Fiuggi Holdings Pty Ltd v Lamrocks Legal Pty Ltd trading as Lamrocks Solicitors and Attorneys; Actively Zoned Pty Ltd v Lamrocks Legal Pty Ltd trading as Lamrocks Solicitors and Attorneys

Judgment 1Messrs Joe Grassi, Dillon Morley, Arthur Fogarty and Steve Groves were in 2006 shareholders and directors of Lamrocks Legal Pty Ltd trading as Lamrocks Solicitors and Attorneys ("Lamrocks"), a law firm in Penrith, New South Wales. Mr Eric McCall had for a number of years utilised the services of Lamrocks using Mr Grassi. Mr McCall, a licensed electrician, had engaged in property development and for that purpose had utilised several corporate vehicles. In 2006 and 2007, he was relevantly the principal shareholder and director of, respectively, Fiuggi Holdings Pty Ltd ("Fiuggi") and Actively Zoned Pty Ltd ("AZPL"), the plaintiffs in these proceedings. 2The partners of Lamrocks were beneficiaries under a private trust fund, the Lamlaw Property Investment Trust, and its trustee was Lamlaw Nominees Pty Ltd ("Lamlaw"). 3In 2006, Fiuggi purchased a property in High Street of the Penrith central business district ("the High Street property") with the intention of constructing a three or four storey building on the site. Fiuggi's case is that it wanted to presell three of the four floors, if the application for four was approved, in order to reduce the risk to Fiuggi and to improve the prospect of bank finance for the construction. Mr McCall says that Mr Grassi told him that Lamrocks wanted to purchase two floors of the building, levels three and four, with a view to occupying level three and leasing out level four. A put and call option between Fiuggi and Lamlaw was entered into in March 2007 for level three and separately, at the same time, for level four. Fiuggi informed the bank of these two put and call options (and a lease/option in favour of an accounting firm) and the bank lent to Fiuggi an amount of $4.97 M required for development: see Exhibit 1 at Tab 2. The High Street property, when it was purchased by Fiuggi, already had two buildings on it. One was leased to the New South Wales Department of Community Services ("DoCS"), which I shall refer to as "the DoCS building". The DoCS building was not part of the redevelopment work. The other building was demolished as part of the redevelopment. 4Fiuggi claims that Lamrocks placed itself in a position of conflict of interest in which it could not discharge its fiduciary duties to Fiuggi in that not only was Lamrocks acting for both Fiuggi and Lamlaw in drafting the put and call options but the partners, as shareholders in Lamrocks, had a personal interest in Lamlaw. 5Fiuggi claims that the put and call options were drawn favourably to Lamlaw in that: (1)there was no requirement for payment of any amount; (2)the period granted to Lamlaw was overly generous; and (3)no guarantee was required. 6Fiuggi also relies on the fact that there was no information to indicate that Lamlaw had financial resources of its own to meet the obligation to purchase the two floors if called on to do so by Fiuggi. 7The put and call options were executed on 13 March 2007 on behalf of Fiuggi by Mr McCall and his wife, Mrs Jillian Kay McCall, and on behalf of Lamlaw by Messrs Grassi and Morley. The National Australia Bank ("NAB") was provided with a copy of the two deeds and it approved the construction finance loan. 8In March 2008, Mr Grassi told Mr McCall that Lamlaw would not be proceeding with the purchase. Fiuggi issued a 'put' notice to Lamlaw but Lamlaw refused to sign a contract as it was contractually bound to do and indeed Lamlaw asserted that the put and call option executed by two directors of Lamlaw on its behalf (Messrs Grassi and Morley) was executed without authority. 9AZPL's claim is closely linked to Fiuggi's claim. Mr McCall controls the company and is its sole shareholder. AZPL entered into a contract to purchase land for development of a leisure centre. It was Mr McCall's intention to fund the purchase out of sale proceeds from the High Street property. When it was made clear that the Lamlaw sale would not proceed AZPL's position with NAB became very difficult. AZPL was forced to sell the leisure centre property at a loss and it claims that loss plus additional costs arising out of its precarious financial position. AZPL claims that Mr McCall told Mr Grassi that the purchase price (deferred for three months) was to be paid out of Fiuggi's development of the High Street property and AZPL claims approximately $2.7 M from Lamrocks by reason of its failure to inform AZPL that it would not be proceeding with the purchase of levels three and four when it knew that there was no genuine intention so to do. AZPL's case is based on breach of fiduciary duty and on breach of the Competition and Consumer Act 2010 (Cth). 10In the course of submissions, the defendant conceded that it was liable to AZPL in the amount claimed and judgment was entered in the amount of $2,783,409 and an order for costs was made in AZPL's favour. The fact that AZPL proceeded with the purchase of the land and suffered loss by reason of it remains of potential relevance to the claims that Fiuggi brings for reasons to which I shall later return. 11Affidavits were filed on behalf of Lamrocks by Mr Grassi and other partners which set out a different version of what had occurred to that deposed to by Mr McCall, including an assertion by Mr Grassi that he had advised Mr McCall to seek independent advice and an assertion that he told Mr McCall before the deeds were executed that they were conditional on: (1)the agreement of his partners; (2)the availability of finance; and (3)Lamlaw securing a tenant for the fourth floor. At the close of the plaintiff's case, however, the defendant chose not to read those affidavits. There was no documentary evidence which supported the case that the defendants had advanced as to the advice and qualifications to which the affidavits of Messrs Grassi and Morley and cross examination of Mr McCall referred. 12Having regard to the absence of any evidence disputing Mr McCall's version of events and also to the fact that there was nothing about his evidence or his manner of giving evidence that lead me to think he was anything but entirely truthful, I unreservedly accept Mr McCall's evidence. 13It follows, in my view, and this was conceded by the defendant, that the plaintiff has established that Lamrocks breached its fiduciary duty to Fiuggi by failing to advise Fiuggi that it had to obtain independent advice and by proceeding to draft documentation wholly favourable to Lamlaw without advising Fiuggi that the put and call options were of little or no value to Fiuggi. That Mr McCall trusted Mr Grassi to look after his and Fiuggi's interests is incontrovertible. That Mr Grassi looked after his and Lamrocks' and Lamlaw's interests at the expense of Fiuggi and Mr McCall is equally apparent. No minutes of Lamlaw approving the purchase were in evidence and Messrs Grassi and Morley's authority to enter into the transaction was denied by Lamlaw: see letter of Goldbergs Lawyers in Exhibit A3 at p 929. It is behaviour of a kind that raises serious questions as to the integrity of Mr Grassi and also Mr Morley, who on behalf of Lamlaw, and together with Mr Grassi, executed the put and call options in the presence of Mr and Mrs McCall. I propose to invite submissions on whether or not this matter should be referred to the Office of the Legal Services Commissioner. Damages 14Fiuggi claims that as a result of the actions of Lamrocks, it took levels three and four off the market and it is clear that it did. In March 2008, Mr Grassi told Mr McCall that Lamlaw would not be proceeding but that he hoped to put together a consortium which would buy the property and he continued with this until approximately 24 April 2008 when he said to Mr McCall: "You need to find a buyer. The contracts are not worth the paper they are written on. They are not guaranteed." (see Mr McCall's principal affidavit sworn 9 September 2010 at par 70) 15On 9 September 2008, Lamlaw, through its solicitors, advised that it did not accept liability under the put and call options and on or before 5 November 2008, Lamlaw failed to execute a contract within the period specified in the notice sent: see letter of Goldberg's Lawyers in Exhibit A3 at p 929 and letter of Burston Cole & Mulock Pty Ltd at pp 983 - 984. 16Fiuggi sought to market levels three and four but by September 2008 the phenomenon that became known as the global financial crisis ("GFC") had commenced to manifest itself and buyers and finance became scarce. The NAB pressured Fiuggi to sell the property, which it did in August 2010, achieving a figure of $6.05 M on 20 July 2010, of which $1,744,758, it is agreed, is attributable to levels three and four. 17Fiuggi's claim has these elements: (1)the difference between the contract price payable by Lamlaw of $5.14 M and the value attributable to levels three and four of $1,744,758 on sale in 2010, that is, $3,395,242 ("Item 1"); (2)interest and associated bank costs referable to the $5.14 M which Fiuggi did not receive, as it should have ("Item 2"); (3)the loss of rent (net of outgoings) after servicing of the NAB debt as set out in Annexure B of the report of Mr Terence Slattery dated 28 August 2012 but only from 1 August 2010 when all rent-producing properties were sold and after subtracting rent receivable on level three, which had been let to State Superannuation - projected to 30 September 2012, this is calculated at $247,370 ("Item 3"); (4)interest on Item (3) of $49,474 ("Item 4"); (5)an ongoing loss of rent at $117,000 per annum for five years at a discount rate of three per cent, which the plaintiff calculates at $545,850 ("Item 5"); (6)loss of capital gain on four properties of $741,992 ("Item 6"); (7)loss incurred on the sale of another property at Andrews Road of $491,000 but agreed in the course of submissions at $400,000 including interest ("Item 7"); and (8)the cost of a report by Deloitte which the NAB required Fiuggi to obtain and pay for ($70,437) ("Item 8"). Items 1 and 2: Loss attributable levels three and four 18I have referred to the use in this calculation of the figure that Lamlaw agreed to buy the property for. Fiuggi accepts that it cannot recover an expectation loss against Lamrocks, that is, the loss that it would have recovered if the Lamlaw deal had proceeded. It submits, however, that had the Lamlaw deal not proceeded, the "overwhelming probability" (see T190.4) would have been that Fiuggi would have found a buyer or buyers for levels three and four who would have paid the same amount as Lamlaw was prepared to pay. 19Lamrocks submitted that the Court should not accept that Fiuggi would have found a buyer at $5.14 M for the following reasons: (1)The transaction was exceptional and should be seen as "somewhat idiosyncratic" in that Mr Grassi wanted Lamrocks to buy premises rather than lease and he only sought the opinion of Mr M Grassi after he had agreed to pay a total of $5.14 M: see the defendants' outline of submissions dated 24 September 2012 at par 10. (2)If Lamlaw had no resources and there was no guarantee by directors, a high purchase price could be agreed without risk. (3)A valuation undertaken by Knight Frank for NAB valued levels three and four at $4.1 M as at February 2007. (4)There is no evidence of anyone else being interested in levels three and four as at late 2006 or early 2007 (and Pinnacle (Penrith) Pty Ltd ("Pinnacle"), who was interested in purchasing level two, did not proceed with a purchase but instead entered into a lease with a call option), the evidence from Mr Matthew Neale, the sales agent, is very general (see par 80 of his affidavit sworn 5 May 2011) and there is no supporting evidence from an independent expert about the state of the market and the viability of the High Street development in 2007, in contrast to the type of evidence called in Orchard Holdings Pty Ltd v Paxhill Pty Ltd as Trustee for Paxhill Trust trading as Property People [2012] WASC 271 at [257] - [269]. (5)Even if the call option entered into by Pinnacle is taken into account as evidence of the market, it would yield a figure based on square metreage for levels three and four of approximately $4.4 M (see MFI 1). (6)The Knight Frank valuation referred to in (3) took into account pre-sales. 20I note that there were additional issues, raised in Lamrocks' defence and in the defendant's statement of facts and issues in dispute handed up at the commencement of the hearing, which were effectively abandoned. 21Fiuggi's response to these points is: (1)Mr Grassi could have given evidence about how he calculated the figure of $5.14 M but did not do so. Nor did he give any evidence of what Mr M Grassi had told him in response to his email. Nor did he ever tell Mr McCall that Lamlaw had agreed to pay too high an amount. Mr Grassi was working in Penrith as a solicitor and an accredited property specialist and could be expected to have a good knowledge of the market. (2)The Lamlaw transaction is evidence of what a willing buyer was prepared to pay and what a willing seller was prepared to accept, albeit through the medium of a put and call option: see for example Stockl v Rigura Pty Ltd [2004] NSWCA 73 at [31] per Palmer J, with whom Mason P and Ipp JA agreed. (3)The Knight Frank valuation was prepared as a mortgagee valuation for the NAB and should be viewed as inherently conservative. (4)The amount at which Pinnacle was to buy level two if it exercised its option was $2.5 M. (5)The figure that Pinnacle agreed to pay if it exercised the option was 9.1 per cent more than the Knight Frank valuation and, applying that same differential to levels three and four, would produce a figure of $4.5 M: see T195 - T196. 22Fiuggi also draws attention to the context in which this inquiry about damages is being undertaken, namely a flagrant breach of fiduciary duty by Lamlaw. Mr Black referred to GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113 in which Warren CJ (with the concurrence of Chernov JA and Dodds-Streeton AJA), said at [66]: "The court is also entitled, with the full benefit of hindsight, not to speculate against the interest of the plaintiff. This principle is well illustrated in Guerin v R (1984) 13 DLR (4th) 321, where the Canadian Supreme Court considered the source of the fiduciary duty owed by the Crown to First Nations Peoples. In that case the relevant government department was entrusted with negotiating a lease of land owned by an Indian band to a golf club. The court approved the speculative assumption made by the trial judge in assessing compensation, namely that the plaintiffs would have desired to develop their land in the most advantageous way possible. That principle may be applied here in relation to the orders received by Pearce Co after the breakdown in joint venture negotiations; namely, the inclusion of these later orders when assessing equitable compensation." 23Whilst I accept the significance of the fact that Knight Frank have valued levels three and four at $4.1 M, I do not think it can be ignored that both Pinnacle (for level two) and Lamlaw (for levels three and four) were willing to pay a figure higher than the figures at which Knight Frank arrived. I am inclined to treat the amount Lamlaw was prepared to pay as significant evidence, but given the Knight Frank valuation, I would not consider the Lamlaw price or the Pinnacle price to be conclusive evidence, even allowing for the type of consideration that is discussed in GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers. 24Mr Neale was not able to give details of other interested purchasers for levels three and four but levels two, three and four had been taken off the market so that is not surprising. I accept that what remained of his affidavit, after removal of the portions to which objection was legitimately taken, is of very little weight. 25I proceed on the basis that, had the property been marketed, another buyer would have been found for levels three and four to a total of $4.5 M. That figure is not only halfway between the Knight Frank figure and the Lamlaw figure but it also is close to the figure derived on a square metre basis of the Pinnacle amount (albeit in a call option) with adjustment for levels three and four being more attractive, that is, the figure of $4.397 M (a calculation provided by Mr Darke and not disputed: see MFI 1) and I note that Mr David Lunney valued level two at $2.2 M as at May 2008 (see Exhibit E at p 26) and it seemed to be agreed that level two was less attractive than levels three and four. 26Not only is the amount that Fiuggi would have obtained had the Lamlaw transaction not been entered into disputed, but there are three other integers in the calculation which are disputed. First, the defendant says that the figure (on its case, $4.1 M) for which the two levels should be treated as likely to have yielded in late 2007 needs to be discounted "significantly" by factors relevant to the volatility of the market as a result of the GFC. Secondly, it is suggested that it is uncertain whether purchasers would have been prepared to pay an option fee or a deposit and, if so, in what amount and whether the purchasers would have been willing to provide guarantees of their obligations, leading to the question of whether Fiuggi would have been able to enforce against assets had the purchasers defaulted. Thirdly, the defendant submits that Fiuggi's loss is the difference between the market price so calculated less the amount that the property was worth in April 2009 - that is, $3,150,800 (derived from Knight Frank's report of 20 April 2009 annexed to Mr Lunney's report in Exhibit E at Tab 3). 27I note that had a contract been entered into in late 2006 or early 2007, it would have required completion within a reasonably short time after registration: see Mr Terence Brown's report in Exhibit D, Tab 2 at pp 15 and 16. The building was completed by January 2008 and the lease for levels one and two commenced in May 2008 and the strata plan and by-laws were lodged for registration by 2 August 2008. 28There were submissions about the degree to which purchasers would seek to avoid their obligations in the wake of the GFC but these submissions were not based on any evidence. There was initially a suggestion that banks who had agreed to finance a purchase off the plan would be likely to resile from their obligations because of the GFC, a proposition which I do not accept. It was then said that bank loans would be conditional on ratio of loan to property price (see T176), which I am able to accept is common. There is evidence tendered which establishes that there was a general decline in property prices during the second half of 2008 and throughout 2009 but whether the decline was of a proportion that would have led to a buyer who had received the bank's agreement to a loan being unable to meet the shortfall itself or being prepared to forgo the deposit paid and run the risk of a claim in damages is very difficult to determine. 29What Fiuggi lost by reason of Lamrocks' conduct was the chance to sell levels three and four to a third party in late 2006 early 2007, off the plan or by means of a put option or put and call option. There can be no doubt that at that time the projected levels three and four had a value and were marketable in the restricted sense in which I have indicated. Once the "market" value is determined, which has built in the assumption that the property can be sold at that price, there is little scope for consideration of whether the loss for which the plaintiff contends, that is, the loss of the prospect of a sale to a third party, would have occurred even without Lamrocks' breach. 30The learned authors of N C Seddon, R A Bigwood and M P Ellinghaus, Cheshire & Fifoot's Law of Contract, 10th Aust ed (2012), LexisNexis Butterworths draw a distinction between a "contingency discount", which deals with the situation where there is "an identifiable chance that the loss in question would have happened independently of the defendant's breach" so that "damages are reduced or discounted accordingly" (citing Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 at 262 - 3 and 275) and a "vicissitudes discount", which is a discount that "allows for the imponderables or chances affecting its realisation" (citing Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; (1999) 47 NSWLR 473, Rosser v Marine Ministerial Holding Corp (formerly Maritime Services Board of NSW) [1999] NSWCA 72, Glenmont Investments Pty Ltd v O'Loughlin (No 2) [2001] SASC 88; (2001) 79 SASR 288 and Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558). They also say: "As contract damages are assessed by reference to a hypothetical position (as if the contract had been performed), the chance that the hypothesis adopted by the court is erroneous must be brought into account. The discount appropriate in a particular context may be the subject of expert testimony." (See Cheshire & Fifoot's Law of Contract at 23.29). 31The paragraph to which I have just referred clearly has as its focus breach by the other party to the contract, but I think the principles are applicable to a case against a solicitor for breach of duty (see M Spencer, J Picton and H McGregor, McGregor on Damages, 18th ed (2009), Sweet & Maxwell/Thomson Reuters at 8-092 and the example of Hartle v Laceys [1999] 1 Lloyd's Rep PN 315 referred to in that passage). 32I do not accept that a purchaser who entered into a conditional contract for $4.1 M or $4.5 M in 2006/2007 or a purchase "off the plan" would be unlikely to complete at any time prior to a time when the full implications of the GFC had manifested themselves. I do not think that it should be assumed that call or put and call options would have been availed of as opposed to purchases off the plan or, if they had been, that adequate protection would not have been provided to Fiuggi, properly advised. I accept that there is always a risk in property transactions that a purchaser may default but that does not necessarily translate into a loss to the vendor. I think that some discount should be applied, in accordance with the principles discussed by the High Court in Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 146 - 147 per Toohey J and in Fightvision Pty Ltd v Onisforou at 505 - 506 and Burger King Corp v Hungry Jack's Pty Ltd at [593], to allow for the possibility that a buyer may not have been readily available in late 2006 or early 2007 and that a buyer who had entered into a contract to purchase in late 2006 or early 2007 might not have been able to complete by reason of the GFC. In respect of that risk the reduction should, I think, be limited to 10 per cent. 33So far as the third point is concerned, I do not think the value of the property in 2009 is of any relevance - the defendant did not establish (or even contend in final submissions) that the price which was achieved in 2010 of $1.8 M was brought about by a failure of Fiuggi to mitigate its loss. The real measure of loss is between the amount the plaintiff would have achieved had it entered into a contract with a third party (or two third parties) for the two levels in late 2006 or early 2007 and the amount it did in fact receive, that is, $1.77 M. The value in 2009 is irrelevant to the plaintiff's loss because it did not achieve that value in 2009, through no fault of its own. 34Lamrocks have a further argument. They assert that even if Fiuggi had sold levels three and four to other purchasers and had the sales been completed, Fiuggi would still have been overextended with the bank and been forced to sell property. Thus, it is claimed by the defendants, the fact that Fiuggi had to sell other properties it owned was not a consequence of Lamrocks' breach of duty but would have occurred anyway. 35There are, I think, four problems with that contention: (1)It is based on an amount for the shortfall between what would have been achieved by Fiuggi on the sale of levels three and four and the value of the properties which, for reasons I have indicated, is erroneous. The figure which Fiuggi would have achieved if Lamrocks had not breached its duty would have been far higher than the figure ascribed on Lamrocks' calculation. (2)The argument ignores the fact that $2.7 M was wasted on the leisure centre purchase by AZPL, which has now been conceded. (3)Since there is at least some portion of Fiuggi's financial crisis which can be ascribed to Lamrocks, it is Lamrocks which bears the onus of establishing that, even without the contribution made by Lamrocks, Fiuggi would have been forced to sell. (4)There is no expert report relied on by the defendants which makes good the factual contentions asserted. 36I turn then to the items at par [17] above. 37So far as Item 1 is concerned, I find that Fiuggi's loss is $4.5 M less $1,744,758, that is, $2,755,242. For the purposes of fixing an amount for which Lamrocks is liable, I would discount that amount by 10 per cent, producing a figure of $2,479,717.80. 38So far as Item 2 is concerned, interest on $2,479,717.80 needs to be recalculated. Items 3 and 4: Loss of rent from the other properties 39Fiuggi claims an ongoing loss of rent for five years from level one and the DoCs building on the High Street property. The plaintiff says it did not earn this income because it was forced to sell the properties. The defendant's response is that the claim for lost rent in Items 3 and 5 involves double-counting: see T182.43. 40Fiuggi claims that, had it received the funds from the sale of levels three and four, it would have been able to retain the entire building and receive the rent from level one and the DoCS building and the other properties. There are calculations which establish that after deduction of the interest payable to the bank in respect of its borrowings (and repayment of the $5.14 M that, on Fiuggi's case, it would have received from the sale of levels three and four), there would have been a surplus. The first figure of $247,370 in Item 3 is calculated from 1 August 2010 and excludes rent from level three, which was tenanted, and level four, which was in fact not tenanted. There is also an interest component on the $247,370 (Item 4). This claim for interest falls to be determined with Item 3. 41There are several difficulties with the claim in Item 3. The first, relatively minor, is that the figure is based on a receipt of funds of $5.14 M which, as I have held, is too high. 42The second problem is that the calculations on which it is based are taken from the expert report of Mr Slattery but the relevant section (see Exhibit D, Tab 5 at par 4.2) was not read, nor is the Annexure D referred to in Mr McCall's affidavit of 30 July 2012 at par 16 actually attached (see Exhibit B at Tab 92). 43The third problem is that the argument assumes that the properties would have continued to be rented at the same levels that they had been, and that none of them would have been sold within the five-year period. 44The final problem is one of approach. When commercial properties are sold, the retail income derived or capable of being derived is usually taken into account in reaching a purchase price. Either levels one and two and the DoCS building were rented and earning income or they were not. If they were not rented, that was not a consequence of any act or omission of Lamrocks. If they were rented or realistically capable of earning rental income, that presumably would have been taken into account in the purchase price. If the plaintiff's case is that it sold the properties for less than they were worth at the time because it was a forced sale, no evidence to support that case has been advanced and that is not how this aspect of the damage claim has been put. I am not presently satisfied that lost rent can be claimed when the buildings have been sold at what I assume, in the absence of evidence to the contrary, was their market value at the time. I express the matter this way because, for reasons I explain below, I propose to provide the parties an opportunity to make further submissions to the Court, should they so wish, in relation to Items 3 - 6. Item 5: Loss of rent 45Item 5 seems to take up where Item 3 left off. If it is the same point but for an extended period, it suffers from the same problems. If it is something different, the reasoning behind the claim and the evidence in support has not been made clear. Item 6: Loss by virtue of forced sale 46Fiuggi's case on this claim is based on the following steps: (1)because of Fiuggi's shortage of funds, NAB forced Fiuggi to sell: (a)the High Street property where levels three and four were located; (b)a property at Andrews Road; (c)a property in Jamisontown; and (d)a property at Blaikie Road; (2)the total amount received for the sale of the properties at subparagraph (1) above was $6,967,650: (a)$4,192,650 was received for the High Street property other than levels three and four; (b)$600,000 was received for the Andrews Road property; (c)$1.425 M was received for the Jamisontown property; and (d)$750,000 was received for the Blaikie Road property; (3)Fiuggi says that had it not been for the forced sale brought about by Lamrocks' actions, Fiuggi would not have sold the four properties until the market had improved; and (4)Fiuggi says that a 25 per cent capital gains on the properties should be allowed for, discounted by 50 per cent to allow for contingencies. The sum so derived should be discounted on a deferred basis for the period assumed for further income viz 5 years. That figure is said to be $741,992. 47I think that subparagraphs 46 and (2) have been made out. So far as 46 and (4) are concerned: (1)I think it is reasonable to contemplate that Fiuggi would have wanted to hold on to the properties, assuming that it had sufficient rent to meet its obligations to the bank; (2)there is evidence from Mr Lunney that the property market had dropped by May 2008 (see Exhibit E at pp 3 - 5) and also that there were significant reductions in value during the second half of 2008 and throughout 2009, with a stabilising of the market by the start of 2010; (3)there is no evidence of what then occurred in the market; and (4)Andrews Road was purchased for $1.942 M and High Street for $2.2 M (see Mr Neale's affidavit of 5 May 2011 at par 30), with demolition, excavation and construction on High Street of at least $5 M. 48Once it is accepted that commercial properties were hard to rent in 2008 and onwards (50 per cent of the serviced offices of level one were vacant - see Mr Lunney's report in Exhibit E at p 20), being a matter that was entirely independent of the sale of levels three and four, it is difficult to assess whether or not Fiuggi would have been likely to retain the four properties and, without knowing the state of the market at the end of five years, difficult to determine whether Fiuggi would have made a profit within the five year period. I accept that Fiuggi purchased the properties with a view to making a profit but that is not the test of whether profit was achievable but for the forced sale. I am uncertain as to whether there is any basis for concluding that, had it retained the properties for five years, Fiuggi would have made a 25 per cent capital gain and the absence of evidence of the market in 2011 and 2012 is, I think, highly significant in a case based on this prospective retention period. 49The matters to which I have referred in pars [39] - [48] above are not matters which were articulated by Mr Darke and I propose to provide Fiuggi an opportunity to deal with these matters, should it wish to do so, and to permit further response from Lamrocks in that event. Item 7: Sale of another property at Andrews Road 50So far as Item 7 is concerned, this is agreed at $400,000. Item 8: The Deloitte report 51In relation to Item 8, Lamrocks disputes that this cost should be borne by it. The bank required Fiuggi to have an audit undertaken because of the financial condition it was in and the bank's concern as to Fiuggi's ability to service its debts to the bank. Had Fiuggi received $2.755 M by July 2010, as I think is likely, and had AZPL not incurred $2.7 M worth of liability because of Lamrocks' actions, Fiuggi would have been at least $5.4 M better off. It would also not have had the same degree of interest burden which it had. I find on the balance of probabilities that the cost of the report was consequential upon the financial burden placed on Fiuggi by reason of Lamrocks' actions. Conclusion 52It follows that there should be judgment in favour of Fiuggi for the total of $2,479,717.80, $400,000 and $70,437, that is, $2,950,154.80 plus interest in accordance with Practice Note SC Gen 16, but I will defer ruling on whether any amount should be allowed for Items 3 - 6 until the parties have had an opportunity to make further submissions should they wish to do so.