher rate. The first plaintiff himself factored in a rate of 7.15%. Given that Mr Page may be taken to have been working on the basis of normal marketplace conditions, his figure should be accepted. 10 As to the expense of selling agent's commission, there is evidence that the first plaintiff had the idea of dispensing with an agent, with selling being effected through an auctioneer retained solely to effect an auction and with advertising being arranged by the parties. But there is nothing to suggest that this idea formed part of the project or would have been adopted. It is therefore reasonable to assume normal selling commission, as Mr Page did. 11 Another aspect concerns the time that the project would have taken. Mr Page's calculations were based on 18 months. The first plaintiff was of the view that the project could be completed in 12 months. Mr Page, however, has experience of property development beyond that of the first plaintiff. A period of 18 months should be accepted. 12 The plaintiffs say that $22,500 allocated in Mr Page's calculations to a design consultant should be reduced to $10,000. This is submitted on the basis that only a concept plan would be needed. Again, there is no basis for departing from Mr Page's assessment. 13 It follows from what I have said that, in my estimation, the profit on the venture should be regarded as that indicated in Mr Page's feasibility study based on a "gross realisation" of $1,500,000 and that this should be without deduction or adjustment. The profit figure in Mr Page's study is $51,909. 14 I return now to the question whether, on the balance of probabilities, there would have been a profit. I am satisfied that this question should be answered in the affirmative and that the opportunity to participate in the venture had a value beyond the mere theoretical or negligible. The parties had a degree of latitude in the way they approached the matter. The possibility that they would have derived no profit should be regarded as very remote and therefore discarded, although as will be seen presently there existed an element of uncertainty making it appropriate to apply a discount factor. 15 The plaintiffs contend that an additional element to be included in the assessment of damages is the loss to them of the opportunity to influence the other parties to incorporate into the development features ensuring that the outlook from the plaintiffs' adjoining property was not spoilt. I have found that there was no agreement among the parties that, as part of the venture, the subject property would be burdened by a restrictive covenant in favour of the plaintiffs' property involving a limit on the height of buildings or trees. I also found that the other parties were firmly opposed to any such restriction. In view of that opposition, the plaintiffs' position within the joint venture on this subject would have been no more than that of someone making a request and thus corresponds with the position of an outsider. It is therefore not appropriate to include any element of damages on this account. 16 Finally, I need to address the question whether the figure of $51,909 to which I have referred should be discounted to some extent on account of the possibility that the venture may not have been carried through to its conclusion. The defendants say that the possibility was real and of a high order, warranting a discount of 80%. I accept that the possibility must be regarded as more than theoretical but I would not put it that high. I consider a discount of 25% to be appropriate. 17 On the basis that the plaintiffs' share (one-third) of a profit of $51,909 would have been $17,303 and after taking into account the 25% uncertainty factor to which I have just referred, the sum awarded as damages will be $12,978. 18 The orders and declarations of the court by way of disposition of these proceedings are as follows:

1. Declare that (a) there existed a binding agreement between the first and second plaintiffs and the first, second, third and fourth defendants under which the parties agreed to purchase the property at 28 Narrabeen Park Parade, Warriewood, to develop the property and sell it as a joint venture and to divide any profit on the joint venture in equal one-third shares between the plaintiffs, the first and second defendants and the third and fourth defendants ("the Development Agreement"); (b) the Development Agreement was unlawfully repudiated by the first and second defendants; and (c) the plaintiffs accepted the repudiation of the Development Agreement as a consequence of which the Development Agreement is at an end and is no longer binding on or enforceable by any of the parties thereto.

2. Order that the first and second defendants pay the plaintiffs damages in the sum of $12,978 and that judgment for the plaintiffs against the first and second defendants be entered accordingly.

3. Declare that the plaintiffs have ceased to be directors and shareholders of the fifth defendant.

4. Order that the first and second defendants pay the plaintiffs' costs of the proceedings.

5. No order as to costs of the third, fourth and fifth defendants. **********

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