Central Coast Council v Norcross Pictorial Calendars Pty Ltd

Ltd v Waters (No 2) (2010) 186 FCR 450; [2010] FCA 472 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 Norcross Pictorial Calendars Pty Ltd v Central Coast Council [2020] NSWSC 1201 Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 R v Khazaal (2012) 246 CLR 601; [2012] HCA 26 Rava v Logan Wines Pty Ltd [2007] NSWCA 62 Rio Tinto Exploration Pty Ltd v Graphite Holdings Pty Ltd [2007] WASCA 276 Salter v Gilbertson (2003) 6 VR 466; [2003] VSCA 1 Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 Swynson Ltd v Lowick Rose llp (in liq) [2018] AC 313; [2017] UKSC 32 The Albazero [1977] AC 774 Thomas v D'Arcy [2005] 1 Qd R 666; QCA 068 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44 Tyco Australia Pty Ltd v Optus Networks Pty Ltd (2004) NSWCA 333 Vandepitte v Preferred Accident Corporation of New York [1933] AC 70 Vickery v Woods (1952) 85 CLR 336; [1952] HCA 7 Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43; [1956] HCA 8 Texts Cited: J D Heydon, Heydon on Contract (Thomson Reuters, 2019) Category: Principal judgment Parties: Central Coast Council (Appellant) Norcross Pictorial Calendars Pty Ltd (First Respondent) PTL Land Pty Ltd (Second Respondent) Representation: Counsel: M Izzo SC with E Walker (Appellant) M Condon SC with N Bentley (First and Second Respondents)

Solicitors: Central Coast Council (Appellant) Holman Webb Lawyers (First and Second Respondents) File Number(s): 2020/311042 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity Citation: [2020] NSWSC 1201 Date of Decision: 4 September 2020 Before: Stevenson J File Number(s): 2017/348639

[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.]

[This headnote is not to be read as part of the judgment] The appellant, Central Coast Council (the Council), commenced proceedings the subject of this appeal against the first and second respondents, Norcross Pictorial Calendars Pty Ltd (NPC) and PTL Land Pty Ltd (PTL), seeking that orders made by the primary judge be set aside, the proceedings be dismissed, and the respondents pay the appellant's costs in respect of a contractual dispute. On 10 December 2002, the predecessor to the Council entered into an agreement (the Joint Venture Agreement) with NPC pertaining to the development of land owned by the Council. The Joint Venture Agreement involved the construction by NPC on behalf of the Council of a car park on part of the land (the Car Park Land) and the development of an adjoining parcel of land described in the Joint Venture Agreement as the PTL Land. As part of the Joint Venture Agreement, the Council granted an Option to NPC or its nominee to purchase the PTL Land for nominal consideration. After subdivision of the Car Park Land and the PTL Land into separate lots, the Option was exercised on 18 March 2005 by PTL as nominee of NPC. Ten years later, PTL entered into a building contract to construct a six-storey residential and commercial building on the PTL Land. The PTL Land was found to be contaminated with asbestos, acid sulphate soil and general solid waste. PTL claimed from the Council the cost of removal of the asbestos, agreed to amount to $360,878, the cost of excavation of acid sulphate soil, $65,661, and the removal of general solid waste, $126,928.10. The claim was made under the indemnities contained in cll 7.2 and 15.1(b) of the Joint Venture Agreement, which provided that the Council indemnify NPC against loss incurred by NPC in respect of any contamination existing on the land and in breach of the Council's obligations under that Agreement. The primary judge found that PTL was the successor to NPC within the meaning of cl 19.9 of the Joint Venture Agreement and thus entitled to claim under the indemnities. As read by the parties, cl 19.9 provided that: "The obligations imposed and rights conferred on the parties under the [Joint Venture Agreement] are binding upon any successor to a party and such successor must upon such succession assume all rights conferred and obligations imposed by the provisions of [the Joint Venture Agreement], mutatis mutandis, as if such successor were named in [the Joint Venture Agreement] as a party, but this clause does not permit the obligations and rights to be transferred or otherwise dealt with or disposed of by any of the parties … otherwise than in accordance with the terms and conditions of [the Joint Venture Agreement]." Clause 4.1 of the Joint Venture Agreement obliged the Council to grant such easements as requested by NPC acting reasonably. On 15 May 2016, PTL requested an easement over a very small part of the Car Park Land for the supply of electricity. On 27 July 2016, the Council resolved to grant the easement, but without notice to PTL, rescinded the resolution on 23 November 2016. The primary judge held that PTL as successor to NPC was entitled to request the easement, that the easement should have been granted, and that as a consequence of the Council's failure to do so, PTL suffered a loss in an amount of $284,869. As a consequence, PTL was awarded damages totalling $913,439, together with pre-judgment interest in the amount of $191,434. The Council appealed on the basis that the primary judge erred in concluding that PTL was the successor to NPC pursuant to cl 19.9 of the Joint Venture Agreement and thereby entitled to sue on that Agreement. Against the probability the appeal was successful, NPC filed a cross-appeal and PTL filed a notice of contention challenging findings by the primary judge or lack thereof in respect of NPC's and PTL's entitlement to damages under the Joint Venture Agreement. In allowing the appeal and dismissing the cross-appeal, the Court set aside the orders made by the primary judge and, in lieu thereof, ordered the proceedings be dismissed, and NPC and PTL pay the Council's costs of the proceedings in the Court below and of the appeal and cross-appeal. The successor issue i) A commercial contract is to be construed by what a reasonable business person would understand it to mean. That requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or objects to be secured by the contract: [55] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Electricity Generation Corporations v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47, referred to. ii) For the purpose of cl 19.9, PTL as nominee did not succeed to any rights of NPC under the Joint Venture Agreement. It would require clear words to construe such a nomination as conferring on PTL the rights of NPC under the Joint Venture Agreement, much less imposing the obligations of NPC under it: [64] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Vickery v Woods (1952) 85 CLR 336; [1952] HCA 7; Salter v Gilbertson (2003) 6 VR 466; [2003] VSCA 1, referred to. Whether NPC is entitled to direct recovery from the Council for its loss i) The reflective loss principle is that where loss is suffered by a company as a result of wrongdoing in respect of which each of the company and the shareholder has a cause of action, a shareholder cannot sue to recover the diminution in the value of his or her shares (or loss of benefits associated with his or her shareholding) resulting from the loss suffered by the company: [103] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, referred to. ii) The rationale for the reflective loss principle is the prevention of double recovery, or on the basis that the shareholder does not suffer a loss distinct from the company and the shareholder is barred from pursuing the claim by the principle in Foss v Harbottle (1843) 2 Hare 461, or because the shareholder has no legal or equitable interest in the company's assets: [103] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204; Johnson v Gore Wood & Co [2002] 2 AC 1; Foss v Harbottle (1843) 2 Hare 461; Marex Financial Ltd v Sevilleja [2021] AC 39; [2020] UKSC 31, referred to. iii) There is no reason for the reflective loss principle to apply to circumstances where the company has no cause of action to recover the loss. This is so regardless of the rationale of the principle: [119] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Marex Financial Ltd v Sevilleja [2021] AC 39; [2020] UKSC 31; Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204; Johnson v Gore Wood & Co [2002] 2 AC 1; Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75; Mercedes Holdings Pty Ltd v Waters (No 2) (2010) 186 FCR 450; [2010] FCA 472, considered. Christensen v Scott [1996] 1 NZLR 273; Barings plc v Coopers & Lybrand [1997] 1 BCLC 427; Thomas v D'Arcy [2005] 1 Qd R 666; QCA 068; Ballard v Multiplex Ltd [2008] NSWSC 1019; (2008) 68 ACSR 208; Chen v Karadonis [2002] NSWCA 412, referred to. iv) Words in indemnity clauses must be read in the context of the contract as a whole: [123] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44; Commissioner for Taxation v Scully (2000) 201 CLR 148; [2000] HCA 6; R v Khazaal (2012) 246 CLR 601; [2012] HCA 26, referred to. v) If ambiguity remains after the application of the usual principles of construction, an indemnity clause must be construed in favour of the indemnifier: [123] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44, referred to. vi) The contra proferentem rule is a rule of last resort: [126] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson CJ). Rava v Logan Wines Pty Ltd [2007] NSWCA 62, referred to. Whether NPC is entitled to recover PTL's loss i) It is well established in this country that in circumstances where a contract imposed an obligation on the promisor to confer a benefit on a third party, the promisee can seek an order that the promise be specifically performed: [152] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460; [1967] HCA 3; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44, referred to. ii) It is also well established that where the promisee is a trustee of a promise for a third party, the third party can sue on the contract indirectly in an action in which the promisee is joined as the defendant: [152] (Bathurst); [162] (Macfarlan JA); [163] (Gleeson JA). Vandepitte v Preferred Accident Corporation of New York [1933] AC 70; Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43; [1956] HCA 8, referred to. iii) However, the proposition said to be established in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 ("Linden Gardens"), namely that there is an exception to the rule that a plaintiff who suffers no loss as a result of breach of a contract is only entitled to nominal damages, has not been accepted as part of the law in this country: [152] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44; The Albazero [1977] AC 774, referred to. iv) In any event, the case does not fall within the principle enunciated by Lord Wilkinson-Browne in Linden Gardens as it was not contemplated that the work on the Project would be carried out by any corporation other than NPC: [153] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA).

Judgment

1. BATHURST CJ: The facts in this appeal are relatively straightforward. By contrast, the legal issues are somewhat complex.
2. On 10 December 2002, the Council of the City of Gosford, the predecessor to the appellant (the Council), entered into an agreement (the Joint Venture Agreement) with the first respondent (NPC) pertaining to the development of certain land owned by the Council. The Joint Venture Agreement involved the construction by NPC on behalf of the Council of a car park on part of the land (the Car Park Land) and the development of an adjoining parcel of land described in the Joint Venture Agreement as the PTL Land. As part of the Joint Venture Agreement, the Council granted an Option to NPC or its nominee to purchase the PTL Land for nominal consideration.
3. After subdivision of the Car Park Land and the PTL Land into separate lots, the Option was exercised on 18 March 2005 by the second respondent (PTL) as nominee of NPC.
4. Ten years later, PTL entered into a building contract to construct a six-storey residential and commercial building on the PTL Land. It was common ground that the PTL Land was found to be contaminated with asbestos, acid sulphate soil and general solid waste. PTL claimed from the Council the cost of removal of the asbestos, agreed to amount to $360,878, the cost of excavation of acid sulphate soil, $65,661, and the removal of general solid waste, $126,928.10. The claim was made under the indemnities contained in cll 7.2 and 15.1(b) of the Joint Venture Agreement (see [27]-[29] below). It was not in issue on the appeal that the material removed was "contamination" within the meaning of that expression in cl 7 of the Joint Venture Agreement.
5. The primary judge found that PTL was the successor to NPC within the meaning of cl 19.9 of the Joint Venture Agreement and thus entitled to claim under the indemnities.
6. Clause 4.1 of the Joint Venture Agreement obliged the Council to grant such easements as requested by NPC acting reasonably. On 15 May 2016, PTL requested an easement over a very small part of the Car Park Land for the supply of electricity. The primary judge found it would have "facilitated the most direct electricity supply to the PTL Land": Norcross Pictorial Calendars Pty Ltd v Central Coast Council [2020] NSWSC 1201 (the primary judgment) at [33].

The Joint Venture Agreement

1. Before dealing with the primary judgment it is convenient to set out the relevant provisions of the Joint Venture Agreement.
2. The Joint Venture Agreement contained the following recitals: "A. Council is the registered proprietor of the PTL Land and the Car Park Land. B. NPC has expertise in property development and co-ordination of construction projects. C. Council wishes to appoint NPC to develop on Council's behalf a car parking facility on the Car Park Land. D. NPC has agreed to construct the car parking facility on the Car Park Land on behalf of Council. E. Council has agreed to transfer the PTL Land to NPC in consideration for the construction of the car parking facility on the Car Park Land by NPC."
3. It can be seen that recital B makes express reference to NPC's expertise in property development.
4. The following definitions set out in cl 1.1 of the Joint Venture Agreement are relevant to the proceedings. The Car Park Land and the PTL Land are expressly identified, whilst "Land" is defined as "the PTL Land and the Car Park Land." "Contract for Sale" is defined as "the contract for sale entered into or to be entered into by the parties on the exercise of the Option by NPC." "Option" is defined in the following terms: "'Option' means the call option to purchase the PTL Land granted by Council to NPC on or about the date of this Agreement."
5. "Project" is defined in cl 1.1 of the Joint Venture Agreement as follows: "'Project' means the subdivision of the Land, the transfer by Council of the PTL Land to NPC, and the development of the PTL Land and the Car Park land by NPC by construction of the Car Park on the Car Park Land and construction of a residential and commercial building on the PTL Land in each case in accordance with the Project Documents." Whilst "Project Expenses" were relevantly defined in the following terms: "'Project Expenses' means: (a) all costs of and incidental to the Works; (b) costs and interest in respect of any monies borrowed or financial accommodation raised by NPC for the purpose of the Project; (c) all costs and fees payable to Council in connection with the NPC Development Application; and (d) all other costs and fees payable in connection with the development of the PTL Land, except: (e) the cost of remediation of any Contamination on the PTL Land or the Car Park Land existing or occurring before or after the Commencement Date (other than contamination caused by NPC); or (f) any contribution or payment under or in the nature of contributions under Section 94 of the Environmental Planning and Assessment Act 1979 or Section 306 of the Water Management Act 2000 in relation to the Works and the Car Park Land."

The Option

1. The Option Agreement was entered into on the same day as the Joint Venture Agreement. The recitals state that the Council has agreed to grant to NPC an Option for NPC in its name or in the name of its nominee to purchase the Property. Although not defined in these terms, there is no issue that the Property is the PTL Land.
2. Clause 2.1 of the Option Agreement provided that in consideration of the entry into the Joint Venture Agreement, the Council grants NPC an Option for NPC or its nominee to purchase the Property.
3. Clause 2.3 of the Option Agreement provided that if NPC or a nominee exercise the Option, the Council and the purchaser are "regarded as immediately bound" under the contract annexed to the Option Agreement.
4. Clause 2.5 of the Option Agreement is in the following terms: "2.5 Nominee The Grantee may appoint a Nominee by giving the Owner or the Owner's Lawyer a completed Nominee Option Notice, signed by the Nominee and the Grantee."
5. The Nominee Option Notice contained the following provisions: "The Nominee: (a) acknowledges having read the Call Option; (b) agrees to be bound by the Call Option; (c) accepts its nomination as Nominee; and (d) exercises the option granted under clause 2.1 of the Call Option to purchase the property described in the Call Option."
6. It should be noted that neither the Nominee Option Notice nor the formal contract annexed to the Option Agreement imposed an obligation on the nominee to comply with any of the obligations of NPC under the Joint Venture Agreement.
7. However, special condition 40 of the contract annexed to the Option Agreement was in the following terms: "40. Joint Venture Agreement 40.1 Completion of this contract is conditionally [sic] upon: (a) the vendor effecting registration of the Plan of Sub-division (for convenience a copy of which is annexed and marked 'A') at the LPI (NSW) in accordance with the terms of the Joint Venture Agreement; and (b) the purchaser receiving the vendor's consent (in its capacity as the consent authority) to the NPC Development Application; and (c) the vendor (in its capacity as the consent authority) effecting a rezoning of the Car Park Land to zone 5(a) Special Uses under the Gosford Planning Scheme Ordinance and its reclassification from Community Land to Operational Land; and (d) the vendor (in its capacity as the consent authority) effecting a rezoning of that part of the PTL Land zoned 6(a) open space recreation to zone 3(a) Business under the Gosford Planning Scheme Ordinance and reclassification of the PTL Land from Community Land to Operational Land, by the third anniversary of the Commencement Date. 40.2 In the event that any one or more of the conditions set out in clause 40.1 are not fulfilled or in the case of the condition referred to in clause 40.1(b) waived by the purchaser or in the case of the balance of the conditions, waived by both parties prior to the date referred to in clause 40.1 then either party by [sic] rescind this contract by notice in writing to the other."

A further Agreement

1. Prior to the exercise of the Option, a further Agreement was entered into between NPC, PTL and a company, PTL Holdings Pty Ltd (PTL Holdings), in its capacity as trustee of the PTL Holdings Trust (the Agreement).
2. The Agreement recited that PTL intended to become the registered proprietor of the PTL Land, and the parties' desire to establish a joint venture to acquire the Land and construct a Building (as defined in the Agreement) on it. "Land" is defined in the Agreement as any land which PTL acquires after the date of the Agreement. The Agreement envisaged the registration of a Strata Plan with certain lots being owned by NPC and other lots by PTL Holdings. The Agreement relevantly contained the following provisions: "2.3 [PTL] will acquire the Land for the purchase price agreed by [NPC] and PTL Holdings. The Land will be beneficially owned in the proportions: (a) [NPC] - 75% (b) PTL Holdings - 25 % or in such other proportions as [PTL] and PTL Holdings shall agree in writing prior to completion of the purchase by [PTL] of the Land. 2.4 The joint venture will be conducted on the following basis: (a) The purchase price of the Land and other Project Costs shall be borne and paid by the parties in the proportions as set out in paragraph 2.3 it being the intention of the parties that [NPC] shall bear and pay the Project Costs relating to [NPC's] interest in the Land which will consist on registration of the Strata Plan of [NPC's] Lots and PTL Holdings shall bear and pay the Project Costs relating to PTL Holding's interest in the Land which will consist on registration of the Strata Plan of PTL Holding's Lots."
3. "Project Costs" were defined as the "costs associated with the acquisition of the Land and Construction Works".
4. Although some reliance was placed by the Council on the existence of the Agreement, the undisputed evidence of Mr Kenneth Allen, who effectively controlled NPC, was that the Joint Venture Agreement was not performed and PTL Holdings was in fact deregistered on 12 May 2019. Mr Allen gave the following evidence: "7. The JVA was never performed by the parties as the commencement of the Project was delayed and did not begin until 2015. PTL Holdings Pty Limited did not make any contribution to the costs of the Project, and it has never received any distribution from the revenue derived from the Project. Instead, the first plaintiff provided all cost contributions and consequently held a one hundred percent beneficial interest in the Project. Funds for the Project were also lent by other entities controlled be [sic] me, namely Domewood Pty Ltd and Easy2C Pty Ltd, company searches of which are annexed to this affidavit and marked 'E' and 'F' respectively."

Exercise of the Option and completion of the Project

1. It appears the Option was exercised by PTL as nominee of NPC on 18 March 2005. However, construction work was not commenced until November 2015. Mr Andrew Cochrane, a director of PTL, acted as project manager for the Project. Mr Cochrane gave evidence that the proceeds of the sale of the units which were constructed, net of sales commission and legal costs, was about $43,055,920, of which $30,913,725 was paid to the ANZ Bank for payment of advances made by the bank in respect of the project. There is no evidence of any distribution of the surplus remaining. However, Mr Allen gave the following evidence: "8. Once the Project had commenced in 2015, it was my intention to arrange, upon completion of the Project, for the second plaintiff to be wound up and for its assets to be distributed to the first plaintiff (its sole shareholder). That is, once the Project commenced it was always intended that the profits or any remaining proceeds from the Project would be passed up from the second plaintiff to the first plaintiff. Once this occurred, it was then intended that the first plaintiff would be wound up and any assets distributed to the shareholders in the first plaintiff, which were both companies which l controlled. With this in mind, I provided a personal guarantee to the ANZ Bank for the second plaintiff. The ANZ Bank provided the primary financing for the Project. Annexed to this affidavit and marked 'G' is an extract from the Variation to the ANZ Bank facility setting out the terms of the guarantee."
2. There is no evidence that Mr Allen's intention was ever carried into effect. Further, the company searches tendered at the hearing showed that as at 29 April 2019, both NPC and PTL remained registered.

The primary judgment

1. The primary judge noted that the Joint Venture Agreement and the Option Agreement were entered into on the same day and the consideration for the Option Agreement was expressed to be the entry into the Joint Venture Agreement. His Honour also referred to the fact that NPC had the power to appoint a nominee to exercise the Option. In these circumstances, the primary judge concluded that the parties anticipated NPC might nominate another party to become the owner of the PTL Land, that the other party would develop the PTL Land, and in the circumstances, the other party would be the beneficiary of the warranties given by the Council.
2. It was in that context that the primary judge construed cl 19.9 of the Joint Venture Agreement. His Honour concluded the use of the word "successor" in cl 19.9 indicated that the parties intended any successor would have the same rights vis-a-vis each other as did NPC and the Council in the first place (at [62] of the primary judgment).
3. The primary judge noted that the word "successor" was not defined, but contrasted it with the use of the expression "successor in law" in cl 1.2(a)(ii) of the Joint Venture Agreement, concluding that the use of the expression "successor to a party" was intended to have a wider meaning than the expression "successor in law". In those circumstances, his Honour concluded that "successor" in the context of cl 19.9 simply meant someone who succeeds to the property or rights of another. His Honour also concluded that the Joint Venture Agreement and the Option Agreement were part of the same transaction and that when the Agreements were considered together, an intended function of cl 19.9 was to facilitate the continuation of the Joint Venture Agreement for the benefit of a nominee under the Option Agreement (at [69] of the primary judgment). His Honour also rejected the submission that a novation was necessary to achieve that effect (at [71] of the primary judgment).
4. In rejecting the proposition that a novation was necessary, the primary judge concluded that NPC remained liable under the Agreement. His Honour made the following remarks: "[72] The Council also pointed to provisions in the JVA which impose obligations on [NPC] that the parties evidently intended would be obligations of [NPC] alone: for example the obligation to 'manage the Project' in cl 5.1(a). But nothing in cl 19.9 could have the effect of relieving [NPC] of any such obligation. Indeed, after providing for a 'successor to a party' cl 19.9 goes on to make clear that the clause does not otherwise permit 'the obligations and the rights [under the JVA] … to be transferred or otherwise dealt with or disposed of by any of the parties'."

The successor issue

1. The principles governing the construction of commercial contracts such as the present were not in dispute. The contract is to be construed by what a reasonable business person would understand it to mean. That requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or objects to be secured by the contract: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52]; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [18] and [78].
2. The question in the present case is whether the expression "successor to a party" in cl 19.9 of the Joint Venture Agreement is wide enough to include PTL as the nominee of NPC under the Option Agreement.
3. In considering this question, a number of matters should be noted. First, the purpose of the Joint Venture Agreement, at least so far as the Council was concerned, was primarily to achieve construction of the car park (see the recitals to the Joint Venture Agreement referred to at [14] above), and at least the development of the PTL Land. In that context, the recitals specifically made reference to the expertise of NPC in property development and the co-ordination of construction projects.
4. Second, the Project in the present case involved both the construction of the car park and the construction of a residential and commercial building on the PTL Land (see the definition of "Project" referred to at [17] above.) In consequence, cl 2.1(b) of the Joint Venture Agreement extended not only to the carrying out of the car park works but contained mutual covenants with respect to the Project as defined.
5. Third, there is nothing in the Joint Venture Agreement itself which would indicate that it was contemplated that the obligations of NPC under the Agreement would be carried out by anyone other than NPC.
6. Fourth, apart from the definition of "Option" in the Joint Venture Agreement, and the requirement that on exercise NPC would provide a bank guarantee for the cost of completion of the works plus 10 per cent evidently as security for completion of the works, there is no mention of the Option Agreement in the Joint Venture Agreement.

PTL's notice of contention

1. I have set out the grounds contained in the notice of contention at [12] above. So far as ground 1 is concerned, the expression "NPC" in the Joint Venture Agreement could only include PTL if the effect of the nomination under the Option Agreement was to constitute PTL as a successor within the meaning of cl 19.9. For the reasons I have given, it does not.
2. Ground 2 as argued was based on the proposition that NPC was entitled to recover PTL's loss on its behalf. I have dealt with this argument in dealing with NPC's cross-appeal. For the reasons I have given, it has not been made out.
3. Ground 3 was expressly based on PTL being the successor to NPC. As I indicated, it was not a successor.

Conclusion

1. It follows that the primary judge was in error in making the award of damages in favour of PTL.

NPC's cross-appeal

1. I have set out the grounds of the cross-appeal at [11] above. It is convenient to deal with the grounds in the order in which they were dealt with in NPC's written submissions.

NPC is entitled to direct recovery from the Council for its loss - Notice of cross-appeal, grounds 1(a), 2 and 3

a NPC

1. At the hearing, NPC claimed it suffered loss as a result of the failure of the Council to provide an indemnity pursuant to cl 7.2 and cl 15.1(b) of the Joint Venture Agreement in respect of the cost of the removal of the contaminated material on the PTL Land. It was not contended that NPC paid for the cost of the removal of the contaminated material or that it was liable to reimburse PTL for such cost. Rather, it was asserted that it suffered loss in that the cost incurred by PTL in remedying the land was money which would otherwise have been paid by PTL to NPC, either as a result of return of capital, payment of dividends or on a winding-up. Alternatively, it was submitted that the value of NPC's shareholding in PTL was diminished.
2. In its written submissions, NPC relied upon the evidence of Mr Allen to which I have referred at [47] above. It was submitted that the claim depended simply on the construction of the indemnities, and its claim was not precluded by the reflective loss principle because its claim was independent of PTL's rights and did not in substance belong to PTL.
3. At the hearing, Senior Counsel for NPC submitted that the effect of the Joint Venture Agreement was that the Council by virtue of the warranties and indemnities had agreed to bear the cost of remedying contaminated land. He submitted that in practical terms, the parties knew the land might be acquired by a third party with some connection to NPC. He submitted it was plain that the loss had been suffered by NPC because of the contamination of the land, in this case "because it exercised the Option and put someone else in as the owner". He submitted that the identity of the corporation which undertook the development work was completely irrelevant, although he accepted that the indemnities would have no application if an unrelated third party undertook the work without any recourse to NPC.
4. NPC rejected the proposition that the reflective loss principle included the recovery of damages of the nature of those claimed. In written submissions, it was contended that the diminution in value of shareholding in a company constitutes actionable loss to the shareholder, and the shareholder may sue where the company has no cause of action. At the hearing, Senior Counsel for NPC pointed to the fact that on the Council's case, PTL could not sue. He submitted that NPC had undoubtedly suffered a loss of some description. He submitted the only issue was whether the loss fell within the contractual definition.

b The Council

1. Senior Counsel for the Council submitted that the claim in respect of the easement was not covered by the indemnities if PTL was not a successor of NPC. He pointed out that the provision that governed the easement claim was cl 4.1(a)(iii) of the Joint Venture Agreement, which obliged the Council to create such easements as requested by NPC acting reasonably. He pointed out that NPC did not request the easement, rather it was requested by PTL, and if PTL was not NPC's successor then cl 4.1(a)(iii) was not engaged. This proposition did not appear to be disputed by NPC either in written submissions or at the hearing. Indeed, at the hearing Senior Counsel for NPC appeared to accept that it was correct.
2. Senior Counsel for the Council submitted that there were two difficulties with the claim. He submitted the first was that any diminished dividend (or loss of the nature claimed) was not within the scope of the indemnities, and second, the proposition that the relevant amount of lost dividends or capital is the same as PTL's loss has not been made good.
3. In its written submissions, the Council described the reflective loss principle as being that where a company has suffered a loss, a shareholder cannot recover a sum equal to the diminution in market value of his or her shares or a diminution in dividend because such a loss is merely a reflection of the loss suffered by the company. It was submitted it cannot be outflanked by describing the claim as a claim for payment pursuant to contractual indemnities. It accepted, however, that the principle did not apply where the company suffers loss, but where it has no cause of action and the shareholder had a cause of action.
4. However, at the hearing Senior Counsel for the Council submitted that the exception had not been conclusively established in this country. He submitted that it should not be accepted because the exception remains incoherent for the reason that if one accepts that the loss is suffered by the company then that is not the loss of the shareholder. Second, he submitted it should not be applied unless the Court is positively satisfied that the company had no cause of action, including a cause of action which may have become statute barred. He submitted the onus was on the shareholder claiming the loss to prove that that was the case.
5. It was submitted that the indemnities did not extend to the loss claimed as it was not a loss incurred in respect of any contamination existing on the land. It was submitted that whilst the words "in respect of" have a wide meaning, they must ultimately be construed in context and having regard to the purpose for which the indemnities were given, with any doubts to be resolved in favour of the indemnifier.

Consideration

1. What has been described as the reflective loss principle articulated by the English Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 ("Prudential Assurance") at 223-224 (the principle) is that where loss is suffered by a company as a result of wrongdoing in respect of which each of the company and the shareholder has a cause of action, a shareholder cannot sue to recover the diminution in the value of his or her shares (or loss of benefits associated with his or her shareholding) resulting from the loss suffered by the company. The rationale for the principle has been described as the prevention of double recovery (Prudential Assurance at 222; Johnson v Gore Wood & Co [2002] 2 AC 1 ("Johnson") at 62-63, 66-67 per Lord Millett, Lord Goff agreeing), or on the basis that the shareholder does not suffer a loss distinct from the company and the shareholder is barred from pursuing the claim by the principle in Foss v Harbottle (1843) 2 Hare 461 ("Foss v Harbottle") (Marex at [10] per Lord Reed PSC, Lady Black and Lord Lloyd-Jones JJSC agreeing), or perhaps because the shareholder has no legal or equitable interest in the company's assets (Marex at [80] per Lord Reed PSC).
2. In Johnson, the House of Lords affirmed the principle. Lord Bingham set out the principle at 35 in the following terms: "These authorities support the following propositions. (1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss. So much is clear from Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, particularly at pp 222-223, Heron International, particularly at pp 261-262, George Fischer, particularly at pp 266 and 270-271, Gerber and Stein v Blake, particularly at pp 726-729. (2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding. This is supported by Lee v Sheard [1956] 1 QB 192, 195-196, George Fischer and Gerber. (3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other. I take this to be the effect of Lee v Sheard, at pp 195-196, Heron International, particularly at p 262, R P Howard, particularly at p 123, Gerber and Stein v Blake, particularly at p 726. I do not think the observations of Leggatt LJ in Barings at p 435B and of the Court of Appeal of New Zealand in Christensen v Scott at p 280, lines 25-35, can be reconciled with this statement of principle."

NPC is entitled to recover PTL's loss - Notice of cross-appeal, grounds 1(b)(i), notice of contention, ground 2

The submissions

1. NPC relied on the principle said to be derived from the speech of Lord Browne-Wilkinson in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd; St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85 ("Linden Gardens case" and "St Martins Property Corporation case" respectively; "Linden Gardens" collectively).
2. In the Linden Gardens case, the owner of a leasehold interest in property entered into a building contract to remove blue asbestos. The owner assigned its leasehold interest to Linden Gardens and also purported to assign its interests in the building contract to that company. This was done without the consent of the builder. Prior to the assignments, the builder had breached its contract by failing to remove all the asbestos. Linden Gardens acquired the leasehold on the assumption the asbestos had been eradicated. The question was whether Linden Gardens could recover from the builder notwithstanding it was not a party to the agreement.
3. In the St Martins Property Corporation case, the appellant had agreed with the local council to develop a significant site in London (the Development Contract). In order to undertake the development, the appellant entered into a building contract with the respondent. By a scheme of arrangement, the right of the appellant to develop the property was vested in a subsidiary. The appellant purported to assign its interests in the building contract to the subsidiary without the consent of the builder. In this case, subsequent to the assignment, the builder breached the contract.
4. Lord Browne-Wilkinson, with whom Lord Keith, Lord Bridge and Lord Ackner agreed, held that in each case the assignment of the building contract was invalid. His Lordship held as a consequence that in the Linden Garden case the original owner of the leasehold was entitled to claim damages for the breach, the breach having pre-dated the assignment of the leasehold interest.
5. In the St Martins Property Corporation case, Lord Browne-Wilkinson held that although the breach had occurred after the development contract had vested in the subsidiary, St Martins Property Corporation was entitled to recover that loss.
6. In reaching that conclusion, and after referring to the speech of Lord Diplock in The Albazero [1977] AC 774 at 846, his Lordship reached the following conclusion (at 114-115): "In my judgment the present case falls within the rationale of the exceptions to the general rule that a plaintiff can only recover damages for his own loss. The contract was for a large development of property which, to the knowledge of both Corporation and McAlpine, was going to be occupied, and possibly purchased, by third parties and not by Corporation itself. Therefore it could be foreseen that damage caused by a breach would cause loss to a later owner and not merely to the original contracting party, Corporation. As in contracts for the carriage of goods by land, there would be no automatic vesting in the occupier or owners of the property for the time being who sustained the loss of any right of suit against McAlpine. On the contrary, McAlpine had specifically contracted that the rights of action under the building contract could not without McAlpine's consent be transferred to third parties who became owners or occupiers and might suffer loss. In such a case, it seems to me proper, as in the case of the carriage of goods by land, to treat the parties as having entered into the contract on the footing that Corporation would be entitled to enforce contractual rights for the benefit of those who suffered from defective performance but who, under the terms of the contract, could not acquire any right to hold McAlpine liable for breach. It is truly a case in which the rule provides 'a remedy where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it'."

Consideration

1. In reaching the conclusion to which I have referred at [139] above, Lord Browne-Wilkinson extended what was said by Lord Diplock in The Albazero concerning commercial contracts for the supply of goods to building contracts. Lord Diplock's remarks were in the following terms (The Albazero at 847): "[I]n a commercial contract concerning goods where it is in the contemplation of the parties that the proprietary interests in the goods may be transferred from one owner to another after the contract has been entered into and before the breach which causes loss or damage to the goods, an original party to the contract, if such be the intention of them both, is to be treated in law as having entered into the contract for the benefit of all persons who have or may acquire an interest in the goods before they are lost or damaged, and is entitled to recover by way of damages for breach of contract the actual loss sustained by those for whose benefit the contract is entered into."
2. It should be noted that Lord Diplock's formulation was predicated on the basis that it was the intention of both contracting parties to treat the contract as being for the benefit of all parties who may acquire an interest in the goods. The remarks by Lord Browne-Wilkinson seem to be based on the same assumption. This is consistent with the approach taken by Lord Sumption in Swynson to which I referred at [141] above.
3. However, in Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 ("Alfred McAlpine"), Lord Clyde at 530 expressed the view that the solution to the problem was imposed by law, not from the presumed intention of the parties. His Lordship explained his conclusions in the following terms (at 535): "It seems to me that a more realistic and practical solution is to permit the contracting party to recover damages for the loss which he and a third party has suffered, being duly accountable to them in respect of their actual loss, than to construct a theoretical loss in law on the part of the contracting party, for which he may be under no duty to account to anyone since it is to be seen as his own loss. The solution is required where the law will not tolerate a loss caused by a breach of contract to go uncompensated through an absence of privity between the party suffering the loss and the party causing it. In such a case, to avoid the legal black hole, the law will deem the innocent party to be claiming on behalf of himself and any others who have suffered loss. It does not matter that he is not the owner of the property affected, nor that he has not himself suffered any economic loss. He sues for all the loss which has been sustained and is accountable to the others to the extent of their particular losses. While it may be that there is no necessary right in the third party to compel the innocent employer to sue the contractor, in the many cases of the domestic or familial situation that consideration should not be a realistic problem. In the commercial field, in relation to the interests of such persons as remoter future proprietors who are not related to the original employer, it may be that a solution by way of collateral warranty would still be required. If there is an anxiety lest the exception would permit an employer to receive excessive damages, that should be set at rest by the recognition of the basic requirement for reasonableness which underlies the quantification of an award of damages."

Gate Gourmet (PTL as a non-party can directly enforce the indemnity) - Notice of contention, ground 3

1. In its submissions on this ground, NPC referred to the conclusion of the primary judge that the fact that PTL was a successor to NPC was sufficient to enable it to recover damages. It was stated that the primary judge did not elucidate why that was so, but that the conclusion was open having regard to the judgment of Einstein J in Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holdings AG [2004] NSWSC 149 ("Gate Gourmet").
2. In Gate Gourmet, Einstein J sought to extend the exception to the doctrine of privity which Mason CJ and Wilson J in Trident at 123-124 held existed in the case of contracts of insurance to the beneficiary of a contract of indemnity who is not a party to the contract.
3. If PTL was a successor under clause 19.9 of the Joint Venture Agreement, there was, with respect, no need for recourse to cases such as Gate Gourmet to establish PTL's title to sue because PTL would succeed to both the rights and obligations of NPC. However, as I have indicated, PTL was not a successor within the meaning of that clause.
4. To the extent the principle is relied on when in fact PTL was not a successor, it is not appropriate, in my view, for an intermediate appellate court to extend what was said in Trident beyond contracts of insurance. This is particularly the case when only a minority of the High Court in Trident supported the extension.
5. It follows this ground of appeal has not been made out.

NPC is able to obtain specific performance for the benefit of PTL - Notice of cross-appeal, grounds 1(b)(iii) and 4

1. If the indemnity was given for the benefit of PTL then it may well be that NPC could obtain an order in the nature of specific performance that the Council indemnify PTL for the cost of remedying the contamination. However, as I have pointed out, the indemnity was not for the benefit of PTL. In these circumstances, there is no right to an order for specific performance.

Conclusion

1. In the result I would make the following orders: 1. Appeal allowed. 2. Cross-appeal dismissed. 3. Set aside the orders made by the primary judge and, in lieu thereof: 1. Order the proceedings brought by the respondents against the appellant in the Court below be dismissed. 2. Order that the respondents pay the appellant's costs of those proceedings. 3. Order that the cross-claim brought by the appellant against the respondents in the Court below be dismissed. 4. Order that the appellant pay the respondents' costs of the cross-claim. 1. The respondents to pay the appellant's costs of the appeal and cross-appeal, and to have a certificate under the Suitors' Fund Act 1951 (NSW) if eligible.
2. MACFARLAN JA: I agree with Bathurst CJ.
3. GLEESON JA: I agree with Bathurst CJ.

Amendments 26 May 2021 - Cover Sheet and [135] - Amendment to Order 3 made under the Slip Rule. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 May 2021