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[2011] NSWCA 167
Court of Appeal (NSW)
2011-03-23
Beazley JA, Campbell JA, Hammerschlag J
Original judgment source is linked above.
Dr A Bell SC with Mr R Potter (Respondent) Solicitors:
Marsdens Law Group (Respondent) File Number(s): CA 2009/298679/004 Decision under appeal Jurisdiction: 9111 Citation: Fabcot Pty Ltd v Port Macquarie-Hastings Council [2010] NSWSC 726 Date of Decision: 2010-07-02 00:00:00 Before: Hammerschlag J File Number(s): SC 2009/298679
Judgment 1BEAZLEY JA: I agree with Sackville AJA. 2CAMPBELL JA: I agree with Sackville AJA. I particularly wish to associate myself with his Honour's remarks at [11] and [12]. 3SACKVILLE AJA: The appellants (together " Woolworths ") appeal against a decision of a Judge of the Supreme Court (Hammerschlag J) dismissing their claim for damages against the respondent (" Council "): Fabcot Pty Ltd v Port Macquarie-Hastings Council [2010] NSWSC 726. 4The primary Judge concluded that the Council engaged in misleading or deceptive conduct, in contravention of s 42(1) of the Fair Trading Act 1987 (NSW) (" FT Act "), while negotiating with Woolworths to sell it certain land owned by the Council. The land, known as Lot 2 in DP 850217, was located in Short Street in the central business district of Port Macquarie (" the Land "). His Honour found that the Council's conduct had created a reasonable expectation in Woolworths that the Council would not negotiate with a third party for the sale of the Land unless it first notified Woolworths. On his Honour's findings, the Council's misleading or deceptive conduct consisted of its failure to inform Woolworths that it was simultaneously negotiating with a third party, Coles Group Property Developments Ltd (" Coles "), for the sale of the Land. Ultimately the Council sold the Land to Coles. 5Despite these findings, the primary Judge rejected Woolworths' claim for damages under s 68(1) of the FT Act . Woolworths had asserted that it had lost a valuable opportunity to acquire the Land by reason of the Council's misleading conduct. However, his Honour was not satisfied that Woolworths would have acted any differently even if it had been aware that the Council was negotiating with Coles. Specifically, Woolworths would have continued to " dig its heels in " over contentious issues that were preventing it reaching a final agreement with the Council on the terms of sale. Woolworths would therefore not have bought the Land even if it knew of Coles' involvement. It followed that Woolworths had not demonstrated that it had suffered any loss or damage " by " the Council's conduct for the purposes of s 68(1) and its claim for damages had to be dismissed. 6The Council has filed a notice of contention which seeks to uphold the primary Judge's decision on two alternative bases, as follows:
Parties 13The Council is the municipal council and development consent authority for the Port Macquarie-Hastings Shire, which is about 420 kilometres north of Sydney. The Council acquired the Land, before 1988 and used it as a car park. 14At the relevant times, Mr Roach was the Council's General Manager, while Mr Leahy was the Council's Director of Corporate and Business Services. Mr Owens was a Council officer who reported to Mr Leahy. Mr Walton was the Corporate Support Co-Ordinator of the Council. Of these officers only Mr Leahy gave evidence. 15On about 27 February 2008, following an investigation into certain financial dealings of the Council, mostly relating to a development known as the Glasshouse, the Minister for Local Government dismissed the Council and appointed an Administrator. While this event is not directly relevant to the present appeal, some of the documents in evidence refer to the Council's Administrator. The Minister appointed Mr Persson as the first Administrator of the Council, but he was later succeeded in that position by Mr Payne. 16The second appellant (" Woolworths Ltd ") is a publicly listed company. The first appellant (" Fabcot ") is a wholly owned subsidiary of Woolworths Ltd and its development arm. Woolworths has about 800 supermarkets and about 2000 other stores in Australia. At the material times, Woolworths operated a " Food for Less " supermarket at the Plaza Centre in the central business district of Port Macquarie. Woolworths also owned sites adjacent to the Land and had a supermarket at Settlement City on the fringe of the central business district, about 1.5 kilometres from the Land. 17Mr Kemmler was Woolworths' Director of Property responsible for its property portfolio. Mr Oates, the National Manager, Property Development reported to Mr Kemmler, while Mr Garmston, the Senior Development Manager, reported to Mr Oates. All three officers of Woolworths gave evidence. 18Coles is a member of the Coles Group which operates supermarkets and other brand stores nationally. The Coles Group is Woolworths' major competitor. At the relevant times, Mr Kullen was Coles' Development Manager and Mr Boyce was its General Manager of Property. Ms McLaughlin was a Development Manager who dealt with the Council in relation to the Land. At some stage, the Coles Group was acquired by Wesfarmers Ltd, which thereupon became the parent company. Nothing turns on this acquisition.
Early Expressions of Interest 19In 2002, the Council wished to sell the Land for development and to that end, commenced negotiations with Woolworths. The proposal under discussion was that Woolworths transfer the Plaza Centre to the Council and make a cash payment in return for the Land. As part of this development plan, Woolworths acquired the sites adjoining the Land. However, the negotiations with the Council stalled in late 2005. 20In late 2005, the Council publicly invited expressions of interest for the purchase and development of the Land. Woolworths and Coles submitted expressions of interest and the Council short-listed each for consideration. Woolworths' revised expression of interest, dated 7 March 2006, offered $5,890,000 in cash for the Land, including 154 car parking spaces and the bus shelter to be retained on site. The offer was conditional on the issue of a development consent to Fabcot on acceptable terms within 12 months. 21On 27 March 2006, the Council resolved to accept Woolworths' proposal. Clause 1 of the resolution provided as follows: "1. The Council accept the proposal for Lot 2 DP 850217 [the Land] from Fabcot Pty Ltd on the following basis: i. Noting that Council does not endorse the concept design presented, that the contract for sale not be entered into before Council consideration and the General Manager has attached 'Owner's Consent' to the Development Application. If agreement cannot be reached on the urban design aspects of the proposal within 3 months, Council shall re-enter negotiations with the other short listed party ." (Emphasis added.) 22The Council's decision was conveyed to Woolworths by Mr Owens in a letter of 28 March 2006 to Mr Garmston. The letter stated that: "At its meeting held on Monday, 27 th March 2006 Council considered the proposals from a selected group of the Expression of Interest submissions. As a result Council has agreed to work with Woolworths on its proposal to achieve a result, which meets the needs and expectations of both parties." 23In a Council file note of a conversation on the same day, apparently prepared by Mr Owens, he was recorded as having advised Mr Garmston that Woolworths was: "the preferred group subject to agreement on aspects of the scheme proposed been [sic] agreed within the next three months." The file note also recorded the following: "SG [Mr Garmston] asked 'what are the issues' and 'do they have an exclusivity period of three months'. As I had not seen the resolution I could not say but suggested I will contact him again soon to set up a meeting to cover the issues and we have three months to work it out." 24On 28 March 2006, the Council also wrote to Coles advising that the Council had agreed to work with one of the group selected from those who had submitted expressions of interest " in an effort to achieve a result ". The letter stated that: "A three (3) month timeframe has been set to conclude the discussions and agree to a solution." 25The primary Judge found that for at least three months after 28 March 2006 the Council negotiated with only Woolworths. Woolworths presented a design to the Council which, amongst other things, contemplated acquisition of an adjoining property called Finnian's Tavern. The proposal also involved 154 car parking spaces being made available for public use and the building of a bus terminal for the Council. In the result, Woolworths was unable to acquire the tavern and it decided not to proceed with the acquisition and development of the Land. 26On 31 October 2006, Mr Owens of the Council wrote to Mr Garmston of Woolworths as follows: "As discussed the current design proposal submitted by Fabcot and adopted by Council subject to DA assumed the acquisition of the Finnian's Tavern site. However following a marketing program by the Tavern's owners we understand a contract has now been exchanged with another party for the purchase and management of the Tavern. As a consequence you advised that Fabcot Pty Ltd has withdrawn its offer to acquire and develop Council's site. Clearly this is a disappointing result after extensive and productive discussions. However Council will now open discussions with the other short listed parties to the Expression of Interest ." (Emphasis added.) 27Mr Leahy subsequently sent an email to Mr Garmston informing him that, having regard to Woolworths withdrawal, the Council would be entering into negotiations with other short-listed parties. 28In late 2006, Woolworths was giving consideration to opening a Dan Murphy's liquor store near the Land. One proposal under discussion was to build a freestanding Dan Murphy's store on the adjoining property, which Woolworths had acquired as a result of its earlier unsuccessful negotiations with the Council. On 12 December 2006, Woolworths' Property Committee approved the proposal. 29A confidential Council meeting of 18 December 2006 recommended that the Council enter into exclusive negotiations with Coles in relation to the sale of the Land. The minutes recorded the recommendation and the discussion at the meeting as follows: " RECOMMENDATION That it be a recommendation to Council that Council enter into exclusive negotiations with Coles Myer Limited in respect of Lot 2 DP 850217 for a period ending 9 March 2007. Discussion Council, at its Meeting held on 6 November 2006, resolved to reopen negotiations with previously short-listed parties in respect of Lot 2 DP 850217 following the withdrawal by Woolworths Ltd of its offer for Council's land-holding. A copy of this report is linked below for the information of Councillors ... Discussions were opened with Coles Myer Limited following a request of the two other short-listed parties to indicate any continuing interest. The other short-listed group has not responded to Council's request. ..." (Emphasis in original.) The Council adopted this recommendation on 18 December 2006. The following day Mr Owens advised Ms McLaughlin of Coles by email of the Council's resolution. 30On 8 January 2007, Woolworths submitted a development application to the Council for construction of the Dan Murphy's outlet. The Council granted development consent on 23 July 2007. In the meantime, on 16 July 2007, Woolworths submitted a development application to the Council for the refurbishment of its existing Food for Less store. This application was ultimately approved on 4 March 2009, after Woolworths had taken proceedings in the Land and Environment Court. 31On 22 February 2007, Coles submitted an offer for the Land. The total benefit to the Council was said to be $10,066,000 comprising:
The 2007 Expression of Interest 36A Council memorandum of 11 October 2007, apparently prepared by Mr Owens, noted that a number of unresolved issues had been discussed with Coles. The memorandum recorded the following: "I indicated firstly that Coles exclusivity period is over upon which they sought an indication if another offer is on the table. I declined to comment." 37Mr Owens and Mr Leahy met with Mr Garmston of Woolworths on 31 October 2007. Mr Garmston was invited to discuss Woolworths' current position concerning the Land "[b]ecause of the changing position of Coles ". Mr Garmston indicated that Woolworths continued to be interested, although it had progressed the development of the Dan Murphy's outlet. He said that Woolworths would adhere to the offer of $5,890,000 made in March 2006. Mr Leahy replied that an offer of $7,000,000 was required. 38On 6 November 2007, Mr Owens had another conversation with Mr Garmston. Mr Owens' note of the conversation included the following: "Steven [Garmston] stated that Woolworths is still keenly interested in development of the Short St site. ... He suggested Woolworths be offered an option for a fee to allow for conclusion of an agreed development scheme which can then proceed to DA stage with settlement on DA approval. I indicated that it is likely Council will agree to a new EOI process rather than any exclusive arrangements . I noted that in view of the planning initiatives developed over the period since close of the last EOI [Expression of Interest] the results of a new EOI should be resolved fairly quickly. Steven disagreed and stated that Woolworths would not be interested in responding to a new EOI primarily because of timing for Dan Murphys." (Emphasis added.) 39On 19 November 2007, a further meeting took place between the Council and Woolworths. The Woolworths file note of that meeting was as follows: "1. SG [Mr Garmston] advised WOW [Woolworths] very disappointed with process of previous EOI which took 2 years and ended in shambles. 2. SG advised that BO [Mr Owens] ... had contacted him 2 weeks ago to confirm negotiation with Coles has not been conclusive and its exclusivity period had ended . Did WOW wish to discuss its interest? 3. WOW undertook more concept designs and met with Council (BO and Tony Leahy). Issues regarding repositioning of Dan Murphy with offices [and other alterations] were tabled by WOW and discussed. 4. This meeting concluded when SG advised price of $9M (being $6M for the land and $3M for the 154 public car spaces). TL [Mr Leahy] said Council would not consider unless WOW confirmed its previous bid of $7M. SG advised offer at $6M was given to BS [Mr Sharpham, Deputy Mayor] in writing in April 2007 (copy tabled). WOW prepared to negotiate commercial/planning outcome if Council serious. 5. Next week BO advised SG Council was going back out for EOI. SG confirmed WOW unlikely to participate. 6. RD [Mr Drew, Mayor] advised Council would like to negotiate with WOW but had to observe 'due process'. This involved an EOI on 17 November closing on 13 December. Decision expected by Council mid/late January 2008. 7. SG advised WOW was unlikely to participate given the previous experience. 8. BS advised Council had sought legal advice and on balance had been advised too much time and too many discussions had voided previous EOI. 9. RD said Council was absolutely committed to achieving a quick outcome . External issues (Glasshouse) [a separate issue creating a need for Council to obtain funds] made it impossible for Council to negotiate directly with WOW." (Emphasis added.) 40The Council advertised for expressions of interest on 20 November 2007. The Council's published invitation included the following : "Port Macquarie-Hastings Council (Council) is seeking expressions of interest for the development of a commercial site located in the Port Macquarie Central Business District. This is an exceptional opportunity to purchase, lease or joint venture the whole or part of this land for commercial development. This Expression of Interest (EOI) is provided as a guide only. It will NOT form part of any contract for sale, lease or joint venture in relation to [the Land]. Applicants deemed to comply with the selection criteria would be short-listed and then proceed to an interview process. Applicants short-listed may be invited to further tender for either purchase, lease or joint venture as determined by Council. ... ASSESSMENT OF EXPRESSIONS OF INTEREST Only expressions addressing all of the criteria and supporting information outlined will be evaluated. Council shall assess all EOI's in an open and consistent manner. An expression will not be deemed acceptable unless it is received in writing. All applications received will be treated in the strictest of confidence." (Emphasis in original.) The closing date for submission of EOIs was 13 December 2007. 41Woolworths submitted its EOI to the Council on 5 December 2007, in the following terms: "We are pleased to submit the following offer for the purchase of the whole of the Subject Land on the following basis: Commercial Offer : $10,000,000 comprising:
Dealings Between the Council and Woolworths 47On 7 April 2008, Woolworths lodged a development application in respect of the Land and the adjoining land. On the same day, Mr Garmston asked Mr Leahy whether preparation of the contract of sale had been delayed by the appointment of the Administrator. Mr Leahy replied that there was no delay from the Administrator's point of view. 48On 8 April 2008, the Council's then solicitors forwarded a draft contract to Mr Garmston. The covering letter stated that there would be no binding agreement prior to exchange. 49As the primary Judge found (at [35]), extensive dealings took place between the Council and Woolworths concerning the proposed sale and development of the Land. In particular the Council had a number of difficulties with Woolworths' development application, to which Coles had objected. As early as 23 April 2008, Mr Owens pointed out to Mr Leahy that if the contract of sale was subject to development approval, settlement would " almost certainly move beyond 30 th June 2008 ". 50On 19 November 2008, the Council sent Woolworths a document estimating that the levies and other charges relating to the proposed development of the Land would total $470,194. This document provoked a protest from Mr Garmston to Mr Leahy in the following terms: "The basis of [our] negotiations has always been underpinned by the premise that in addition to selling its land, Council also required significant contribution by Woolworths towards public amenities and services by way of providing at no cost to Council, 154 public car parking spaces and title to a new bus terminal. Woolworths for its part has accepted this requirement in good faith, but on the understanding that no developer contributions would be required by Council. With the cost of the Council land negotiated at the height of the real estate boom and the additional cost of public amenities estimated to be in excess of $3 million, Woolworths simply cannot afford to absorb a further $470,000 in developer contributions on the project . At no stage during the recent negotiations from October 2007 or through the DA process was this issue raised (as expected by Woolworths) and we are now surprised to receive a notice of developer charges dated 19 November 2008 in the amount of $470,194.80. In the circumstances Woolworths requests that Council waive these developer charges or acknowledge that they are decreased to be satisfied by the provision of alternative public amenities provided by Woolworths being the public car parking and bus terminus. Alternatively, Woolworths will have to amend its offer to purchase the council land to $6,530,000 which I may remind you is still well above our offer of $5,890,000 dated 27 April 2007 and Councils [sic] own valuation of $5,570.000." (Emphasis added.) 51On 19 December 2008, the Council advised Woolworths that the Council had granted a deferred commencement consent to Woolworths' development application for the Land and the adjoining property. The consent required arrangements for specified works to be carried out within three months. It also required Woolworths to pay levies and other charges amounting to $450,299. The apparent delay in granting the development approval was due to the necessity for an independent review by a panel. 52On 15 January 2009, Woolworths' solicitors (Henry Davis York) advised the Council's solicitors that " the development levies imposed under the development consent are unacceptable to our client ". The letter stated that as the result of the contributions payable, the cost of the proposed development exceeded Woolworths' estimate by $400,000. Accordingly, if the Council was unable to reduce the contributions, Woolworths would be compelled to reduce the price it was prepared to pay for the Land by the amount of the excess. The letter then requested the inclusion in the contract of an indemnity by the Council " in relation to contamination that may be present on the [L]and ". 53On 4 February 2009, the Council's solicitors (Marsdens) pointed out that the Contribution Plan governing the development had commenced before Woolworths submitted its expression of interest. The Council therefore rejected Woolworths claimed understanding that there would be no levies payable by it and refused to contemplate any reduction in the price. 54Marsdens' letter also conveyed the Council's refusal to provide the requested indemnity. The letter continued as follows: "Council is aware that either all of the site or part of the site is re-claimed land. The particulars regarding the nature of the fill are unknown. ... The adjoining land to 28 Hayward Street, Port Macquarie is owned by your client. That site was a former petrol station which contained underground fuel tanks. Council has previously raised that there may have been fuel leakage from these underground tanks with the risk of potentially contaminating the subject land. If your client requires any tests to be undertaken, they should arrange for these tests to be undertaken on their own behalf." 55Mr Leahy and Mr Roach of the Council met with Mr Oates and Mr Garmston at Sydney Airport on 20 February 2009. According to Mr Garmston's evidence, Mr Roach said that he would recommend that the contract include a clause requiring the Council to accept liability for contaminants up to a limit of $500,000, with Woolworths having a right to terminate should the cost of remediation exceed that figure. The primary Judge did not make a specific finding as to whether he accepted Mr Garmston's account of the conversation. 56On 25 February 2009, the Property Committee of the Management of Woolworths approved a recommendation made by Messrs Garmston, Oates, Kemmler and Shambly (National Manager, Property Finance) that Woolworths purchase the Land for $7 million plus $500,000 acquisition costs. The proposal contemplated the development of an integrated Dan Murphy's and supermarket project for $30.85 million. The total project costs were estimated at $43,455 million, a very substantial increase from an earlier estimate of $30.85 million. 57The justification for the project was explained as follows: " · Development of an integrated supermarket and Dan Murphy's offer on the combined Council and Woolworths land in Hayward Street results in the best retail offer. (Strategy 2) · A satisfactory development consent has now been achieved for Strategy 2 (subject to negotiation of developer charges exceeding $400,000) and a liquor licence for the Dan Murphy has also been obtained. · An advantage of Strategy 2 for the Hayward St development, is that the down time for the supermarket can be managed to minimise loss of trade. · The DA lodged as a 'fall back' position (Strategy 1) to reconfigure and expand the existing FFL supermarket does not have council support and the matter has been referred to the Land & Environment Court for determination. Should the Property Committee resolve to proceed with the current recommendation, the current court action would be discontinued and the property sold after relocation of the supermarket into the new development. This is to remain on foot until the integrated development commences. · The financial feasibility for the integrated development (Strategy 2) is an improvement over the 2 separate developments (Strategy 1)." 58The costs associated with the project included the following: " · Construction Risk (High) : The site is filled and has a high water table, being essentially reclaimed land. The natural sub-soil has low bearing capacity and as a consequence attention will need to be paid to the excavation and structural design. An additional $2.0m for site and basement structure costs has been allowed by the QS in the current feasibility, together with a further $2.4m in additional building costs. DA conditions of consent and general cost escalation. · Contract for sale (Medium) : The contract for sale with Council is yet to be finalised in detail, including the ability for WOW not to complete the development should the financials not be satisfactory." 59A Council meeting of 25 February 2009 considered a recommendation in the following terms: "1. That the Council reaffirm its acceptance of the offer for Lot 2 DP 850217 from Fabcot Pty Ltd. 2. That due to the significant public benefit being provided the council waive the Developer Contributions attributable to the site. 3. Council provide clauses, as outlined, to provide indemnity on Council's land in case of contamination." The " clauses " referred to in the recommendation were to be to the following effect: " · A process to work collaboratively to resolve any contamination issues on Council owned land; · Council to provide an amount up to $300,000 for any works associated with contamination; and · If works exceeded this amount parties are able to reopen the negotiation process." At the meeting, the Council resolved to adopt the recommendation. 60On 4 March 2009, Mr Leahy wrote to Mr Garmston informing him of the Council's resolution and of the clauses referred to in the resolution. 61On 17 March 2009, Woolworths' solicitors wrote to the Council's solicitors as follows: "Our client's understanding was that the parties had agreed that your client would reimburse our client up to $500,000 in respect of the remediation costs. My client subsequently received the attached letter [of 4 March 2009] from your client, which refers to $300,000 with a right to negotiate for a further $200,000. When my client raised this with your client, your client responded that it did not wish to resile from its agreement to reimburse up to $500,000, but that the Administrator of the client took the view that an amount of $300,000 would appear to be more palatable to the ratepayers. My client is not comfortable with the arrangement outlined in your client's letter, as it does not see how such an arrangement can give it an enforceable right to payment of any amount in excess of $300,000. Can you please let us know the details of what your client is proposing in this regard, such that our client has, by some means, an enforceable right to reimbursement of the full $500,000?" 62The Council's solicitors replied on 31 March 2009: "I am instructed that Council has agreed to a maximum contribution in respect of remediation of $300,000.00. This was confirmed by Council to Mr Garmston at its meeting held at Sydney Airport. In the event however that the remediation exceeds $300,000.00, Council would at the time consider its position in relation to contributing in excess of $300,000.00 however the final decision would rest with Council if a contribution was to be made in excess of that amount." 63The following day, Woolworths' solicitors stated Woolworths' position: " · Woolworths originally required Council to indemnify Woolworths against any costs as a result of contamination of the Council's land. This was not agreed, but as a compromise, the parties agreed to cap Council's liability for remediation costs at $500,000; · without discussion with Woolworths, your client indicated that it had changed its offer to $300,000, but the Council may consider paying up to $500,000 at its discretion; · when my client queried the change to $300,000 with the General Manager, he advised that it was the Administrator who had amended the cap to $300,000; · the General Manager advised Woolworths that Council would not 'walk away' from its agreement to pay up to $500,000 but that the additional $200,000, if incurred, would need to be managed in some other way; and · the current proposal outlined in your email below does not offer Woolworths any comfort and is not acceptable to Woolworths." 64On 2 April 2009, Mr Leahy commented in an internal memorandum on the email from Woolworths' solicitors: " · In the meeting it was stated on numerous times that any discussions were subject to the 'Council's' approval. · We also stated that we would not be signing up to $500k without some level of transparency on what, if any contamination was found. · It was also clearly discussed by both parties that there should be the ability to walk away if it reached a 'threshold' or at least the ability to come back and discuss what the next steps might be and at what cost. As usual Garmston is very liberal with the facts and has twisted them to suit himself."
The Council Deals with Coles 65On 16 April 2009, Ms Cross of the Council emailed Mr Walton to say that she had spoken to Mr Leahy, also of the Council, about Coles and that he would consider a " back up plan ". She asked if Mr Walton would be able to meet with Coles on the Council's behalf if Mr Roach approved the approach. 66On 20 April 2009, Mr Garmston and Mr Oates met Mr Payne (the Administrator) and Mr Roach. According to Mr Garmston's evidence, Mr Payne asked whether Woolworths could meet a deadline of 30 June 2009, to which Mr Oates said that there would be no problem. Mr Garmston said that Woolworths was committed to the project and wanted to make sure that it got on top of the contamination issue. According to Mr Garmston, Mr Payne said that the contamination issue could be sorted out shortly. 67On 22 April 2009, the Council approved a recommendation that it increase its " monetary contamination cap " relating to the development to $500,000. The discussion noted that clauses would be inserted into the contract to allow the Council to inspect the site to determine what action would be taken. 68On 23 April 2009, the Council's solicitors wrote to Woolworths' solicitors as follows: "I am instructed that our respective clients met on 20 April 2009. Arising out of that meeting the following was agreed:
The Next Stage 79On 21 May 2009, the Council's solicitors forwarded a draft contract, including special conditions, to Coles. The special conditions provided for the Council to provide an indemnity of up to $500,000 in respect of all contamination. If contamination was identified between exchange and completion, Coles had the option of requiring the Council to contribute $500,000 or of rescinding the contract. The Council also provided Coles with a copy of the development consent that had been granted to Woolworths on 19 December 2008. 80On the same day, Mr Roach of the Council spoke with Mr Garmston, who asked for access to the Land to dig large trenches for soil testing. Mr Roach pointed out the impractical nature of the request, given that the site was a car park. According to Mr Roach's note of the conversation, he told Mr Garmston: "to stop stalling and creating issues and sign the Contracts. I said I would consider his request for access to the site, if Contracts were exchanged, but until they showed some "good faith" towards resolving the issue, then no access would occur. Stephen Garmston then brought up several other issues including the bus terminal, stating they were deal breakers for Woolworths." 81Also on 21 May 2009, Mr Garmston sent an email to the Council pointing out that Woolworths had never agreed to limit the indemnity for contamination to asbestos. He said that the correspondence showed that all remediation work was to be covered. Mr Garmston also said that " other than this issue " it appeared that Woolworths was ready to exchange. 82On 22 May 2009, the Council's solicitors sent revised draft special conditions to Coles. The draft made no provision for an indemnity by the Council in respect of contamination. 83On 26 May 2009, the Council's solicitors responded to amendments to the draft contract that had been proposed by Woolworths' solicitors on 13 May 2009. The responses included the following: "4. Condition 42 (contamination) has been reinstated to reflect the original condition restricting the rights and issues to Asbestos contamination. The intention is that the Property is purchased by Fabcot with or without contamination but subject to my client's remediation contribution payable in accordance with the Condition." (Emphasis in original.) However, the revised draft special conditions provided for the Council to give an indemnity in respect of asbestos contamination up to $500,000, payable in cash or kind. If asbestos was identified between exchange and completion, the Council had the option of contributing up to $500,000 or rescinding. 84The draft sent by the Council's solicitors prompted a protest from Mr Garmston to the Council, as follows: "3) Contamination only relates to asbestos. Still no agreement on this issue. 4) Right of recission [sic] due to contamination now applies to Council not Fabcot. This does not make sense. My understanding of our agreement with respect to contamination was Council's liability was capped at $500k and Fabcot would have the opportunity of conducting some further due diligence between exchange & settlement to satisfy itself as far as reasonably practible that there was no gross contamination which would give rise to Fabcot recinding [sic] the contract. After settlement our right of recission [sic] fell away. We are now running out of time to do any worthwhile due diligence. ... We have today gone out to tender for the construction and are very keen to 'wrap up' the contract documentation but I am concerned that the lawyers have taken over the process. We may need to sit down together with our respective lawyers and finalise the documentation." 85On 3 June 2009, Mr Parkinson of Coles wrote to Mr Roach confirming Coles' offer to purchase the Land for $7,000,000 plus GST. The offer was subject to entry into a contract, but completion was estimated to be on or before 31 August 2009. The contract itself was to be subject to the granting of a satisfactory development consent in favour of Coles from the existing deferred consent. The development consent would incorporate 154 public car parking spaces for the benefit of the Council and a bus terminal of up to 150 square metres. 86The terms and conditions of Coles' offer were stated to be strictly confidential and the Council was not to disclose the confidential information to any other person. Coles undertook, upon acceptance of the offer, to achieve board approval within 30 days. 87On 3 June 2009, Mr Garmston sent an email to Mr Roach, as follows: "Further to our telephone conversation this morning I attach the following correspondence which corroborates our interpretation of the contamination issue as it relates to the Council land.
Council Rejects Woolworths and Agrees with Coles 101On 19 June 2009, Mr Garmston and Mr Leahy had a telephone conversation about the outstanding issues. Mr Leahy's note of the conversation stated that Mr Garmston had said that the issue of the indemnity being confined to asbestos was a " deal breaker " for Woolworths. Mr Leahy replied that the Council was unlikely to move on this issue. 102On 19 June 2009, Mr Boyce of Coles wrote to the Council confirming that Coles was prepared to proceed on the terms referred to in the Council's letter of 5 June 2009, subject to certain matters set out in Mr Boyce's letter. These included the following: " Purchaser
Institution of Proceedings 122On 8 July 2009, newly instructed solicitors for Woolworths wrote to the Council's solicitors. The letter set out a detailed history of dealings between the parties and asserted among other things, that Woolworths and the Council had reached agreement on all significant contractual issues. The letter demanded that the Council " formalise its agreement to sell the [Land] by executing a contract for sale on the terms which have been agreed " and that the Council discontinue its proposed sale to Coles. In the absence of the Council giving the required undertakings, the letter advised that proceedings would be commenced against the Council for breach of contract, misleading or deceptive conduct and estoppel. 123Woolworths commenced proceedings against the Council and Coles on 24 July 2009. The summons sought a declaration that a binding contract existed between the Council and Woolworths for the sale of the Land and an order for specific performance. In the alternative, relief was sought against the Council under the FT Act .
The Pleading 124Woolworths pleaded what was described as " the Third Party Representation " in its Second Further Amended Commercial List Statement as follows: " C58 By: (i) inviting expressions of interest for the Land; (ii) being a statutory authority subject to the provisions of the: (A) the Local Government Act 1993 (NSW) (and, in particular, section 55 of that Act); and (B) the Local Government (General) Regulation 2005 (NSW) (and, in particular, clause 178 of that Regulation); (iii) accepting [Woolworths' expression of interest of 5 December 2007 (" WOW EOI ")] (iv) passing the 21 January 2008 Resolution; (v) writing to Woolworths in the terms of the 7 February 2008 Letter; and (vi) otherwise by its conduct in treating with Woolworths as it did after the 31 January 2008 Meeting. Council represented, on and from 21 January 2008, that it was not treating with third parties in relation to the Land ( Third Party Representation ). C59 The Third Party Representation was a representation made by Council in trade or commerce. C60 To the extent that the Third Party Representation was, in part or in whole, a representation as to a future matter, Fabcot and Woolworths rely on section 41 of the [ FT Act ]. C61 The Third Party Representation was a continuing representation which was not corrected, modified or retracted until 2 July 2009. Particulars Letter from Council to Woolworths dated 2 July 2009. C62 At a date presently unknown to Fabcot and Woolworths, but no later than 15 May 2009, Council began, and continued, to treat with Coles in relation to the sale of the Land. ... C63 At no time between 21 January 2008 and 2 July 2009 did Council disclose that it was treating with Coles (or any other third parties) in relation to the Land. C64 At no time between 21 January 2008 and 2 July 2009 was Woolworths aware that Council was treating with Coles (or any other third parties) in relation to the Land, or that Council had entered into the Coles Contract. C66 By reason of the matters pleaded in paragraphs C62-C64 the Third Party Representation became misleading and deceptive, or likely to mislead and deceive. C67 By reason of the matters pleaded in paragraph C64 Council has engaged in conduct in contravention of section 42 of the [ FT Act ]."
Woolworths' Case at Trial 125In opening the case before the primary Judge, Mr Smith SC, who appeared with Mr Owens for Woolworths, said that the Council's: "misleading conduct is the deliberate decision which the [C]ouncil made not to inform Woolworths on or after 18 May 2009 that [C]ouncil was negotiating with Coles over the sale of the [L]and at the same time as the [C]ouncil was negotiating with Woolworths. That failure was misleading because the parties were dealing with each other on the basis that Woolworths was the only party negotiating with the [C]ouncil over the sale of the [L]and." The last sentence in this passage does not identify with any particularity the matters upon which Woolworths were relying in the dealings with Council, although Mr Smith's language was consistent with the pleading in par C58(vi) of the Second Further Amended Commercial List Statement. 126The primary Judge recorded (at [112]) that Mr Smith formulated in oral argument an alternative case, namely that the Council's misleading or deceptive conduct was its failure to tell Woolworths that the Council was not, or was no longer, negotiating exclusively with Woolworths. 127The primary Judge observed (at [123]) that there was no dispute between the parties that the Council had deliberately refrained from revealing to Woolworths that it had been negotiating with Coles since mid-May 2009. His Honour identified (at [124]) the critical question, for the purposes of determining whether the Council had engaged in misleading or deceptive conduct, as follows: "whether in the particular circumstances of this case Woolworths had the reasonable expectation that the Council would disclose to it that it was dealing with Coles (or a third party) or that it was not dealing exclusively with Woolworths so that the non-disclosure was misleading." 128The primary Judge summarised (at [125]) the material factors relied on by Woolworths as giving rise to its reasonable expectation as follows: "a the EOI [expression of interest] process concerned a strategic parcel of land and not simply a sale but rather a collaborative design process between the negotiating parties; b in the first EOI process as a matter of practical reality Woolworths was given an exclusive period of negotiations; c Woolworths was the successful bidder in the second EOI process and it was implicit in the negotiation process which then occurred that the Council was negotiating exclusively with Woolworths until it said otherwise; d from 21 January 2008 to 20 April 2009 the Council in fact dealt exclusively with Woolworths; e the Council's own initial internal stance was that Woolworths should be informed that the Council was to deal with Coles (or a third party); and f the officers of Coles who gave evidence said that if the Council was during an exclusive negotiating period negotiating with another, they would expect to be told. " This summary appears to have been based on Woolworths' final written submissions at the trial.
Adequacy of the Pleading 129The Council's written submissions on the appeal contended that Woolworths had not identified in its pleading or otherwise the basis of the alleged reasonable expectation from which the Council had allegedly departed. The Council's submissions pointed out that in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357, at [5], French CJ and Kiefel J said that: "The cause of action for contravention of statutory prohibitions against conduct in trade or commerce that is misleading or deceptive or is likely to mislead or deceive has become a staple of civil litigation in Australian courts at all levels. Its frequent invocation, in cases to which it is applicable, reflects its simplicity relative to the torts of negligence, deceit and passing off. Its pleading, however, requires consideration of the words of the relevant statute and their judicial exposition since the cause of action first entered Australian law in 1974. It requires a clear identification of the conduct said to be misleading or deceptive. Where silence or non-disclosure is relied upon, the pleading should identify whether it is alleged of itself to be, in the circumstances of the case, misleading or deceptive conduct or whether it is an element of conduct, including other acts or omissions, said to be misleading or deceptive." 130The Council's written submissions on the appeal suggested that Woolworths, in effect, had abandoned its pleaded case and that the primary Judge should not have permitted it to proceed on a " wholly new and unparticularised case at trial ". These submissions were not, however, developed by Dr Bell SC, who appeared with Mr Potter for the Council, in his oral argument. Dr Bell did not seek to rebut Mr Smith's contention that Woolworths' case was within the pleadings. In any event, the Council's notice of contention did not rely on any deficiencies in Woolworths' pleadings or on any departure from its pleaded case to uphold the primary Judge's decision. In these circumstances, no issue arises as to the adequacy of the pleading or whether Woolworths should have been permitted to depart from its pleaded case (if indeed it did so). 131Nonetheless, it must be said that it is not easy to discern from its Second Further Amended Commercial List Statement the case ultimately put by Woolworths. Paragraph C58 pleads that the Council represented on and from 21 January 2008 that it " was not treating with third parties in relation to the Land ". Paragraph C60 invokes s 41 of the FT Act , subsection (1) of which provides that where a person makes a representation with respect to any future matter and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. When para C60 (which refers to s 41 of the FT Act ) is read with para C58, the pleading suggests that Woolworths' case was that the Council had made a representation with respect to a future matter (that the Council would not treat with third parties) and that the representation was misleading because the Council had no reasonable grounds for making it. 132If this was Woolworths' case, no issue of reasonable expectations would have arisen. As French CJ and Kiefel J said in Miller v BMW , at [23]: "Reasonable expectation analysis is unnecessary in the case of a false representation where the undisclosed fact is the falsity of the representation. A party to precontractual negotiations who provides to another party a document containing a false representation which is not disclaimed will, in all probability, have engaged in misleading or deceptive conduct." 133Woolworths also pleaded that the Third Party Representation was a continuing representation which was not " corrected " until 2 July 2009 (para C61). The import of that pleading is not immediately apparent. If the representation was indeed continuing and could be characterised as a representation with respect to a future matter, the Council's conduct would have been misleading or deceptive at any time the Council conveyed the representation, assuming it lacked reasonable grounds for doing so. If the continuing representation was as to an existing fact (that is, the Council had not treated with any third party), the representation would have become false once the Council commenced its dealings with Coles. But no question of reasonable expectation would arise. 134As has been seen, Woolworths did not put its case in any of these ways. It did not plead that particular circumstances created, from a specified time, a reasonable expectation in Woolworths that the Council would not treat with a third party unless it gave Woolworths prior notice. The concept of a " reasonable expectation " is not part of the statutory language, but: "indicates an approach which can be taken to the characterisation, for the purposes of s 52 [of the Trade Practices Act 1974 (Cth), the counterpart to s 42 of the FT Act ] of conduct consisting of, or including, non-disclosure of information." Miller v BMW , at [19], per French CJ and Kiefel J. 135Neither party disputed that the primary Judge had correctly summarised the case advanced by Woolworths at the trial. While that case may have been broadly within the parameters of the pleading, the failure to plead with precision the claim based on non-disclosure has obscured some issues. It is not entirely clear, for example, whether Woolworths' reasonable expectation that the Council would disclose dealings with third parties is said to have arisen as the result of the Council's acceptance of Woolworths' EOI, or only by reason of the Council's post-acceptance conduct. If the latter, it is not clear precisely what post-acceptance conduct created the expectation and when it became reasonable for Woolworths to form the expectation. If the former, it is not clear what the Council's post-acceptance conduct adds to Woolworths' case. 136The lack of clarity in the pleading contributed to some uncertainty, if not confusion, at some points in the argument on the appeal. The uncertainty reinforces the importance of fully pleading with precision conduct that is said to be misleading or deceptive by failure to disclose information to the plaintiff.
The Issues 137The primary Judge pointed out (at [108]) that originally the primary relief sought by Woolworths was a declaration that a binding contract existed between it and the Council for the sale of the Land. However, the claim for that relief had not been pursued at trial. 138Woolworths had also pleaded a number of allegedly misleading or deceptive representations by the Council, but (at [109]) it had confined its case to the contention that the Council's deliberate conduct in not telling Woolworths that it was negotiating with Coles was in the circumstances misleading or deceptive. His Honour, as I have explained (at [125]-[128] above), recorded that he had received an explanation from Mr Smith as to how Woolworths put its case. 139His Honour summarised (at [113]-[117]) Woolworths' case as follows: "113 Woolworths puts that the circumstances were such that it had the reasonable expectation and was entitled to believe during its negotiations with the Council, that the Council would, if it was negotiating with someone else, disclose that fact to Woolworths. Woolworths puts that against the background of what occurred in the first EOI in 2006, the dealings between them gave rise to the reasonable expectation that the Council would be dealing only with it in relation to the Land, unless it said otherwise. 114 Woolworths says that, had the Council revealed that it was negotiating with someone else, it would have shifted its stance on the two issues which caused its negotiations with the Council to reach an impasse, namely the ambit of the contamination indemnity and the Council's insistence on the a payment of a developer contribution of some $262,000. It says that it would have capitulated so as to accept the Council's position. 115 Hence, it says, that but for the Council's misleading silence, it rather than Coles would have acquired the Land and it would have proceeded to develop it by building a new Woolworths supermarket on the Land as well as the Dan Murphy's outlet next door. The parties referred to this development as the 'integrated development' and I shall use the same terminology. 116 Having not acquired the Land, Woolworths has proceeded (or intends to proceed) with the refurbishment of the Food for Less at Plaza Centre and the construction of a freestanding Dan Murphy's outlet next door. 117 It frames its damages as the difference between the financial position in which it would have been in had it proceeded with the integrated development and the position in which it is, that is, with the prospect of refurbishing the Food for Less and constructing the freestanding Dan Murphy's." 140The primary Judge identified (at [122]) the two issues which arose for consideration on Woolworths' claim against the Council, as follows: "a whether the Council engaged in conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s 42(1) of the [ FT ] Act; ... c whether Woolworths suffered any loss by the conduct complained of, and if so the quantum of its loss ..."
Misleading or Deceptive Conduct 141I have already set out (at [128] above) the primary Judge's summary of the factors which Woolworths put forward as establishing that it had a reasonable expectation that the Council would disclose to it that it was dealing with Coles or that it was no longer dealing exclusively with Woolworths. It was the Council's failure to disclose that it was dealing with Coles that was said by Woolworths to constitute misleading or deceptive conduct. 142His Honour summarised (at [126]) the factors put forward by the Council as militating against any such expectation, as follows: "a Woolworths had no binding option or exclusive negotiating agreement; b Woolworths knew or ought to have known that such an option or agreement is the only protection against being gazumped and had in dealings with other councils negotiated exclusive dealing agreements; c being gazumped is a regular hazard of property acquisition; d in November 2007, Mr Garmston had sought an option and had been told that there would be an EOI process rather than any exclusive arrangements; e the Council was not under any statutory duty to deal only with Woolworths or to inform Woolworths that it was negotiating with anyone else; f nothing in the Council's calls for expressions of interest indicated that the Council would deal with only one party or that the party whose expression of interest was accepted would be the only party with which the Council was at liberty to deal; g neither the Council's resolutions nor anything said by it was to the effect that the Council was not dealing with any other party; h Woolworths never asked the Council whether it was dealing with any other party; i it is entirely a matter for a vendor what information it gives an interested purchaser as to who else is in the market; j the Council as a vendor may have had strategic reasons for not telling Woolworths that there were other purchasers in the market; and k the Council's acceptance on 7 February 2008 of Woolworths' offer had as a condition that the sale be completed by 30 June 2008, and it was not." 143The primary Judge accepted Woolworths' argument and rejected the Council's submissions. His Honour reasoned (at [127]-[138]), as follows: " 127 In my view the circumstances of this case were such as to give rise to the clear and reasonable expectation on Woolworths' part that the Council would inform it (if it were the case), that the negotiations it was conducting with Woolworths pursuant to its resolution of 21 January 2008 and its acceptance, in its letter of 7 February 2008 of Woolworths' offer, were not, or had ceased to be, exclusive. In my view any reasonable person in Woolworths' position would have had such an expectation. 128 The EOI process which the Council invited and in which Woolworths and Coles participated entailed an initial selection of one, and only one, candidate for negotiation. 129 By its 7 February 2008 letter, the Council informed Woolworths that its offer had been accepted subject to conditions, including that design negotiations be undertaken. It can hardly be gainsaid that there was the creation of an expectation that, absent being told otherwise, the Council would be negotiating only with the successful nominee. Such an expectation is at the heart of, and gives value to, the opportunity being given to the nominee, who is about to spend significant time and money in seeking to realise the opportunity. 130 It is hardly surprising that during the first EOI process the Council negotiated in turn with Woolworths and Coles and that when that process was exhausted the Council started afresh with a new EOI. It is hardly surprising that during the second EOI process the Council started out negotiating exclusively with Woolworths. 131 There can also be little doubt that the Council well understood that Woolworths was under the misapprehension that the Council was negotiating with it exclusively. The Council was acutely conscious that revelation that this was not so would have been material to Woolworths. 132 The fact that a settlement date of 30 June 2008 was originally contemplated is of little moment. The negotiations (exclusive at that) went on long beyond that date without any changed footing being communicated by the Council. Analogies with transactions between arm's length vendors and purchasers in other situations are of little assistance in this case. It is unsurprising that Woolworths never asked whether the Council was, and the Council never said it was not, negotiating with any other party. There was an obvious expectation that this would have been the case. So much was this so in the case of Woolworths that on 25 June 2009, Mr Garmston did not even tumble to the fact that the Council was negotiating with Coles in relation to the Land on learning that they too were meeting at the Qantas club. 133 Woolworths had no binding contractual exclusivity arrangement from the Council and there was no statutory inhibition on the Council dealing with Coles. This, however, did not displace the reasonable expectation that the Council would not clandestinely conduct negotiations outside the framework of the process (including by giving Coles information from Woolworths' EIS report) without telling Woolworths that the negotiating relationship was no longer exclusive. The Act imposes a norm for conduct in trade or commerce and the Council fell far short of that norm, not inadvertently but deliberately. In its own terms it failed to observe due process. 134 Mr Leahy was unable to provide an explanation for why the Council changed its mind and decided not to tell Woolworths. The Council officers who would have been able to give this explanation were not called, despite having sworn affidavits. 135 Whilst I do not consider that the circumstances gave rise to a reasonable expectation, as Woolworths framed it, that it would be told if other negotiations were taking place, they did give rise to an expectation that Woolworths would be told if its position was no longer exclusive. There is, however, little in the distinction because Woolworths would have known in both cases that the Council might then treat or be treating with others. 136 Because of unrelated dealings in relation to the Glasshouse, the Council was under final strain to sell the Land by 30 June 2009. It may well have been frustrated by Woolworths' tough negotiating stance and what it saw as delay. But Woolworths' stance was born of its understandable annoyance with the Council's change of position on the two contested issues. 137 Either way, the Council's conduct fell well short of commercial fair dealing in a way which was misleading and deceptive and it fell well short of the standards which a commercial party dealing with it was entitled to expect. 138 I find that the deliberate silence by the Council as to the fact that its negotiations with Woolworths were not, or had ceased to be, exclusive was in the circumstances misleading or deceptive or likely to mislead or deceive and a contravention of s 42(1) of the Act."
Loss or Damage 144The primary Judge accepted (at [139]) that if Woolworths had been told that the Council was negotiating with a third party, Woolworths would have inferred that the third party was Coles. Similarly, if Woolworths had been told that the negotiations with the Council were no longer exclusive, Woolworths would have drawn the same inference. 145On this basis, his Honour identified (at [141]) two sub-issues arising on the question of whether Woolworths had suffered loss by reason of the Council's misleading or deceptive conduct:
Woolworths' Chances of Obtaining the Sale 159It was unnecessary for his Honour to consider the chances that the Council would have sold to Woolworths had it capitulated to the Council's demands. Nonetheless he did so. 160Taking into account the speed with which Coles moved to finalise arrangements with the Council and the lack of urgency shown by Woolworths at the end of June, his Honour doubted (at [173]) that " Woolworths would have moved swiftly enough to clinch the deal ". In all the circumstances, he thought that Woolworths had only a slightly better than even chance of succeeding. His Honour assessed Woolworths' changes at 55 per cent and thus concluded that he would have discounted any damages awarded to Woolworths by 45 per cent.
Quantum 161It was also unnecessary for his Honour to assess the damages that would have been awarded to Woolworths had it made out its case. However, his Honour proceeded to an assessment of damages on the basis (at [184]) that the damage suffered by Woolworths was: "the difference between the financial position it would have been in, had the integrated development proceeded and the position in which it [was] in, that is, without the integrated development, but with the prospect of the refurbishment of the Food for Less store and the new stand-alone Dan Murphy's. This exercise involves subtracting from the present value of the future revenue of the integrated development (after taking into account its capital cost), the present value of the future revenue of the refurbished Food for Less and the new Dan Murphy's (after taking into account the capital cost of the refurbishment)." 162After considering the expert evidence, his Honour found (at [192]) that the present value of the future revenue of the integrated development should be calculated by reference to the revenue that would have been derived from the new notional store from 2009 to 2016. His Honour considered that for 2012 the appropriate figure was $8305 per square metre of supermarket space. This figure represented the average annual trading level for all supermarkets in the trading area and was to be applied to 41,493 square metres of supermarket space in the notional development. A corresponding figure was to be applied to each of the subsequent years. 163On this approach, his Honour had to ascribe a terminal value to the revenue stream at 2016. His Honour noted (at [202]) that the expert accountants had adopted a conventional methodology whereby the: "terminal value at time n (here 2016) is calculated as the Net Cash Flow for the period ended n + 1 divided by the discount rate adopted less the terminal growth rate, that is: present value (n) = cash flow (n + 1) . (discount rate - terminal growth rate) 164The accountants agreed on a " terminal growth rate " of two to three per cent. They also agreed on the effective tax rate that Woolworths would pay (27.13 per cent). The critical difference between the experts concerned the discount rate or weighted average cost of capital (" WACC "). 165Woolworths assessment of its WACC was 7.78 per cent per annum and this figure was adopted by its expert accountant, Ms Wright. The Council's expert accountant, Ms Wheatley, adopted a WACC of 13.15 per cent per annum, on the basis that the risk-free rate used in the calculations should be taken to be 6.45 per cent per annum. The primary Judge accepted (at [210]) Ms Wheatley's analysis, except that he considered that the correct risk-free rate was 5.22 per cent per annum. The primary Judge did not quantify in dollar terms the results that would have followed from his analysis.
Orders 166The primary Judge dismissed Woolworths' claim against the Council and also dismissed the Council's cross-claim.
Causation 167Woolworths challenged the primary Judge's finding that Woolworths, had it known of Coles' dealing with the Council, would not have acted any differently in its negotiations with the Council. Woolworths submitted that his Honour should have found that, had the true position been known, Woolworths would have agreed to the Council's position on the one issue in dispute, namely whether the contamination indemnity was limited to asbestos or not, and would have entered into a binding agreement for the purchase of the Land. 168According to Mr Smith, Woolworths' case was both objectively probable and was supported by the evidence of Woolworths' witnesses. Moreover, the conduct of Coles demonstrated that the commercial opportunity involved in acquiring the Land was not such as Woolworths would be likely to pass up, particularly as it had spent hundreds of thousands of dollars in design fees and development costs. Even if Woolworths had been required to pay developer contributions as the price for entering a contract, it would have done so. 169Mr Smith pointed out that the primary Judge had found that, with one exception, Messrs Garmston, Oates and Kemmler had given their evidence " sincerely ". In those circumstances, no issue of credit arose and this Court was in as good a position as the primary Judge to evaluate the inferences from the facts as found and the objective evidence. 170Mr Smith submitted that the primary Judge had erred in giving no weight to the evidence of Woolworths' decision-makers as to what they would have done. The error lay, so it was argued, in disregarding the evidence of the three witnesses on the basis that it was purely hypothetical and therefore not of probative value. While it may have been open for his Honour to reject the evidence of each of the witnesses as to what Woolworths would have done had it known of Coles' involvement, that is not what his Honour did. 171Mr Smith also submitted that the matters relied on by the primary Judge to make his finding did not undermine the evidence of Woolworths' witnesses. Thus the fact that Woolworths initially claimed that it had a binding contract, was no basis for discounting the evidence of Woolworths' executives. Similarly, while it was true that Woolworths was " justifiably disgruntled " by the Council's change in position, the primary Judge had failed to appreciate the commercial nature of the negotiations and had given too little weight to Woolworths' belief that it was still dealing exclusively with the Council. Consequently it was " inherently implausible " that Mr Garmston's description of certain issues as " deal breakers " would have been maintained if Woolworths had known of Coles' involvement. 172The objective evidence that supported the Woolworths' witnesses included:
Misleading Conduct 173Woolworths supported the primary Judge's reasoning on the issue raised by the Council's notice of contention, namely the finding that the Council had engaged in misleading or deceptive conduct. Woolworths submitted this was not a case (as the Council contended) in which Woolworths had simply erroneously assumed that the Council was obliged to deal with it exclusively. Woolworths had never suggested that the Council was bound, by contract or otherwise, to deal with Woolworths exclusively. Its case, upheld by the primary Judge, was that in the circumstances, Woolworths had a reasonable expectation that the Council would inform it if the Council decided that the negotiations between the two parties would no longer be conducted on the basis of exclusivity. 174Mr Smith contended that the evidence established the existence of a practice among prospective developers of supermarket sites that negotiations for the acquisition of such sites would involve exclusive dealings between the parties. He supported that contention by reference to the evidence of witnesses from the Council, Woolworths and Coles. While the precise nature of the alleged practice was never identified, it seems to have been to the effect that a party whose EOI is accepted will enjoy a period of exclusive dealings unless and until notified by the other party that the period of exclusivity has ended. 175Apart from industry practice, Woolworths identified a number of factors supporting the primary Judge's finding that Woolworths had a reasonable expectation that it would be informed by the Council if the period of exclusivity was to end. The factors included the following:
The Council's Submissions 176The Council supported the primary Judge's finding that Woolworths would not have altered its position on the " deal-breakers " even if it knew that the Council was dealing with Coles. Dr Bell submitted that Woolworths, in order to succeed on the appeal, had to establish that his Honour's findings were glaringly improbable or contrary to compelling inferences: Fox v Percy [2003] HCA 22; 214 CLR 118, at [29], per Gleeson CJ, Gummow and Kirby JJ. This it could not do. 177Dr Bell submitted that there were in fact two issues that remained outstanding between Woolworths and the Council. One was the indemnity for contamination (which the council advised Woolworths on 26 June 2009 would be limited to $300,000). The other was the Council's refusal to waive the standard developer (water/sewerage) charges of $262,679. His dealings with the Council had placed Mr Garmston in the unenviable position of trying to persuade the primary Judge that he was " being insincere and duplicitous in his negotiations with [the] Council ". The contributions issue was also critical to Woolworths as it had refused to agree to any change in the waiver originally negotiated. 178Dr Bell emphasised that until just two weeks before the trial, Woolworths was running a different hypothetical case to that propounded at the trial. Mr Garmston had originally sworn that, had he known that the Council would not sell to Woolworths he would have pursued Woolworths' alternative strategy of developing the Dan Murphy's outlet and upgrading the Food for Less store. It was only in an affidavit sworn in May 2010 that Mr Garmston claimed for the first time that he would have taken a very different approach to the negotiations had he known that Coles was in the picture. His Honour was therefore entitled to take into account, as he did (at [154]), that Woolworths' position at trial had only recently been adopted. 179Dr Bell also emphasised that the Council had given Woolworths every opportunity to conclude a contract by 4 pm on 29 June 2009, before the Council accepted Coles' offer. The Council's letter of 26 June 2009 had imposed a precise deadline on Woolworths and had made it clear that if the deadline was not met, the Council would not proceed with the sale of the Land to Woolworths. Yet Mr Garmston did not reply until after the deadline and made a counter offer that obviously did not meet the Council's requirements. Even then, the Council gave Woolworths a further opportunity to reconsider on 30 June 2009, which Woolworths rejected. This was powerful evidence supporting the finding that Woolworths would simply not have been prepared to capitulate to the Council's demands. 180On the notice of contention, the Council submitted that the primary Judge was in error in finding that there was a reasonable expectation that Woolworths would be informed that the Council no longer proposed to deal exclusively with Woolworths. Dr Bell submitted that there were a number of factors that militated against the finding. These included:
The Appeal 181There was no dispute that, as the primary Judge held, in order to recover damages for the Council's contravention of s 42 of the FT Act (assuming such a contravention occurred), Woolworths had to show that it had suffered loss or damage " by " the Council's contravening conduct: FT Act , s 68(1). In order to satisfy this requirement Woolworths had to establish that, had it known the true position (that is, that the Council was about to deal or was dealing with Coles), it would have changed its negotiating position and informed the Council that it was prepared to meet the Council's terms. 182The primary Judge resolved this question, involving a counterfactual, against Woolworths. The issue on the appeal is whether there are grounds for setting aside the primary Judge's factual finding.
Hypothetical Evidence 183It is convenient at the outset to address Woolworths' submission that the primary Judge erred in law by giving the evidence of Woolworths' executives no weight because it was hypothetical. The short answer to the submission is that this is not what his Honour did when making his finding (at [151]) that their evidence was coloured (see [149] above). 184Before making his finding, the primary Judge referred to observations made by McHugh J in a medical negligence case: Rosenberg v Percival [2001] HCA 18, 205 CLR 434, at [45]: "In terms of causation theory, the critical fact is whether the patient would have taken action - refusing to have the operation - that would have avoided the harm suffered. But that fact can only be determined by making an anterior finding as to what the patient would have decided to do, if given the relevant warning. It is not possible to find what the patient would have done without deciding, expressly or by necessary implication, what decision the patient would have made, if the proper warning had been given. If the court finds that the patient would have decided not to have the operation, it concludes that he or she would not have had the operation. What the patient would have decided and what the patient would have done are hypothetical questions. But one relates to a hypothetical mental state and the other to a hypothetical course of action. The answer concerning the hypothetical mental state provides the answer to the hypothetical course of action. The onus is on the patient to prove that he or she would have decided not to have the operation if given a warning of the risk of harm. That means that the patient must prove what he or she would have decided to do. When the direct testimony of that person on the causation issue has been rejected, it is unlikely, as a matter of fact, that the patient will succeed on that issue unless the objective evidence in favour of the patient is very strong." The primary Judge referred to other observations to similar effect: Chappel v Hart [1998] HCA 55; 195 CLR 232, at [32 n 64], per McHugh J; Ellis v Wallsend District Hospital (1989) 17 NSWLR 553, at 581-582, per Samuels JA. 185Mr Smith criticised the primary Judge's reliance on these cautionary observations on the ground that they were made in medical negligence cases. But similar warnings have been given in commercial cases about the use of evidence given with the wisdom of hindsight. In Cackett v Keswick [1902] 2 Ch 456, for example, Farwell J noted (at 463-464) that: "It is easy to be wise after the event, and many men can honestly persuade themselves when a company has failed that they would have been influenced by a circumstance which in all probability would have made no impression whatever on their mind when considering an investment ..." Writing extra-judicially Heydon J has expressed the view that Farwell J's comments have application to questions of causation arising under the Trade Practices Act 1974 (Cth): J D Heydon, Trade Practices Law (Looseleaf Service), at [18.1290]. 186The primary Judge found that the evidence of the Woolworths' executives as to what they would have done had they known that the Council was dealing with Coles, was " sincerely given " but was " undoubtedly coloured by the knowledge that Woolworths was the runner up and that its major competitor was the winner ". His Honour did not ignore the evidence of these witnesses or deem it of no value because it was hypothetical. He formed a judgment, having seen the witnesses, that they honestly believed at the time they gave their evidence that they would have accepted the Council's demands had they known of Coles' involvement. However, his Honour also found that their belief was the product of hindsight and was of little probative value on the critical factual issue. In his Honour's view, that issue had to be resolved after evaluation of Woolworths' behaviour during the negotiations and of other objectively ascertainable facts. 187In my opinion, the primary Judge was quite entitled to take this view of the evidence given by Woolworths' executives. It was consistent with the admonition given in the authorities. More importantly, it rested on his Honour's assessment of their evidence understood in the context of the objective facts. The context included Mr Garmston's insistence, with the support of Mr Oates, on the non-negotiability of any departure from the terms agreed on 20 April 2009, an attitude maintained even after the deadline imposed by the Council had expired. His Honour's treatment of the evidence of Woolworths' executives discloses no error.
Further Findings 188The primary Judge made further findings that were important to his ultimate finding that Woolworths would not have acted any differently even if it had known that the Council was dealing or intended to deal with Coles. His Honour specifically rejected (at [155]) Mr Garmston's evidence that his threat to walk away from the negotiations was not genuinely made. In rejecting Mr Garmston's evidence, the primary Judge had the advantage of seeing Mr Garmston in the witness box and of assessing Mr Garmston's responses when challenged on his " professed lack of sincerity ". 189Mr Smith submitted that it was inherently improbable that Mr Garmston truly regarded the dispute over the Council's contamination contribution as a " deal breaker ". However, there was objective evidence to support his Honour's finding. Mr Garmston's own evidence was that he adopted a " hard approach " to negotiations after the Council had agreed to Woolworths' terms on 20 April 2009. As I have noted, he maintained his " hard approach " on the contamination issue until the very end, even after Mr Leahy's deadline of 4 pm on 29 June 2009 expired . Mr Garmston's email at 8.56 pm on that day, while framed in the language of compromise, insisted on the Council's contribution not being limited to asbestos contamination. The following day, after the Council declined to shift its position, Mr Oates rejected any outcome worse than that previously negotiated with the Council. By this stage, as his Honour found (at [163]), it must have been obvious to Woolworths that the Council would be looking to sell elsewhere. The responses of Mr Garmston and Mr Oates are powerful indications that Mr Garmston's insistence on the terms negotiated on 20 April 2009 was not merely a negotiating tactic that would have been abandoned had Woolworths known that the Council was dealing with Coles. 190Mr Smith advanced an alternative basis for discounting the primary Judge's finding as to the genuineness of Mr Garmston's negotiating position. He submitted that Mr Garmston lacked the authority to bind Woolworths and, accordingly, a finding as to Mr Garmston's state of mind was of little significance. The attitude of Mr Kemmler and Mr Oates, so Mr Smith argued, was more important. 191In cross-examination, Mr Garmston accepted that:
The Property Committee Approval 193Mr Smith placed considerable reliance in his submissions on the approval by Woolworths' Property Committee of the recommendation to acquire the Land (see at [56]-[57] above). He submitted that the approval and supporting documentation demonstrated how important the project was to Woolworths and how unlikely it was that Woolworths would have foregone the opportunity to acquire the Land. The primary Judge did not expressly refer to the approval in his judgment, but this Court was not taken to submissions at the trial that specifically relied on the approval. 194In any event, there are two difficulties with this submission. The first is that the Committee approved the project before the Council changed its position on the scope of any indemnity in respect of contamination on the Land and the amount of levies or contributions required from Woolworths for the development. These were the sticking points in the negotiations which, as his Honour found, provoked Woolworths into intransigence. It is to be remembered that in November 2008, Woolworths had said that it could not afford $470,000 in developer contributions. The Council ultimately agreed to reduce this amount, but the dispute about levies involved sums that Woolworths had insisted were important to the viability of the project. The dispute about the scope of the indemnity proved to be a point of very great significance to Woolworths. 195Secondly, the projections accompanying the recommendation to the Property Committee do not suggest that the project was seen as necessarily particularly profitable. The projections showed an expected internal rate of return of -2.5%, down from a previous estimate of +2.5%. Mr Freiman, the General Manager of Woolworths' Property Finance division, explained that the internal rate of return was calculated by reference to the property related cashflows over a period assuming a theoretical sale at the end of the period. A comparison was then made using Woolworths weighted average cost of capital. A negative internal rate of return indicated that the return from the development was below the " minimum internal hurdle rate ". The negative percentage recorded in the projections therefore indicated that the expected return from the property development was significantly less than the minimum internal hurdle rate. Mr Oates accepted in his evidence that although Woolworths regularly entered projects with a negative internal rate of return, it was not an outcome that Woolworths sought. 196The overall profitability of the proposed project required the income stream from the retail project on the Land and the neighbouring site to be taken into account. While the inclusion of this revenue stream (including the revenue from the Dan Murphy's outlet) was positive, none of the Woolworths' witnesses gave evidence that the project as a whole was seen as particularly profitable by Woolworths' accepted internal standards. Moreover, as Mr Garmston conceded in his evidence, the returns from the project would have been adversely affected by any overrun in the expected costs of the development.
Other Factors 197Mr Smith contended that the primary Judge had given insufficient weight to other objective factors, such as the alacrity with which Coles had seized the opportunity to acquire the Land in mid 2009 and Woolworths' interest in denying its major competitor a strategic site. 198Coles undoubtedly acted with alacrity in mid 2009, once it knew that the Council was free to negotiate with it. However, Coles' decision was based on its own analysis of the costs and benefits of the purchase. This necessarily involved different considerations to those influencing Woolworths. Woolworths own assessment of the project, to which I have already referred, is of more direct relevance to the counterfactual his Honour was required to determine. 199For the reasons I have given, Woolworths' assessment did not indicate that it would acquire the Land even if the Council insisted on departing from terms previously agreed and even if the costs and risks of acquisition exceeded Woolworths' expectations. His Honour found (at [160]) that the Council's intransigence (unprincipled from Woolworths' point of view) required Woolworths, if it was to proceed with the purchase, to pay more for the Land than it had expected. 200It is also no doubt true that Woolworths had an interest in denying Coles a strategic site in Port Macquarie. But it had had that interest for a long time, including when its EOI was unsuccessful in 2006. It continued to have that interest after it became apparent in mid-2009 that the Council would wish to deal with third parties. Yet Woolworths did not seize the opportunity available to it. On the contrary a day after the Council's deadline had expired, Mr Oates was insisting that Woolworths could not agree to a position worse for Woolworths than that previously agreed by the Council. In my opinion, his Honour was fully entitled to weigh Woolworths' failure in the balance in determining whether Woolworths had satisfied him that it would have yielded to the Council's demands had it known that the Council was dealing with Coles. 201The primary Judge took into account that Woolworths' primary position in the litigation was initially that it had an enforceable agreement with the Council for the sale of the Land. The evidence established that this was not merely a stance adopted by Woolworths' legal representatives. Mr Kemmler, for example, accepted that Mr Oates had told him in late June 2009 that he (Mr Oates) was of the opinion that Woolworths had an enforceable agreement. 202Woolworths' invocation of contractual principles in the litigation is not determinative of whether Woolworths would have yielded to the Council's demands if it had known that the Council was dealing with Coles. Nor did his Honour treat it as such. He regarded Woolworths' reliance on an enforceable agreement as providing support for his finding that Woolworths' negotiators saw themselves as taking a stand on a matter of principle. This reasoning seems to me to be unexceptionable.
No Error 203The primary Judge made a number of findings that were based in part on his assessment of the evidence given by the executives of Woolworths. In making these findings, his Honour had the advantage of seeing the witnesses and evaluating the manner in which they gave evidence. There is no basis for overturning these findings: Fox v Percy [2003] HCA 22; 214 CLR 118, at [28]-[29], per Gleeson CJ, Gummow and Kirby JJ. 204The primary Judge, in the light of these findings and the objective evidence, ultimately found that Woolworths would not have accepted the Council's terms even if Woolworths had been aware that the Council was dealing with Coles. In assessing whether his Honour's finding was correct, I am prepared to assume that the approach is that laid down in Warren v Coombes [1979] HCA 9; 142 CLR 531, at 551, per Gibbs ACJ, Jacobs and Murphy JJ. 205On that assumption, there is no basis for interfering with his Honour's finding. Once his Honour regarded the evidence of Woolworths' witnesses as coloured by hindsight and once he found that Mr Garmston had been genuine in telling the Council that the disputed issues were deal breakers, the objective evidence supports his Honour's finding. Woolworths had the opportunity to accept the Council's conditions when it knew that the Council would wish to deal with third parties, but Woolworths never changed its hard line. Woolworths own assessment of the project did not indicate that it would bow to demands that it thought unreasonable or unprincipled, or that substantially reduced the financial attractiveness of the project. Mr Garmston's refusal to accept the Council's terms, encouraged by Mr Oates, was properly characterised by his Honour as a stand on principle, motivated by Mr Garmston's sense of outrage that the Council was resiling from an agreed position. That stand, maintained even after expiration of the Council's deadline, made it unlikely that Woolworths would change position even if it knew Coles was in the picture. 206Woolworths' challenge to his Honour's finding on the counterfactual must be rejected. It follows that the appeal must be dismissed.
Notice of Contention 207In view of the conclusion I have reached on the appeal, it is not necessary to decide whether the Council's challenge to the primary Judge's finding of misleading conduct should succeed. Nonetheless, as the issue was argued I should address it. 208I shall not repeat what has been said about the deficiencies of the pleading or the uncertainty surrounding aspects of Woolworths' case. However, it may be that the deficiencies on the pleading and the uncertainties surrounding Woolworths' case diverted the primary Judge's attention from what seems to me to be the critical issue. This is whether, assuming that Woolworths ever had a reasonable expectation that the Council would inform it if the Council intended to negotiate with a third party, it could have held that expectation on or about 19 May 2009, when the Council decided to negotiate with Coles for the sale of the Land.
Principles 209There was no significant disagreement between the parties to the principles to apply in relation to the notice of contention. Nor was it submitted that the primary Judge had mis-stated the relevant principles. They may be stated briefly: (i) For conduct to be misleading or deceptive it is not necessary that it convey an express or implied representation: Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592, at [32 n 35], per Gleeson CJ, Hayne and Heydon JJ; Miller v BMW , at [15], per French CJ and Kiefel J. It is sufficient that the conduct leads or is likely to lead another party into error: Johnson Tiles Pty Ltd v Esso Australia Ltd [2000] FCA 1572; 104 FCR 564, at [63], per French J (with whom Beaumont and Finkelstein JJ agreed); Miller v BMW , at [15]. (ii) In a case of alleged misleading or deceptive conduct as a result of non-disclosure, it is not necessary to show that the alleged contravenor knew of the facts not disclosed: Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, at 467, per curiam ; Johnson Tiles , at [66]. However, knowledge may be relevant, for example, where disclosure of a fact would reasonably be expected if the fact were known to the alleged contravenor: Johnson Tiles , at [66]. (iii) The question in a case of alleged misleading or deceptive conduct as a result of non-disclosure is whether in the light of all relevant circumstances, there has been conduct which is misleading or deceptive: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, at 41, per Gummow J (with whom Black CJ and Cooper J agreed). While the circumstances in which silence can be characterised as misleading or deceptive cannot be exhaustively defined, unless they give rise to a reasonable expectation that if some relevant fact exists it will be disclosed, mere silence will not support the inference that the fact does exist: Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 46-054, at 53,195, per French J, approved in Demagogue v Ramensky , at 41; Miller v BMW , at [18]. (iv) In commercial dealings between individual entities, the characterisation of conduct must be undertaken by reference to circumstances and context; Miller v BMW , at [20]. The relevant circumstances include the knowledge of the person who claims to have been misled and any common assumptions or practices established between the parties or in the particular activity or business in which they are engaged: Miller v BMW , at [20]. (v) The language of reasonable expectation is not statutory but is an aid to characterising non-disclosure as misleading or deceptive. The judgment as to whether there is such a reasonable expectation is objective: Miller v BMW , at [19]-[20]. (vi) The invocation of a reasonable expectation that if a fact exists it will be disclosed, directs attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs, or high moral expectations that exceed the requirements of the general law or of the prohibition imposed by s 42 of the FT Act : Miller v BMW , at [21]. (vi) In general, s 42 of the FT Act does not require a party to commercial negotiations to volunteer information which will assist the decision-making of the other party. A fortiori , s 42 does not require a party to volunteer information in order to avoid the careless disregard of its own interests of a party of equal bargaining power and competence: Miller v BMW , at [22]. 210The primary Judge made no finding that there was an industry practice that negotiations with the successful bidder in an EOI process would continue on an exclusive basis until the vendor (in the case of a sale of land) notified the bidder that the period of exclusivity was to end. Mr Smith nonetheless submitted that the evidence established that there was such a practice and that it supported the reasonable expectation found by the primary Judge. It is convenient to consider this argument first since it requires reference to evidence of more general significance. 211Mr Smith relied particularly on the evidence of the Coles' executives. However, their evidence must be understood in the context of the terms of the Council's resolution of 18 December 2006 which accepted Coles' EOI. Unlike the Council's resolution of 21 January 2008 accepting Woolworths' EOI, the 2006 resolution expressly required the Council to enter into exclusive negotiations with Coles for the sale of the Land.
Industry Practice 212Mr Kullen, not surprisingly, accepted that if there was an exclusive arrangement between the Council and Coles, he would expect to be told that the Council was negotiating with a third party. That did not carry matters very far and his evidence elsewhere was not particularly helpful to Woolworths: "Q. During May and June 2009 you knew, didn't you, that it would be relevant to Woolworths to know whether or not Coles was interested in the negotiations for this land? A. If they hadn't seen relevance after 16 months it's in anyone's speculation as to what Woolworths would have thought. ... HIS HONOUR: That was a non-answer. Ask the question again ... Q Didn't you in May and June 2009 think that it would be relevant to Woolworths to know that Coles was negotiating with council in relation to this land? A. No, I didn't think that, nor, I disregarded that." 213Mr Boyce said in his evidence that had he learned in 2007, when Coles had an exclusive dealing arrangement with the Council, that the Council was negotiating with other parties, he would have been very concerned. However, as he explained, he would have been concerned because Coles and the Council had agreed to " the commercial terms of the exclusivity ". This lends no support to the industry practice relied on by Mr Smith. 214Mr Boyce also said that he assumed that Woolworths, on the basis of its success with the EOI in early 2008, would have engaged in exclusive negotiations with the Council. His evidence, however, was consistent with Mr Boyce having assumed that Woolworths had negotiated a similar arrangement with the Council as Coles had negotiated a year earlier. Indeed, this is the more likely interpretation of Mr Boyce's evidence, given the following exchanges: "Q. And as you understood the position, council's practice was to inform a party who had the benefit of an exclusive negotiation arrangement that that arrangement was at an end when council sought to deal with other parties in relation to the land? A. That would have been the experience that Coles had in its previous exclusivity with council but I can't speak to the way that council would otherwise have dealt with other parties . Q. Did you make an assumption as to whether council had informed Woolworths that council had proposed to terminate the exclusive negotiation arrangement and negotiate with Coles? A. I assumed that council had informed Woolworths that, in effect, the property was open for negotiation again by both parties and I assumed other parties as well. ... Q. ... when this matter was brought to your attention by Mr Kullen in June of 2007, your understanding was that Woolworths had an exclusive negotiation arrangement with the council, do you agree? A. My understanding was that Woolworths may well have had an exclusive negotiating period with council, but that that must have come to an end. Q. And that is an assumption you made? A. Yes, it is. ... Q. ... At the time Mr Kullen brought the matter to your attention you had assumed that Woolworths had an exclusive negotiation arrangement with council, correct? A. Yes. Q. You didn't know whether that exclusive negotiation arrangement had been brought to an end by council, correct? A. No, I didn't know whether it had been brought to an end by council or whether it had been brought to an end by virtue of the actions that Woolworths might have taken or not taken. Q. So so far as you knew, the exclusive negotiation arrangement may continue in existence? A. So far as I - so far as I know they may, but my assumption from the actions that had been taken was that they were no longer in existence. Q. And the assumption was based upon, is this right, your belief that council would not for so long as the exclusive negotiation arrangement was in existence deal with another party? A. That would be correct, yes. ... Q. Did you say to Mr Kullen, 'Well look, as I understand it, Woolworths had been in an exclusive negotiation arrangement with Coles - sorry, with Woolworths, has that arrangement been brought to an end?'? A. No. The only thing I can recall asking is whether council was free to deal with Coles. Q. And you were intending to ask by that, 'Is there a contract in place which would prevent Coles dealing with council ?'? A. In effect, yes ." (Emphasis added.) 215Mr Leahy of the Council gave this evidence: "Q. It never crossed your mind, did it, in early 2008, that if council accepted one entity's EOI, you might go off and negotiate with another party? A. No, because we would have expected conclusion of this process swiftly and the deal to be completed. Q. In other words, until negotiations broke down with Woolworths you would expect to negotiate exclusively with them? A. Yes." This passage suggests that in early 2008 Mr Leahy did not expect the Council to negotiate with a party other than Woolworths because he expected the process to be concluded rapidly . At no stage in his evidence did Mr Leahy accept that he would expect the period of exclusivity to continue indefinitely or until the Council notified Woolworths that the period of exclusivity would end. 216Mr Leahy explained the position that he adopted in mid-May 2009 in this passage: "Q. Now you say, don't you, that Mr Garmston's use of the term 'deal breaker' was influential in you recommending that council deal with Coles? A. Yes, and us not being able to agree on the contamination issue. Q. And you say, don't you, that you recommended dealing with Coles for the first time in about mid May 2009? A. Yes, I can't be certain of the date, but it would have been around that time. Q And it was because it was in mid May that you had a fear that negotiations were falling over with Woolworths? A. Yes. Q. And you hadn't before May, had you, had the feeling that negotiations were falling over? A. No, and that was based on a conversation both with the administrator and Mr Roach, after their meeting with Woolworths on, approximately, the 20 th of April in which we had a feeling, Jeff and I, that it was a deal completed." 217Later in his evidence Mr Leahy acknowledged that his affidavit did not explain why he had changed his mind in May 2009 about telling Woolworths concerning the discussion with Coles. However, he was cross-examined on this issue and denied that he had considered it necessary or consistent with " Council's value and code of conduct " to tell Woolworths. He said that there was a perceived advantage to the Council in telling Woolworths about Coles, in that the information might put pressure on Woolworths to finalise the deal. However, he also said that there were disadvantages and that the decision not to tell Woolworths was based on an assessment of commercial risks. These included the risk that Woolworths would walk from the negotiations if it knew the Council was dealing with Coles. When pressed as to whether he thought that was a real risk, Mr Leahy said that in " the context of the language and the behaviour of Woolworths " he thought it was. 218Mr Kemmler's evidence was equivocal on the question of whether there was an industry practice of the kind propounded by Mr Smith. Mr Kemmler said that he had assumed, on the basis of Woolworths' success with its EOI and the prolonged period of exclusive negotiations with the Council, that the Council was dealing exclusively with Woolworths. However, he agreed in cross-examination that he did not know whether there had been any separately negotiated option or exclusivity agreement in place between the Council and Woolworths. Mr Kemmler's evidence is consistent with his having made this assumption because he thought that an express exclusivity arrangement had been put in place between the Council and Woolworths. In any event, he never stated in his evidence that there was a practice that the successful party in an EOI process would enjoy an indefinite period of exclusivity until the other party notified it that the exclusivity period was to end. 219Mr Garmston's evidence was even less helpful to Woolworths. Mr Garmston, it will be recalled, had enquired of the Council in late March 2006 whether Woolworths, which had been told that it was the preferred bidder at that time, was to have an exclusivity period of three months. Mr Garmston was cross-examined about this enquiry: "Q. You asked 'do we have an exclusivity period?', didn't you, of Mr Owens? A. There was a discussion about an exclusivity period. I don't recall whether I asked for it or whether Mr Owens or the Council granted it. Q. Can I suggest to you that you did ask for an exclusivity period? A. Possibly. Q. And can I suggest to you that the reason you asked for an exclusivity period was because you appreciated that the mere fact of having had an expression of interest accepted did not give you by reason of that fact alone any certainty that you would be the only party with whom the Council would deal? A. No, that's not correct. Q. Why would you have asked for an exclusivity period otherwise? A. Because I was aware that the expression of interest was to short list Woolworths and then, two, a period of three months would be given to Woolworths to negotiate an acceptable, accepted commercial terms, and if they weren't accepted then the Council advised they had the right to go back to the under bidder. Q. So whether or not you suggested it or not, you regarded it as essential from Woolworths point of view that you had locked in an exclusivity agreement or understanding which would govern your dealings with the Council for a specific time period? A. Correct . Q. And that course of action is entirely consistent with your evidence in relation to an earlier question I asked that negotiating and securing such an agreement or understanding is in fact the only way in commercial property transactions to protect yourself against being gazumped? A. Correct. Q. And is it correct that in the market such agreements are sometimes described as option agreements? A. Yes." (Emphasis added.) Mr Garmston accepted that it was a frequent practice of Woolworths to enter into option agreements or exclusivity deeds to eliminate the risk of " gazumping ". 220Mr Garmston was asked in his cross-examination about the basis of his assumption from early 2008 that the Council would deal only with Woolworths. His evidence was as follows: "Q. You made an assumption from the beginning of 2008 didn't you, that Council was only dealing with Woolworths? A. Yes. Q. And you made that assumption because you assumed that as a matter of your understanding of Council's legal obligations because of the EOI process Council you assumed had first to advise Woolworths that it would deal with another party and pass a resolution to that effect before it could do so? A. In the second EOI you are talking? Q. Yes? A Correct. Q. That was the basis of your assumption? A. Or part of the basis. Q. What do you say was the rest of the basis? A. The actions of the Council over that period in going through an expression, the first expression of interest with both Woolworths and Coles and having no result and then the Council telephoning me asking if Woolworths was still interested in acquiring the land. When I said yes and wanted to open negotiations at a meeting with the Mayor and the Deputy Mayor and general manager they advised me that due to probity issues that they felt they needed to go through an expression of interest and couldn't deal directly with Woolworths. Q. Right, and that together with your understanding of Council's legal obligations were the basis on which you made an assumption that the Council was only dealing - A. Over the course of 2008, 2007 and 2008, yes. Q. And 2009? A. And 2009. Q. Now you agree with this, don't you, that nothing in the Council's call for expressions of interest indicated that Council would or could only deal with one party? A. That is correct. Q. And nothing in the call for an expression of interest said that any party whose expression of interest was accepted was the only party with whom Council was at liberty to deal? A. That's correct. Q. And nothing subsequently received from Council said that Council was only dealing with Woolworths? A. Correct. Q. And nothing subsequently said by any Council officer to you was to the effect that Council was only dealing with Woolworths? A. Correct. Q. And you never asked any Council officer whether Council was dealing with anyone else? A. Correct. Q. You simply assumed it to be the position ? A. That's correct . Q. You also assumed that Coles was no longer interested in the property ? A. Yes ." (Emphasis added.) 221In the light of this evidence, it is impossible to conclude that there was an industry practice that, in the absence of an expressly negotiated period of exclusivity, a potential purchaser whose EOI was accepted by the vendor was entitled to be informed if the vendor intended to negotiate with a third party. No doubt there might be circumstances in which an expectation of that kind, at least for a period, might be created even without an express exclusivity agreement. But the evidence does not establish an industry practice of the kind relied on by Woolworths.
A Reasonable Expectation? 222It is by no means clear that from the outset Woolworths could have had reasonable expectation, objectively assessed, that the Council would inform it of any proposed dealings with third parties. The most significant factors that militate against this conclusion are the following:
CONCLUSION 231Woolworths' appeal should be dismissed. Woolworths should pay the Council's costs of the appeal.
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: 01 July 2011
Fabcot Pty Ltd & Anor
Port Macquarie-Hastings Council
[1998] HCA 55
(1992) 39 FCR 31
(1989) 17 NSWLR 553
(1995) 55 FCR 452
[2003] HCA 22
[2010] HCA 31
[2001] HCA 18