Fabcot Pty Ltd -v- Port Macquarie-Hastings Council [2010] NSWSC 726

Fabcot Pty Ltd -v- Port Macquarie-Hastings Council [2010] NSWSC 726 - NSWSC 2010 case summary — Zoe

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1 HIS HONOUR: This dispute concerns a supermarket development site ("the Land") in Hayward Street in the central business district of Port Macquarie, a large town on the mid-north coast of New South Wales about 420 kilometres north of Sydney. 2 The plaintiffs (collectively "Woolworths") and the second defendant ("Coles") are major Australian supermarket operators. 3 The first defendant ("the Council") is the municipal council and development consent authority for the Port Macquarie-Hastings Shire. It acquired the Land before 1988 and used it as a car park. 4 In November 2007 the Council (for a second time) publicly invited expressions of interest ("EOI") in purchasing and developing the Land. Both Woolworths and Coles responded and the Council accepted a conditional offer from Woolworths. In mid 2009 while it was negotiating with Woolworths, the Council also started negotiating with Coles. The Council deliberately did not tell Woolworths. The negotiations between Woolworths and the Council reached an impasse, and the Council sold to Coles. 5 Woolworths says that the Council's failure to disclose that it was negotiating with another potential buyer was misleading and deceptive or likely to mislead or deceive in contravention of s 42 of the Fair Trading Act 1987 (NSW). Woolworths says that had the Council disclosed to it that it was negotiating with another party, it would have agreed to proceed on the terms required by the Council, and would have bought. Woolworths says that Coles was knowingly concerned in the Council's contravention. 6 Woolworths says it suffered loss by the conduct of the Council and Coles and claims damages. 7 The Council cross-claims against Woolworths saying that Woolworths engaged in conduct which was misleading by holding out that its position was that it would not proceed with the purchase of the Land unless certain conditions were included in the contract, when its true position was otherwise. The Council says that if Woolworths suffered loss by its conduct, it correspondingly suffered loss by Woolworths' conduct, and it claims indemnity.

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33 On about 7 April 2008 Woolworths submitted a Development Application to the Council in respect of the Land and Woolworths' adjoining land. 34 The Council instructed solicitors to commence preparation of a draft contract for sale. A draft was provided to Woolworths on 8 April 2008 and thereafter various drafts were exchanged between Woolworths' solicitors and the Council's solicitors. 35 Between April and November 2008 there were extensive dealings between Woolworths and the Council concerning the proposed development. The Council had a number of problems with Woolworths' Development Application. 36 A common feature of development consents is a requirement imposed upon the developer under provisions of the Environmental Planning and Assessment Act 1979 (NSW) to pay to the consent authority amounts commonly described as developer contributions or levies. These payments are often used to carry out public works, such as water supply and sewerage. 37 On 19 November 2008, the Council sent Woolworths a document entitled "Developer Charges - Estimate" reflecting proposed charges totalling $470,194.80. 38 On 26 November 2008, Mr Garmston of Woolworths wrote to Mr Leahy of the Council as follows: RE: PROPOSED ACQUISITION OF COUNCIL LAND - HAYWARD & GORDON STREETS, PORT MACQUARIE I refer to the current proposal by Woolworths to acquire Council's car park site at Hayward and Gordon Streets for $7 million pursuant to an expression of interest dated 5 December 2007, and to a previous expression of interest and prior negotiation with Council dating back to October 2002. The basis of these 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 own valuation of $5,570,000. I look forward to Council's prompt response. [Emphasis added]

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45 On 7 January 2009, solicitors for the Council wrote to Woolworths' then solicitors (Henry Davis York) requesting Woolworths' acceptance of the terms of the development consent. 46 On 4 February 2009, the Council's solicitors (Marsdens) wrote to Woolworths' solicitors: We refer to our letter dated 15 January 2009. We have been provided with a copy of an Expression of Interest Form completed on behalf of Woolworths Limited by Stephen Garmston. The Expression of Interest Form is dated 10 December 2007. The Section 94A Contribution Plan was reported to the meeting of Port Macquarie Council on 6 August 2007. The proposed plan was placed on exhibition following which it was adopted by Council on 5 November 2007 and commenced on 3 December 2007. The Expressions of Interest for the development of the above property were advertised on 20 November 2007 with a closing date of 13 December 2007. The Expression of Interest Form completed on behalf of your client warrants that your client has made their own enquiries and investigations in relation to those matters which may affect their Expression of Interest. At the same time that the Expression of Interest Form was submitted by your client, the Contribution Plan had commenced and was available to your client. Our client therefore rejects that the Contribution Plan did not exist at the time that your client's Expression of Interest was lodged and that your client did not understand and that there would be no levy imposed. Our client is not prepared to make any adjustment of price. In relation to the contamination issue, our client is not prepared to provide the indemnity requested by you. 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, however, the fill is believed to have been the result of reclamation works undertaken along the Koolonbong Creek foreshore reserve a number of years ago. 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. Please let us know if your client is proceeding with the purchase. 47 On 4 March 2009, Mr Leahy wrote to Mr Garmston informing him of the resolutions that had been passed. With respect to the issue of contamination he wrote: In regards to the contamination indemnity Council is committed to the following intent within the Contract: o "A process to work collaboratively to resolve any contamination issues on Council owned land; o Council to provide an amount of up to $300,000 for any works associated with contamination; and o If works exceeded this amount parties are able to reopen the negotiation process." In this regard instructions will be sent to Council's Solicitors to arrange for these clauses to be addressed within the Contract. Council would appreciate your early consideration of the Contract to enable a speedy exchange. 48 On 1 April 2009, Mr Ireland of Woolworths' solicitors emailed Mr Crittenden of the Council's solicitors as follows: I am instructed that: · Woolworths' [sic] 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.

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60 On about 21 May 2009, Mr Roach spoke on the telephone with Mr Garmston. A file note created by Mr Roach (who did not give evidence) was in evidence. According to the file note Mr Roach conveyed to Mr Garmston that Woolworths was using the contamination issue to stall signing the contracts and he told Mr Garmston to stop stalling and creating issues and sign. The file note ends with the following statement: "Stephen Garmston then brought up several other issues including the bus terminal, stating that they were deal breakers for Woolworths". On 21 May 2009, the Council provided Coles with a copy of the 19 December 2008 development consent given to Woolworths. 61 On 27 May 2009, Mr Garmston sent the following email to Mr Roach: I will be in Port Macquarie tomorrow night - Thursday 28 May - and would like to meet to resolve the contract documentation. Not sure about what time I will arrive but should be around 6.00pm. Could we set aside some time to discuss the following issues - happy to buy you dinner. 1) Agreement to Lease documents - current bus terminal / temporary bus terminal / new bus terminal - this is a new concept arrived today. In principle does not appear to be a concern but does introduce the concept of identifying the temporary bus terminal and deadlines for completion of the development. This now replaces the special conditions in the contract with respect to the bus terminal, temporary bus terminal and permanent bus terminal. I had thought this was covered adaquately [sic] in the developemnt [sic] consent. 2) Development consent now excludes deferred commencement consent which will need to be sorted. 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 [sic] 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. 5) Right of first refusal to Fabcot for the bus terminal if to be sold by Council rejected. This is impoprtant [sic] to Fabcot. 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. Please call to discuss.

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63 On 3 June 2009 Mr Garmston emailed 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. 1) Council letter dated 24 April 2009 confirming Council's resolution to increase the monetary indemnity for any contamination to $500,000. 2) Report to Council Meeting 25 February 2009 addressing Woolworths request for an indemnity in relation to any contamination and recommendation to work collaboratively to resolve any contamination and provide an amount of up to $300,000 for any works associated with contamination. 3) File notes of our meeting at Sydney Airport on 20 February 2009 where Paul Oates introduced the concept of a capped liability up to $500,000 for the cost of removal/containment of contamination. Andrew, it is my recollection that our meeting with Gary Payne in our offices on 20 April 2009 was to discuss and agree the amount of capped Council liability, not the definition of contamination, as this had never been raised before. This is also Paul Oates recollection. Hope this helps. 64 On the same day Mr Roach responded relevantly as follows: I agree with your thoughts that we need to sit in a room and sort this out urgently. Is it possible that you can arrange to meet with me and my relevant staff here in Port to finalise the matter. I can reschedule time after Tuesday 12pm, Wednesday or Thursday. 65 On 4 June 2009, Mr Garmston wrote to Mr Roach as follows: Unfortunately our position in relation to the contamination issue is non-negotiable, and this would appear to be the major sticking point (i.e. Council to be responsible for any contamination on its land up to a maximum amount of $500,000 but excluding any contamination which may have leached from the adjoining Fabcot land). I am sure all the other issues can be resolved and I would suggest the best and quickest way is to have a round table conference with both sets of lawyers in attendance to document what is agreed. As both sets of lawyers are in Sydney it may be best to have the meeting in Sydney, or alternatively a conference by phone hook up. If necessary we could all come up to Port Macquarie, but we need to clear up the misunderstanding on contamination first.

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COUNCIL OFFICER: Yes. There is no binding position with Woolworths. 67 Also on 5 June 2009, the Council (Mr Roach) wrote to Coles (Mr Parkinson) relevantly as follows: Re: Council Land - Hayward /Gordon Streets, Port Macquarie, NSW Reference is made to your letter dated the 3rd June 2009 and recent discussions between your Walter Kullen and Council's Director of Corporate & Business Services Tony Leahy and Jeff Walton. I have received advice from the above Council Officers of the outcome of a meeting held yesterday with Mr Kullen regarding the possible sale of this land to the Coles Group. I understand the discussions were frank and productive. Following consideration of the matters raised in your correspondence and the outcome of the abovementioned discussions, I am prepared to recommend to Council's Administrator that the land be sold to the Coles Group on the following basis: · Contracts are subject to Coles Board and Council approval. Both approval timeframes are to be clearly agreed in exchange of letters of intent by 12th June 2009. · Purchase Price: $7.0m plus GST (if any). · Contracts to be prepared on a "proceed to completion" basis. That is, it is neither parties intent to withdraw from the transaction. · The completed Development Application, to the satisfaction of Council, is to be lodged by no later than the 30th June 2009. Council gives an undertaking to determine the application within 62 days from lodgement. · The approval to incorporate 154 public car parking spaces for the benefit of Council plus a bus terminal and public facilities to the satisfaction of Council, in accordance with draft Contracts already provided. · Upon completion of the Bus Terminal reconstruction, the Terminal is to be subdivided and transferred back to Council ownership at no cost to the vendor. · Ongoing management of the 154 public car parking spaces is to be agreed between both parties. · Payment terms to include the following:- a) 10% deposit ($700K plus GST if applicable) to be paid on exchange of formal contracts of sale. b) Funds to be held in trust with interest received shared by both parties until release of deposit. c) The balance will be paid on settlement (proposed to be by the 31st August 2009) d) The deposit will be released to the Vendor upon Coles Board's consent to the exchange of Contracts.

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Development application 4. Subject to Council providing the necessary details of its required works, Coles will prepare the development application, to which Council (as landowner) will not unreasonably withhold or delay its consent, and Coles will use its best endeavours to submit the development application on or before 30 June 2009. The Council, as landowner, will provide all necessary consents to enable Coles to submit the Development Application. Completion of the contract will need to be conditional on a development consent being granted on conditions that allow Coles to carry out the works contemplated by Coles (in the manner contemplated by Coles), and the works required by Council to construct the bus terminal, public amenities and car park, and to undertake a 2 lot subdivision as contemplated in paragraph 6 below. Release of deposit 5. As the contract is conditional, the release of the deposit should not occur until the contract becomes unconditional. In the event that Coles terminates the contract the deposit will be refunded to Coles and any interest received shared by both parties. Subdivision 6. The contract will need to include provisions permitting Coles to create easements and any other covenants or restrictions required to effect the 2 lot subdivision. Following registration of the subdivision plan, the lot on which the bus terminal is situated will be transferred to Council for nominal consideration of $1.00. Remediation 7. From the date of receipt of acceptance of the terms of this letter by Council, Council will provide Coles with access to the Property to carry out a legal and physical due diligence. Completion of the contract will need to be conditional on Coles' environmental investigations confirming that the property is not contaminated (except to the extent indicated in paragraph 8). 8. The in-kind contribution to remediation of contamination of $300,000 must be GST-exclusive. Council will need to reimburse Coles for any resulting GST liability (and Coles will provide a tax invoice). 9. Coles agreement to proceed in accordance with this letter is on the understanding that Council has disclosed or will immediately after the date of this letter disclose to Coles all material documents and other information which Council has or is aware of concerning contamination of the Property. This offer and all communications prior to and subsequent to this offer concerning the sale of the property are confidential to the parties and their professional advisers, and must not be disclosed to any other person unless required by law. On receipt of this letter signed by or behalf [sic] of the Council, it is the intent of the parties to be bound by this letter so that we can proceed to due diligence, progress finalisation of the Development Application and prepare Board papers for submission to our Board for approval. We hope that you appreciate the commercial reasons for our desire to proceed in this manner. We are committed to transacting with Council as soon as possible, however, you would appreciate the need for a period of time to complete a reasonable due diligence given that the other party that you have been dealing with has had 12 months or more to do such work. Yours sincerely

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96 At 3:45pm Coles' solicitors sent a draft contract for the sale of the Land to the Council's solicitors. 97 At 4:32pm Mr Roach emailed Mr Leahy with instructions to sign the contracts the moment they arrived. The Council Sells the Land to Coles, Informs Woolworths and Subsequent Events 98 On 1 July 2009, the Council and Coles signed and exchanged contracts for the sale of the Land. 99 On 2 July 2009, Woolworths was informed by the Council that it was no longer proceeding with the sale of the Land to Woolworths. On 2 July 2009, Woolworths (Mr Oates) wrote to the Council as follows: This is a very serious matter. We do not accept that the terms of the Contract have not been settled, negotiations over the standard and minor issue of contamination on the site is not an unusual or uncommon term of a Contract For Sale. This is not a complex issue. Woolworths have been negotiating in good faith and in accordance with Council's resolution, written correspondence and the EOI. We are ready to proceed with the project. Woolworths were awarded the EOl by Council, we have been issued a DA from Council, we have designed and documented the project, we have tendered the construction of the project and are ready to award a building contract. We have incurred significant costs not limited to the purchase of other land, legal fees, consultants' fees, due diligence, site investigations and management time. We have suffered significant losses not limited to the loss of profit and cost in not proceeding with the Dan Murphy's and the refurbishment of the Food For Less supermarket. We will be seeking immediate legal representation in order to enforce the agreement we have with Council. Further we have requested a meeting with Minister Keneally to resolve this matter urgently. We are concerned that this unusual course of action by Council is likely to lead to expensive and lengthy litigation, rather than investment and jobs for Port Macquarie. We urge Council to immediately reconsider its position and confirm that it will be proceeding with this matter by no later than 10am Friday 3 July 2009. In the interim we reserve all rights against Council.

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Principles 105 The following precepts have been established by authorities which bind me: a conduct is misleading or deceptive within s 42(1) of the Act if it induces or is capable of inducing error; b whether conduct is misleading or deceptive is a question of fact; c intention to mislead is not necessary; d silence can be misleading or deceptive even if there is no duty to reveal relevant facts. Unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, mere silence does not support the inference that that fact does exist; e if the circumstances are such that a person is entitled to believe that a relevant matter affecting him, her or it would, if it existed, be communicated, then the failure to communicate it may constitute conduct which is misleading or deceptive because the person who ultimately may act to his, her or its detriment is entitled to infer from the silence that no danger or detriment existed; f in order to be "knowingly concerned" in a contravention a person must have knowledge of the essential facts constituting the contravention; g "knowingly" means actual and not constructive knowledge. A person may have knowledge where he shuts his eyes to the obvious or deliberately refrains from making enquiries where a reasonably sensible person would do so; h the knowledge of a company is the aggregate of the knowledge of the person or persons so closely and relevantly connected with the company that the state of mind of those persons can be treated as being identified with the company; i in order to recover damage the plaintiff must prove that loss of damage suffered was "by" conduct in breach of the Act. This means that the loss must be caused by the conduct complained of. Whether that is the case is to be determined by approaching the matter in a common sense and practical way; j a plaintiff bears the onus of proving its loss; k damages for deprivation of a commercial opportunity arising by virtue of a breach of s 42 are ascertained by an assessment of the probability of success of that opportunity had it been pursued; l where future or hypothetical events must be taken account of in assessing damages and proof of them is necessarily unattainable, the Court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect that degree of probability.

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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 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. 118 It seeks to hold both the Council and Coles responsible for this loss. 119 It is not necessary at this stage to say anything further with respect to the Council's cross-claim. 120 Although the manner in which Woolworths ultimately framed its case involved a departure from the pleadings, this was made clear by senior counsel during his opening. The departure involved no prejudice to the Council or Coles given that it was in substance a narrowing of the case. A perfunctory submission was made on behalf of the Council that it had not "waived its entitlement to have Woolworths held to its pleaded case" but this was not developed and was unsustainable. Coles made no complaint. 121 The Council and Coles dispute that the non-disclosure was misleading or deceptive. They dispute that Woolworths would have acted as it says it would have, had the disclosure been made. They dispute that even if Woolworths would have acted as it says, that it suffered any damage. Coles disputes that it had knowledge of the essential facts constituting any contravention. 122 The issues which arise for consideration, and with which I will deal in turn are accordingly the following: 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 Act; b if so, whether Coles was knowingly involved in the contravention; c whether Woolworths suffered any loss by the conduct complained of, and if so the quantum of its loss; and d the Council's cross-claim.

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126 The Council (supported by Coles) puts as factors militating against such an expectation that: 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. 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.

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147 The evidence of the Woolworths officers as to what they would have done is of course hypothetical. It is in substance no different from the hypothetical type of evidence which McHugh J described in relation to medical issue cases in Chappel v Hart (1998) 195 CLR 232. At [32] in footnote (64) his Honour said: Human nature being what it is, most plaintiffs will genuinely believe that, if he or she had been given an option that would or might have avoided the injury, the option would have been taken. In determining the reliability of the plaintiff's evidence in jurisdictions where the subjective test operates, therefore, demeanour can play little part in accepting the plaintiff's evidence. It may be a ground for rejecting the plaintiff's evidence. But given that most plaintiffs will genuinely believe that they would have taken another option, if presented to them, the reliability of their evidence can only be determined by reference to objective factors, particularly the attitude and conduct of the plaintiff at or about the time when the breach of duty occurred. 148 In Rosenberg v Percival (2001) 205 CLR 434, in the context of what a patient would have done in the face of a warning about a pending operation McHugh J said the following at 449: [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. 149 In a similar context in Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 Samuels AJ said at 581: It is, of course, true that a patient's evidence about what he or she would have done if told of certain risks may be coloured by the fact that the risks did in fact eventuate; but it is open to a court to disbelieve evidence found to be tainted by hindsight: Manderson, 'Following Doctors' Orders: Informed Consent in Australia' (1988) 62 ALJ 430 at 434. Obviously, in endeavouring to ascertain what the plaintiff's response would have been to adequate information had it been conveyed at the appropriate time, a court will be greatly assisted by evidence of the plaintiff's temperament, the course of any prior treatment for the same or a like condition, the nature of the relationship between patient and doctor including pre-eminently, so far as it can be established, the degree of trust reposed in the doctor by the patient. The extent to which the procedure was elective or imposed by circumstantial exigency and the nature and degree of the risk involved will all be matters of considerable importance: see Robertson, 'Informed Consent to Medical Treatment' (1981) 97 LQR 102 at 122.

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156 Secondly, Woolworths' initial reaction (reflected in its original pleaded case) was that it had a binding agreement with the Council. This is inimical to the conclusion that Woolworths would have capitulated rather than have taken the stance that it in fact did, after it found out about Coles. 157 Thirdly, Woolworths' tough negotiating stance on the two issues upon which the negotiations foundered was taken against the background that the Council had done a volte-face on developer contributions and, as Woolworths saw it, changed position on contamination. 158 On 25 February 2009, the Council had resolved to waive developer contributions and having written to Woolworths on 17 June 2009, then somewhat remarkably took the position in its letter dated 26 June 2009 that payment of a developer contribution was required. The Council also changed its position on contamination. Its original position was not restricted to an indemnity on asbestos. Woolworths was to my mind justifiably disgruntled by these changes and dug its heels in. 159 When on 19 November 2008 the Council first foreshadowed its intention to levy development contributions, Woolworths reacted (in its letter dated 26 November 2008) saying that it could not "afford to absorb a further $470,000 in developer contributions on the project". 160 The Woolworths witnesses were cross-examined about this letter and it was put that it reflected a reality that Woolworths could not afford the amount. Their credit was attacked when they pointed out that Woolworths is a substantial entity which could well afford the figure mentioned and pay it if it wanted to. The credit attack failed not least of all because clearly the statement was not to be taken literally. But what it did show was that Woolworths' assessment of the project, on its merits, was that commercially it could not bear the additional impost. Even recognising that the amount which the Council ultimately wished to levy was less, it was still more than Woolworths anticipated paying. 161 The evidence of the Woolworths witnesses was that in financial terms the difference in position was insignificant having regard to the value of the commercial opportunity both positively (if it got it) and negatively (if it went to its major competitor). The contamination issue was more significant (so much so that - as the minutes of the 25 June 2009 meeting reflect - Woolworths wanted the ability to do testing between exchange and completion with a right of rescission or to have a conditional contract and then undertake a site audit statement). 162 Even accepting that in real terms the difference between the parties' position, for a corporation of the size of Woolworths, may not have been significant, Woolworths was standing firm on a position of principle. The repeated use of the term "deal breaker" left no doubt that it was prepared to walk away. I am not satisfied that Woolworths would have forsaken its principles even had it been informed that its position was no longer exclusive or that Coles was in the wings. I do not think that Woolworths' position was mere brinkmanship as it now would have it.

[194]

163 By the end of June 2009 it had become obvious that the Council was not going to shift and Woolworths had made it clear that it was not going to do so either. At the 25 June 2009 meeting, Mr Garmston advised that the Council's position on contamination was a deal breaker, that Woolworths had never agreed to limit the Council's liability to asbestos and would not agree to this. His position could not have been clearer. Woolworths was accordingly prepared to lose the transaction for what it now says was an insignificant financial consideration. True, its position was taken in ignorance of the Council's dealings with Coles, and on a basis of an expectation that they were negotiating exclusively, but once the negotiations had become deadlocked because of the intractability of both parties, it is obvious that the Council would wish to sell elsewhere. 164 Mr Roach's 30 June 2009 email reflects a consciousness that the project was at the risk of derailment. He went on to express a loss as to why the Council appeared to be changing its position and called for another meeting. Even then Woolworths did not change its position. His avowed happiness "to be flexible" does not sit easily with the reality of Woolworths' intractability. 165 In all the circumstances, I do not accept that if Woolworths had been told Coles was in the wings it would have propelled it to capitulate. 166 Woolworths has fallen well short of establishing that it would have capitulated on the two contentious issues. 167 It follows that Woolworths has failed to establish that it suffered any loss by the Council's conduct and its claim therefore fails. 168 It also follows that it is unnecessary to consider what the chances were of the Council selling to Woolworths even if it had capitulated. I will nevertheless do so. 169 Woolworths puts that its chances were extremely high and that only a modest discount of 10 per cent should apply to its damages to reflect this uncertainty. 170 Coles puts that Woolworths' prospects should be assessed "at something in the order of 40%" (namely there should be a discount of 60 per cent). 171 Coles submits that even if Woolworths had changed its position there was a prospect that Woolworths might not have moved fast enough and that Coles would nevertheless have succeeded. The facts demonstrate the speed with which Coles did in fact move. In contrast, as late as 23 June 2009, Woolworths was saying that completion by 30 June was looking difficult and was foreshadowing due diligence of two to three weeks in respect of contamination. 172 Coles puts that Woolworths' prospects would have been dented by the recent ill will between it and the Council and that at best it would have been a closely run two horse race. 173 I attach little weight to the submission of ill will because the Council nevertheless gave Woolworths the opportunity of buying right up and until 4pm on 29 June 2009. However, I also consider it from certain that Woolworths would have moved swiftly enough to clinch the deal. In all the circumstances I think there is a better, but not much better, than even chance that Woolworths would have succeeded, which I would assess at 55 per cent. I accordingly would have discounted any damages Woolworths had suffered by 45 per cent. 174 It follows further that it is unnecessary to consider whether Coles were knowingly involved in the Council's contravention of s 42(1) of the Act. I will nevertheless consider that matter.

[195]

175 Woolworths puts that Coles had knowledge of the essential elements of the Council's contravention which it articulated as: a causing a reasonable expectation in Woolworths that the Council would tell Woolworths if the Council was negotiating with a third party for sale of the Land; and b on or after 18 May 2009, deciding not to inform Woolworths that it was negotiating with Coles. 176 Woolworths puts as establishing the requisite on the part of Coles the following: a Coles began negotiating with the Council on 18 May 2009; b Coles believed that Woolworths had an exclusive negotiating arrangement with the Council which, if not brought to an end, would require the Council to tell Woolworths of its proposal to negotiate with Coles; c Coles believed as late as 18 June 2009, that Woolworths had not been told of Coles' involvement. Mr Pepperell's email is the best objective evidence of that belief; d Coles took no steps to ask the obvious questions: i. has Woolworths been told of Coles' interest? ii. has the exclusive negotiation period been brought to an end? e all that Coles was concerned to know was whether the Council was contractually free to sell the Land to Woolworths. This was Mr Boyce's concern; f the question which Ms Ginnifer asked the Council on 5 June 2009 was not directed to whether Woolworths had been told of Coles' interest, or whether Woolworths' exclusive dealing period had terminated; g Coles did not want to ask those questions because it did not want the Council to have to tell Woolworths of Coles' interest, and it did not want to know if the Council had not told Woolworths; h Coles' Senior Property Officers are sophisticated businessmen, who had the benefit of considered legal advice; i Coles was guilty of wilful blindness where Coles believed Woolworths had not been told, and where Coles knew that Woolworths would expect to be told if the Council was negotiating with a third party. The question Ms. Ginifer asked was not directed to finding out the position with Woolworths and its form was deliberate so as to not obtain the true picture. Attention was drawn to the fact that Ms Ginifer was not called; j the reliance which Messrs Boyce and Parkinson placed on the Council's statement that there was no binding position with Woolworths does not negative knowledge of the essential elements of the Council's contravention. If it does, then Coles had knowledge of the essential elements of the contravention before 5 June 2009, and was party to the Council's contravention up to that time.

[196]

177 Woolworths puts additionally as supporting the proposition that Coles knew (or had no basis for believing otherwise) that Woolworths had not been told that the Council was dealing with another party, Coles' own requirements for confidentiality and its request (albeit unrequited) of the Council for a confidentiality provision. 178 In my view Woolworths fell well short of establishing that Coles at any time (both before and after 5 June 2009) knew of any failure on the part of the Council to meet any expectation in Woolworths that it would be told that the Council was negotiating with another or that Woolworths' position was not exclusive. 179 Coles knew that the Council had been negotiating with Woolworths pursuant to the Council's EOI procedure but Coles was told very little about the Council's dealings with Woolworths, and one would not expect the Council to have revealed this anyway. Coles did not know of the state of negotiations between the Council and Woolworths. Even assuming that Coles knew or believed that at some point the Council was negotiating exclusively with Woolworths, Coles did not know that the Council had not disclosed to Woolworths that its position was no longer exclusive. The Council declined Coles' request for a confidentiality provision. Moreover, Mr Parkinson gave evidence (which I accept) that he took from the Council's statement in its 18 June 2009 letter: Please be advised that a Contract of Sale with similar conditions will be provided to the other party tomorrow. You should also note that Council will proceed with the party that lodges first, their duly signed Contact of Sale with Council in preparation for an exchange of Contracts that the other party would have been given the same information as Coles. Mr Boyce's evidence (which I also accept) was that he assumed that Woolworths would have got a similar letter advising them that "effectively this was a two horse race". Coles was not to know that the Council was not acting even-handedly, on one view even duplicitously. 180 Woolworths' submissions placed heavy emphasis on the statement by Mr Pepperell in his 18 June 2009 email: I have no doubt that unless we move swiftly to secure the acquisition and manage the risks strategicly [sic] to achieve this that WWs will become aware of the game and the window of opportunity will close very quickly as establishing knowledge or belief on the part of Coles that Woolworths had not been told that Coles or some other third party was now in the picture. Mr Pepperell's evidence (which I accept) was that his comment was directed to the terms of the transaction rather than awareness on the part of Woolworths that Coles were in the picture.

[208]

204 They differed on the appropriate discount rate. 205 Woolworths itself adopts as its weighted average cost of capital 7.78 per cent. This is the rate that Ms Wright adopted. There is some support for the rate from the unchallenged evidence given by Mr David Freiman, Woolworths' General Manager Property Finance who described this rate as a benchmark which Woolworths uses as a minimum hurdle rate. 206 Ms Wheatley on the other hand carried out her own assessment of the rate starting in a conventional manner with a risk free rate, and applying to it a company beta. She then adjusted for weighting on the basis of Woolworths' actual market capitalisation and debt reaching a range of 10.47 - 10.52 per cent of which she adopted the midpoint of 10.49 per cent and then made a risk adjustment for the specific project. The risk adjustment was a range between 2.13 per cent and 3.18 per cent reaching a midpoint WACC of 13.15 per cent. 207 The risk free rate which she adopted was 6.45 per cent. However evidence before the Court was that the risk free rate as at October 2008 was in fact 5.22 per cent. 208 Ms Wheatley was challenged on her methodology in taking Woolworths' actual figures for equity (91 per cent) and debt (9 per cent) rather than adopting a weighting based on the level of debt an enterprise such as Woolworths could reasonably sustain, as one respective textbook writer suggests. Her evidence was that the methodology she adopted was the preferable one in the circumstances and there is no basis on the evidence to find otherwise. 209 I also accept her evidence that an adjustment is required to take into account the risk specific to this particular project rather than adoption (as Woolworths would have it) of a rate based on the entirety of its very substantial enterprise. 210 The conclusion which I reach is that the rate that should be adopted is in accordance with Ms Wheatley's methodology but adjusted so as to have a starting point of a risk free rate of 5.22 per cent and not the 6.45 per cent she adopted. Miscellaneous 211 The Council put a submission that Woolworths has not established any loss because the integrated development involved significantly greater budgeted expenditure than the development with which Woolworths will proceed and that Woolworths' quantification does not take account of the return Woolworths could generate on the difference. I do not accept this submission. It proceeds on the unestablished assumption that because Woolworths budgeted for a greater expenditure it has (or at the relevant times had) an amount equivalent to the budgeted shortfall readily available for investment which it has the opportunity to invest elsewhere. It also fails to take into account the economic costs of such funds as well as the particular risks of any investments Woolworths might make with such funds if it otherwise had them standing idle. 212 Coles put a submission that there should be deducted from Woolworths' loss the cost to be incurred by Woolworths in refurbishing the Food for Less on the basis that the refurbished premises should be treated as having been realised in the same way as the experts treated the integrated development in order to assess its terminal value. Coles put that only the value of the refurbishment should be treated as having been realised because Woolworths owned the Food for Less site beforehand. I would also reject this submission. The refurbishment of the Food for Less is a reality, not a hypothesis. There is no suggestion that Woolworths will not continue to hold the Food for Less property nor is there any reason to suggest that the value of the refurbishment would be any less than Woolworths spends on it. THE COUNCIL'S CROSS-CLAIM 213 It follows from what has been said above that the Council was not misled by anything said or done by Woolworths and if it was, it has suffered no loss. Accordingly its cross-claim must fail.

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Judgment (216 paragraphs)

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