Jacfun Pty Limited v Sydney Harbour Foreshore Authority [2011] NSWSC 119 | Case summary

Jacfun Pty Limited v Sydney Harbour Foreshore Authority [2011] NSWSC 119 | Case summary | Zoe

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Factual Background 2SHFA is a statutory corporation established by the Sydney Harbour Foreshore Authority Act 1998 ( SHFAA ). It was created to manage the harbour foreshore area, including Darling Harbour. The management of its day-to-day activities are the responsibility of a chief executive officer (see SHFAA, s 30) who, during the relevant time, was Mr Greg Robinson. It also has a board which is responsible for overseeing the activities of the Authority. The Board consists of the CEO, the Director-General of the Department of Urban Affairs and Planning, who at the time was Ms Sue Holliday, and up to 5 other persons, including a chairperson, who were appointed by the relevant Minister: SHFAA s 29. One of the members appointed by the Minister was Mr Frank Sartor, who at the time was Lord Mayor. The chairperson of the board was Mr Gerry Gleeson, a well known and respected public servant. SHFA was and remains subject to the "control and direction" of the relevant Minister: SHFAA s 28. Section 17(1) of the SHFAA permits SHFA to acquire land by agreement or by compulsory process in accordance with the L a nd Acquisition (Just Terms Compensation) Act 1991. 3The Darling Harbour Development Plan No 1 1985, which was made under the (now repealed) Darling Harbour Authority Act 1984 , required development approval for commercial development at the Darling Walk site. Under the 2002 version of the Environmental Planning and Assessment Act 1979 ( EPAA ), the Minister for Planning was the consent authority for development approval for the Darling Harbour area: EPAA, Sch 6, cl 22(1). Only SHFA, or a person with its written consent, could apply for development approval in relation to land under its control: Environmental Planning and Assessment Regulations 2000 (NSW), reg 49(1) (historical version as at 6/9/02). 4The lease of the Darling Walk site to Jacfun commenced on 22 March 1997. It was for an initial term of 41 years, with two options to renew of 26 years each. Clause 4.3 of the lease provided: 4.3 Permitted Use (a) During the Term the Demised Premises shall be used as an Entertainment Complex and for any other purposes referred to in the Lessee's Proposal. (b) The Lessee will not, during the Term, permit any noxious, immoral, offensive or illegal act, trade, business occupation or calling at any time during the Term to be exercised, carried on, permitted or suffered in or upon the Demised Premises. 5The document referred to as the "Lessee's Proposal" was not in evidence. The case proceeded on the basis that that document did not permit use of the Darling Walk site for commercial office space or for use as a hotel. 6The lease required Jacfun to pay rent calculated by reference to the income it received from the premises. It also set a minimum rent which was payable each year. Jacfun was entitled to assign the lease but, in that event, cl 6.7 gave SHFA a first right of refusal. 7Jacfun subleased the premises. Initially, the principal subtenant was SEGA Enterprises (Australia) Pty Limited ( SEA ) which operated an entertainment complex known as "SEGA World". The balance of the subtenancies were for a mixture of retail and entertainment uses. 8In 1999, SEGA Enterprises of Japan, SEA's parent, transferred its shares in SEA to interests associated with Jacfun in return for $36,810,769. A proportion of that amount was used to pay Jacfun's external debt, with the result that Jacfun was from that time funded entirely by its shareholders. 9The SEGA World concept was not a success and, after the end of the Sydney Olympics, it was closed. Following the closure of SEGA World, Jacfun began exploring how it might derive value from its lease. It regarded the issue as pressing, since by then the leased premises were approximately 75 percent vacant and Jacfun was incurring significant losses. 10In October 2000, Jacfun commenced work on concept plans for the redevelopment of Darling Walk. It engaged the Hayson Group of Companies and, in particular, Mr Ian Hayson to assist it in that task. At about the same time, SHFA decided that it would prepare a Master Plan for Darling Harbour. That plan became known as the Darling Harbour 2010 Master Plan. Both parties recognised that the original concept for Darling Walk was flawed. Part of the problem was that the site could not attract people during the week. In addition, as Mr Ronald Dyne, Jacfun's general manager, was to record a year later following a meeting with representatives of SHFA on 19 November 2001: [I]t has been proven through the demise of Sega World, Luna Park and Fox Studios that Sydney cannot support any major destination entertainment businesses. 11Mr Hayson recommended that the solution to these difficulties was to redevelop the Darling Walk site for use as commercial offices as well as for entertainment and retail and, during the period from October 2000 to August 2001, Jacfun put forward to SHFA a number of proposals which involved redeveloping the site in that way. Each of those proposals was rejected by SHFA. 12On 27 July 2001, SHFA wrote to Jacfun saying that Jacfun should not do any further work on a proposed redevelopment until the Darling Harbour 2010 Master Plan was complete, which was expected to take 6 to 9 months and, at a board meeting of SHFA on 13 September 2001, the board delegated to Mr Robinson authority "to negotiate the purchase of the site from Jacfun at an acceptable value". It appears that the board thought at that time that that would enable SHFA to redevelop the site to include residential accommodation. Although the timing is not clear from the evidence, it appears that, shortly after the SHFA board meeting, Mr Robinson met with Mr Hayson and raised the possibility of SHFA buying out Jacfun's lease for an amount of $15 million. Mr Robinson also told Mr Hayson that SHFA proposed to appoint Mr Max Bowen, who had extensive experience in the property development industry, to conduct negotiations with Jacfun concerning the surrender of its lease. 13Mr Hayson had several discussions with Mr Bowen concerning a buyout during which he indicated that a price in the order of $20 million would be acceptable to Jacfun. However, negotiations to buy out the lease soon stalled and, on 5 November 2001, Mr Bowen told Mr Dyne that SHFA was no longer interested in a buyout. Instead, Mr Bowen proposed that SHFA and Jacfun enter into some form of cooperative arrangement under which SHFA would seek to change the use that could be made of the site and would share in the resulting increase in value. A few days later, on 8 November 2001, Mr Robinson confirmed in a letter to Mr John Leece, one of Jacfun's directors, that SHFA was no longer interested in a buyout. In that letter Mr Robinson said: It appears that your view of the value of your leasehold stake is significantly greater than that which we could justify, particularly from a Government process point of view, and as such we are not in a position to negotiate further. 14During the first half of 2002, the parties discussed proposals to redevelop the Darling Walk site. During that time, SHFA took active steps to progress that part of the Darling Harbour 2010 Master Plan concerned with the Darling Walk site. It appointed Cox Richardson, architects, and other consultants to progress those plans. Representatives of SHFA and Jacfun met regularly together and with Cox Richardson to discuss various options. The option preferred by both the management of SHFA and by Jacfun was one that involved three towers, one of which would accommodate a hotel and the remaining two of which would accommodate commercial office space. During one of the meetings, it was also suggested that the then proposed cross city tunnel ventilation shaft could be included in one of the office towers and that that may make the proposal more attractive to government. 15During this period, Jacfun largely put on hold attempts to sublease space in Darling Walk in the expectation that a redevelopment plan would be agreed. 16On 19 June 2002, there was a board meeting of SHFA. At that meeting, both Mr Sartor and Ms Holliday expressed concern about the preferred option and, in particular, the height of the proposed office buildings. The board resolved: As the majority of Members considered that a higher stack for the Cross City Tunnel is preferable, a number of options should be considered and referred to the Minister for consideration. These options are to include the Darling Walk re-development ... If a tower building is to be constructed as part of the Darling Walk re-development, consideration should be given to locating the building out of the Darling Harbour precinct and across the envelope separating Darling Harbour from the city. Shortly afterwards, SHFA terminated the consultants it had engaged to work on the proposed redevelopment. 17On 4 July 2002, Mr Bowen and Ms Di Talty, Director Major Projects with SHFA, met with Mr Dyne to inform him of the board's position. Mr Dyne's file note of that meeting records in part: They advised that the proposed plan for the Darling Walk development had met with some resistance at the SHFA board meeting. Most vocal opponents were Frank Sartor and Sue Holliday, Director of Planning NSW. Sartor, supported by Holliday, objected to the height and scale of the development and as a result the board adopted the conservative approach that they should wait to see the results of the Master Plan 2010 before proceeding with any development at Darling Walk. It was stated that consideration should be given to a low-rise development and uses should be determined after completion of Master Plan 2010. Master Plan 2010 is the new plan that SHFA is developing for the entire Darling Harbour precinct. It is a detailed study of what is needed in Darling Harbour for the future. The problem that this presents is that this master plan is expected to be completed in September 2003 and SHFA is no longer able to fast track the Darling Walk development as originally stated. The delay is at least 12 months. They also cannot be sure that they can deliver the minimum area of 55,000 square metres as set out in the proposed deed with Jacfun. The SHFA executives expressed regret for their board's position. ... Jacfun asked for a rent reduction, but that was refused. Mr Dyne reported what he was told by Mr Bowen and Ms Talty to the directors of Jacfun in an email he sent to them on the day of the meeting. 18According to a file note prepared by Mr Dyne, Mr Robinson also met with Mr Hayson on 18 July 2002 to explain SHFA's position. That note records Mr Robinson as saying: 1 There was strong opposition by the external board members to a large-scale development. 2 Expressed bitter regrets that the board had not approved the plan. 3 If it was up to him and Gerry Gleeson, the plan would have been approved. 4 Goodwill exists between SHFA executives and Jacfun. 5 SHFA should buy the site from Jacfun but they could not meet the price expectations put forward by Jacfun in 2001. 6 Wants Max Bowen to negotiate a deal with us in the range of $9 to $10 million. 19Subsequently, discussions took place between Messrs Hayson and Bowen. Mr Hayson reported back to Mr Dyne the results of those discussions. Mr Dyne set out what he was told in an email dated 1 August 2002 to members of the Jacfun board. The email relevantly says: The SHFA board decided that they [sic] would be no large scale development on the Darling Walk site in the foreseeable future and the status quo would remain until the Darling Harbour Master Plan 2010 is completed. However the CEO, Greg Robinson, believes that because of the current situation at this end of Darling Harbour and the additional disruptions that will be caused by the construction of the Cross City Tunnel he can convince the board to buy the site. They cannot justify a valuation for the site and the purchase would result in a negative cash flow to SHFA but he believes they should purchase to be able to control their own destiny. ... They are not trying to con us into selling out and at best they see a hotel development with retail but no offices. They acknowledge that Greg Robinson mentioned a figure of $15 million last year but thereafter they were not able to justify that price. That is why they then put forward the joint venture proposal. Max believes that $8 million is "appropriate and generous" ... Mr Hayson's only recollection of the conversation is that he was told that the SHFA board was against large scale development. 20Following these meetings, Jacfun received a number of enquiries about selling the site. It appointed Laing & Simmons and Colliers International to develop a marketing strategy. Laing & Simmons expressed the view in a marketing report that the current market sales potential of the lease was in the range of $13 million to $16 million. It also advised Jacfun that the "investment value" of the lease was $12,100,000 "fully leased". Colliers International expressed the view in a similar report that the "realistic sale price range for Darling Walk is $14 million to $20 million". Its estimate of the investment value fully leased was $13,500,000. The reason for the difference between market value and investment value was not explained in the evidence; and the reports themselves were not admitted as evidence of value. SHFA also obtained a confidential valuation report from Handley Paris & Partners. That report estimated that the commercial value of the lease was $0 and that the estimated compulsory acquisition value was $12,000,000 to $16,000,000 (on the basis that the lease was worth $2,000,000 to $4,000,000 and the buildings were worth $10,000,000 to $12,000,000). The report recommended an "acquisition range" of $7,750,000 to $12,000,000. 21At the same time that Jacfun was investigating the sale of its lease it also once again started actively to seek tenants. 22On 10 October 2002, Mr Dyne and Mr Hayson met with Mr Bowen. Mr Dyne made a handwritten file note of that meeting which records: $10m to emotionally control the site. Compulsory acqu." In his affidavit, Mr Dyne says that he recalls Mr Bowen saying words to the effect of: SHFA is prepared to pay $10 million to emotionally control the site. If you do not agree to sell then it will consider compulsory acquisition. Neither Mr Hayson nor Mr Bowen had a practice of keeping file notes and neither gave evidence about the meeting. No explanation was given of what precisely was meant by the expression "emotionally control the site". 23There was a further meeting between Mr Dyne and Mr Bowen on 11 October 2002. Mr Dyne made a typewritten file note of that meeting. It is not clear when that file note was prepared. However, it was prepared no later than 16 October 2002. The file note records the following: Met with Max Bowen on Friday 11 th October 2002 for an "off the record" discussion. I advised that Jacfun was extremely dissatisfied at the way SHFA had dealt with us over the years. Bowen advised that SHFA wish to gain full control of the Darling Walk site to be in a position to control its destiny. But this would not be at the expense of Jacfun. They do not foresee an office development ever being permitted and at best the only additional rights could be a low-rise hotel. They may consider some negotiation with RTA on the smoke stack for the Cross City Tunnel. Bowen stated that he had consulted a valuer who had determined that Jacfun's interest in the site was worthless. However, to get control SHFA is willing to pay $10,000,000 to Jacfun. This would be the maximum. SHFA is also considering a Compulsory Purchase of the site which Bowen maintains they are entitled to do. In this event the value would be determined by the Valuer General. Bowen believes there is a "window of opportunity" for Jacfun to do a deal with SHFA. I stated that I would not submit any proposal to the Jacfun board unless it contained a clause allowing for additional payments to Jacfun in the event that additional value was created post sale by changing zoning. Bowen agreed to this. It is the conversation recorded in this note that is said to amount to misleading and deceptive conduct on the part of SHFA. 24There was a further conversation between Mr Dyne and Mr Bowen on 15 October 2002. Mr Dyne's note of that conversation records that Mr Bowen indicated that the price of $10 million was acceptable subject to due diligence in relation to any tenants' claims and that SHFA would negotiate an additional payment to Jacfun in the event of changes to zoning of the site in the future - described in the note as a "kicker". 25Mr Dyne repeated the contents of his file note of the 11 October 2002 meeting in his report to the Jacfun board in a note he circulated on 16 October 2002. The board met on 17 October 2002. The meeting was attended by Mr John Landerer, Mr John Leece, Mr Kevin Bermeister and Mr Bruce Fink. The board agreed in principle to accept Mr Dyne's recommendation that Jacfun should accept SHFA's proposal to buy out Jacfun's lease. However, it was agreed that Jacfun should try to get a higher price. Each of Mr Landerer, Mr Leece and Mr Bermeister gave evidence. Each said they relied on Mr Dyne's report of his conversation with Mr Bowen on 11 October 2002 and, in particular, the statement that SHFA did not foresee an office development ever being permitted in reaching that conclusion. Each also said he took other matters into account, including the threat of compulsory acquisition and the fact that SHFA may have been able to frustrate a sale through the first right of refusal. Each of the directors and Mr Dyne was cross-examined on what he understood was the effect of what Mr Bowen had said at the meeting on 11 October 2002. Mr Dyne said that he understood Mr Bowen to be saying that "there would be no office development in the foreseeable future", which he took to mean the next 10 to 20 years. Mr Landerer thought that he was being told that no office development would ever be permitted. Mr Leece thought that he was being told that SHFA did not foresee an office development ever being permitted until such time as the Darling Harbour 2010 Master Plan was available. Mr Bermeister thought that he was being told that SHFA did not foresee an office development being permitted until the expiry of the initial term of the lease - that is, for 35 years. 26Following Jacfun's board meeting, there were extensive negotiations concerning the terms of the buyout. Jacfun was unsuccessful in negotiating an increase in the price. It originally sought a "kicker" that extended for a period of 10 years. That, however, was resisted by SHFA. The surrender of lease was finally signed on 3 March 2003. Under the terms of the deed of surrender SHFA paid Jacfun approximately $10 million. Clause 7.1 of the deed relevantly provided: If, at any time up to and including 1 July 2008, the Landlord Disposes of the Premises to realise a Net Disposal Price in excess of $40,000,000 (excluding GST) then any excess above $40,000,000 (excluding GST) is to be shared equally by the Landlord and the Tenant. Jacfun regarded this term as the best it could negotiate in the circumstances. 27In late 2007 and early 2008, there were a number of press reports that Lend Lease had been selected by SHFA to construct a substantial commercial development on the Darling Walk site. Jacfun became aware of those reports and, on 15 May 2008, Landerer & Company, its solicitors, wrote to SHFA expressing concern that there had been a disposal of the site within the meaning of cl 7.1 of the deed of surrender and seeking information relevant to that question. There was no suggestion in that letter that Jacfun had been induced to surrender its lease by misleading conduct. That allegation was first made in an affidavit sworn by Mr Dyne on 29 August 2009 in support of an application for preliminary discovery. 28On 2 January 2009, the Minister for Planning approved a development and building application for the construction of two 9 storey buildings on the site.

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Did SHFA engage in misleading conduct? 29In considering whether the statements made by Mr Bowen to Mr Dyne at their meeting on 11 October 2002 were misleading, it is helpful to start with what the true position was, since it is by reference to that that the question whether the statements said to have been made by Mr Bowen were misleading or deceptive is to be determined. 30As at 11 October 2002, the true position was itself open to some interpretation. The management of SHFA, including its CEO, and indeed its chairperson, Mr Gleeson, were in favour of a high rise commercial office development. They appeared to recognise that the original concept for the site was flawed and that the use to which it was put would have to change in order to make the site successful and, perhaps, even viable. Moreover, SHFA was having discussions with the Roads & Traffic Authority about the location of a ventilation stack for the cross city tunnel and one of the possibilities that was being discussed at the time - although it was ultimately rejected by the government - was to locate the stack within a high rise building. Despite these considerations, it was clear that two members of the board were opposed to a high rise office development and they wanted to wait for the 2010 Master Plan, which was expected to take some time to complete. Their views prevailed at the meeting on 19 June 2002. As a result, SHFA terminated the consultants it had engaged to work on the proposed redevelopment. What did all this mean for the prospects of a commercial development as at 11 October 2002? Mr Bowen in his affidavit said: My state of mind at the time was that I thought there may well be an office development on the site, but probably not in the next few years. I knew that [SHFA] was working on developing a master plan for the site (but I was not aware what that final plan was), but I had no reason to think that it would not include office developments. SHFA called no other evidence concerning its intentions as at 11 October 2002. In those circumstances, Mr Bowen's views should be taken as an accurate statement of the position. 31The relevant legal principles are not in doubt. The question whether conduct is misleading or deceptive is an objective one that must be determined having regard to all the surrounding circumstances: Chase Manhattan Overseas Corporation and Others v Chase Corporation Ltd & Anor (1985) 63 ALR 345 at 355 ; Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 2) [2010] FCA 566 at [103]; Taco Co Australia & Anor v Taco Bell Pty Ltd & Ors (1982) 42 ALR 177 at 202 ; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44 (1982) 149 CLR 191 at 198; SAP Australia v Sapient Australia Pty Ltd [1999] FCA 1821; (1999) 169 ALR 1. Where the conduct consists of statements, the question whether it is likely to mislead or deceive is to be answered by asking whether there is a real and not remote possibility that the statements will induce error in the minds of the person to whom they were directed: see Chase Manhattan at 355; Global Sportsman Pty Ltd & Anor v Mirror Newspapers Ltd & Anor (1984) 55 ALR 25 at 30. If the statements relied on are oral, it is normally necessary to determine what words were spoken and then to ask whether those words were, having regard to all the relevant circumstances, misleading or deceptive: Watson v Foxman (1995) 49 NSWLR 315, applied in James Hardie Industries NV v ASIC [2010] NSWCA 332 at [259]-[291]. There is, however, an artificiality in adopting a two stage approach in the context of this case. Mr Bowen has no recollection of the conversation on 11 October 2002. Although Mr Dyne, on occasions, said that he could recall the conversations about which he gave evidence, he conceded, when pressed, that he could not recall the words used and that his evidence of what was said was a reconstruction from his file notes. In particular, in relation to the conversation on 11 October 2002, Mr Dyne conceded that his note of the meeting did not set out the precise words used and that it was just as likely that Mr Bowen said that there was no likelihood of an office development in the foreseeable future rather than (as his note records) "ever". There is nothing surprising in this given that the relevant conversations occurred over 8 years ago. The best evidence of what was said, then, is what is set out in Mr Dyne's file note construed against the context in which it was written and taking into account the fact that the file note itself does not set out the actual words used. The techniques used to identify the words spoken, then, are the same as the techniques used to identify the meaning they conveyed. In those circumstances, there seems little point in this case in trying to separate the two tasks. 32Jacfun pleads the representations conveyed by Mr Bowen in the meeting on 11 October 2002 in these terms: (a) It was not reasonably foreseeable that any office development would ever be permitted by the defendant on the Darling Walk site; (b) At best, the only foreseeable additional development on the Darling Walk site that the defendant would permit would be a low-rise hotel. 33There is no real dispute that the second of these representations was made. The case focussed on the first. Jacfun says that that representation is supported by Mr Dyne's file note and the evidence given by Mr Dyne. On the other hand, it says Mr Bowen could not deny that he made the representation, although he gave reasons in his affidavit for thinking that he did not make it. Moreover, Jacfun submits that the representation is consistent with the position taken by SHFA that the lease was worthless. Mr Bowen accepted in cross-examination that the lease was only worthless if there was no reasonable possibility of redevelopment being permitted. Consequently, when he told Jacfun that the lease was worthless, he was impliedly asserting that no redevelopment would be permitted. It is not surprising that he made express what was already implied in what he said. According to Jacfun, it is not necessary to identify the precise meaning conveyed by what Mr Bowen said. The important point is that it conveyed that there was no reasonable possibility of an office tower being permitted in the foreseeable future (the use of the word "ever", if it was used, adding emphasis to this proposition) whereas the fact was that there was a reasonable possibility of that happening. 34I do not accept Jacfun's submission. In my opinion, Mr Dyne's file note of the 11 October 2002 meeting accurately records the substance of what was conveyed by Mr Bowen subject to one qualification. The qualification is that, whatever words were actually used by Mr Bowen, in the context, they conveyed an impression that, as things stood, there was no reasonable possibility of a large scale office development. They did not convey an impression that the position could not change in the future if circumstances changed. I say that for several reasons. 35First, it is inherently unlikely that Mr Bowen would have conveyed an impression about the likelihood of a commercial development whatever the circumstances. Anyone would have appreciated that a statement to that effect was false. For example, it is obvious that, if there were a change of government or even a change of Minister, the prospects of a commercial development could change substantially - not least because SHFA was subject to the direction and control of the relevant Minister. It could not be supposed that Mr Bowen had any more knowledge about those matters than Jacfun. In those circumstances, it is improbable that Mr Bowen was intending to say or would be interpreted as saying something about the likelihood of either of those events happening or, more accurately, not happening or of their effect - that is, that there would be no change of government or of the responsible Minister in the foreseeable future or, if there were, it would make no difference to what would be permitted on the site. Yet statements to that effect are implicit in the unqualified representation pleaded by Jacfun. Similarly, it is difficult to see that Mr Bowen was intending to say something, or that he could be taken as saying something, about the likelihood of the composition of the Board of SHFA changing (or not changing) or about the recommendations that would be made in the Darling Harbour 2010 Master Plan. Those matters could have a substantial effect on the prospect of a commercial office tower being permitted at the Darling Walk site. Yet implicit in the unqualified representation pleaded by Jacfun are statements that the composition of the board would not change and that the 2010 Master Plan would not contain a recommendation in favour of large scale commercial development or that, if there was a change in the board (for example, if Mr Sartor and Ms Holliday left) or the 2010 Master Plan recommended a large scale commercial development, those things would make no difference. Again, they are matters about which Mr Bowen could not have been expected to have any particular knowledge about. They are statements which, if made, were obviously false. In those circumstances, the likelihood is that Mr Bowen did not make them. 36Second, the context is important. From Jacfun's point of view, at least, SHFA had waxed and waned about what it wanted to do with the site and there were clearly differences of opinion both between management and the board and between members of the board itself on whether a large scale commercial development should be permitted. Jacfun was about to make an important decision. It had put a lot of effort into developing the proposal that was ultimately rejected by the SHFA board. It was natural in those circumstances for Mr Dyne to want to confirm that the effect of the decision of the SHFA board really was that there was no point in pursuing the proposals which had been the subject of so much effort in the first half of 2002. In my opinion that was the effect of what he was told by Mr Bowen at the meeting on 11 October 2002. If Mr Bowen actually used the word "ever", then that word simply added emphasis to what he was saying: that the SHFA board was resolute in its position. 37Third, the earlier conversations in which representatives of Jacfun were told of the SHFA board's decision to reject the recommended proposal are important. In those conversations, Mr Bowen and other representatives of SHFA gave an accurate account of what had happened. They made it clear that the SHFA board at least wanted to see what the results were of the 2010 Master Plan before making any decisions. What might happen then was left unclear. In my opinion, it is unlikely that, having given Jacfun such a frank account of what had happened and of the prospects of a commercial development being permitted in the future, Mr Bowen would then mislead Jacfun about that matter. In addition, if the statements made by Mr Bowen on 11 October 2002 really were substantially different from the statements he and others from SHFA had made in July 2002, it would have been natural for Mr Dyne to ask Mr Bowen for an explanation of the change of position. However, he did not do so. That fact suggests that he took Mr Bowen to be doing no more than confirming a position that he had already communicated. But there is nothing in Mr Bowen's earlier communications which would suggest that SHFA would not permit a large scale commercial development at any time in the future come what may; and, of course, there is no allegation that any of those earlier representations were misleading or deceptive. 38Fourth, I accept SHFA's submission that it is difficult to reconcile Jacfun's case with cl 7.1 of the surrender deed. That clause contemplated the possibility that SHFA would dispose of the Darling Walk site within a period of 5 years. A disposal which triggered the operation of cl 7.1 was only likely to occur in connection with an office development on the site. Jacfun attached some importance to cl 7.1 (or at least the principle behind it) in the negotiations for the surrender of the lease. However, it is difficult to see why it would have done so if it really was told that there was no prospect of a redevelopment in the foreseeable future. 39Fifth, I accept SHFA's submission that the fact that Jacfun did not complain that it had been misled immediately it found out about the proposed arrangements with Lend Lease undermines its case. On Jacfun's case, critical to its decision to surrender the lease was the fact that it was told that it was not reasonably foreseeable that an office development would be permitted by SHFA on the Darling Walk site. Mr Landerer, in evidence, described cl 7.1 of the surrender deed as the "cherry" on top of the cake. Yet it was the loss of the cherry not the cake that was first the subject of complaint. If Jacfun really had been misled and if that is what was critical to its decision, then it is to be expected that that would be the focus of its complaint, not cl 7.1. 40Lastly, in my opinion, Jacfun's conduct is explicable on the basis of the representation that I have found Mr Bowen did make. Jacfun had incurred or was projected to incur significant losses in 2001 to 2003. As at October 2002, the losses from January 2002 to June 2002 were $1,158,199, and the budgeted losses for July 2002 to June 2003 were $1,606,557. Although Jacfun was taking steps to find new tenants and although the evidence suggests that, if the premises were fully tenanted, it would make a modest profit, there was no certainty that it would find suitable tenants and there was a substantial risk that, without a redevelopment, it would continue to incur losses in the future. There was no certainty if and when that redevelopment would be permitted. There was a risk, in the meantime, that its lease would be the subject of compulsory acquisition which was likely to result in protracted negotiations and possible court proceedings about price, which would themselves give rise to uncertainties. The threat of compulsory acquisition, the first right of refusal and the uncertainty about whether redevelopment would be permitted were matters that were likely to cause uncertainty about whether and for what price Jacfun would be able to sell its interest in the site to a third party, and may have made such a sale difficult. In those circumstances, in my opinion, it was reasonable for Jacfun to agree to the terms that it did, even assuming that there was a reasonable possibility that redevelopment including an office tower would be permitted some time in the future. This is not a case where it is difficult to explain the plaintiff's conduct absent the representation on which it relies. That, of course, does not prove that the representation was not made. But it does remove one of the reasons for thinking that it was made. 41Nor do I think that the conclusion I have reached is undermined by the fact that Mr Bowen described the lease as worthless. Mr Dyne's file note actually records that Mr Bowen said that SHFA had advice that the lease was worthless. That statement was undoubtedly correct. Mr Bowen conceded in cross-examination that he shared that view and that he may well have expressed it to Mr Dyne. It appears that the basis of that view was that, without an amendment to cl 4.3 of the lease permitting the site to be used for an office development, the lease had no value because any rent that could be derived from subleasing the premises was unlikely to exceed substantially the base rent payable to SHFA. Accepting that Mr Bowen expressed that view as his own, I do not think he was saying anything more than the lease as it stood was worthless. That was the lease that SHFA was paying Jacfun to surrender, not a lease which permitted redevelopment. Understood in that way, I do not think that Mr Bowen by making the statement that the lease was worthless was saying anything about the prospects that SHFA would agree to an amendment to it. It is true that the lease had value to SHFA because it was an impediment on SHFA's ability to control its own destiny (whatever precisely that meant). That explains why SHFA was willing to pay $10 million to secure its surrender. But again, these facts do not establish that Mr Bowen was likely to have said something about the prospects of redevelopment beyond what I have found he said. 42It follows from what I have said that SHFA did not engage in misleading or deceptive conduct, or conduct that was likely to mislead or deceive. There was a clear basis for believing that, as things stood, there was no real prospect that the board of SHFA would change its mind. Mr Bowen's statement that he thought that there may well be an office development on the site but probably not in the next few years is not inconsistent with that proposition. In part, no doubt, that belief was based on the view that an office development was necessary to make the site viable or at least successful. But Mr Bowen's statement does not carry with it the implication that the board would change its mind in the foreseeable future. Rather, all it carries with it is the implication that the problems with the existing use meant that an office development was likely to be permitted some time in the future. That may have happened when the composition of the board changed, which it inevitably would, or as a result of recommendations made in the 2010 Master Plan or for some other reason. However, that fact did not make what Mr Bowen said about the existing board's attitude misleading.

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Reliance and Damages 43Having regard to the findings I have made, it is not necessary to deal with the question of reliance. It is implicit in what I have said that, even if Mr Bowen did make an unqualified statement about the prospects of redevelopment, it would have been unreasonable for Jacfun to rely on it. It must have been obvious to anyone that things could change and that explains why cl 7.1 of the surrender deed was of some importance to Jacfun. I should, however, say something about Jacfun's damages case. 44Jacfun puts its claim for damages in two ways. First, it says that its loss is to be measured as the difference between the true value of the lease and what it received. It says that the true value of the lease can be measured in one of two ways. One way is to calculate the true value by reference to the position absent any redevelopment. The other and preferred method is to calculate the true value on the assumption that a redevelopment including an office tower was permitted and occurred. In the alternative, Jacfun says that its loss is to be measured as the loss of an opportunity to participate in a commercial redevelopment of the site. 45Jacfun served an expert report from Mr Roger Price, who is a senior director with CB Richard Ellis and who provided a valuation of the lease on the two bases I have identified (that is, without and with redevelopment). Jacfun did not serve any valuation evidence specifically directed at its case based on what was said to be the loss of an opportunity to participate in a commercial redevelopment of the site. However, it pointed to Mr Robinson's original offer of $15 million, Hadley Paris & Partners' estimate of the compulsory acquisition value of $12 million to $16 million and Jacfun's own assessment that the lease was worth $15 million to $20 million as being of assistance in valuing the lost chance. 46Mr Price adopted two approaches to valuation in his report. His primary approach was to capitalise projected future earnings on the two bases I have identified. As a check, he also used a discounted cash flow approach to determine value on each of those two bases. He concluded that, without redevelopment, the true value of the lease was $13.3 million and with redevelopment the true value was $20 million. 47In arriving at the $13.3 million figure, Mr Price concluded that it was reasonable to assume that the Darling Walk site would be fully tenanted within a period of 9 months. He took the view that the area previously occupied by SEGA World could be relet to several operators who would run a venue he described as "Kids World", a bowling complex, a cinema complex, a 2 level pub/night club and a concept store. He assumed that some existing tenants of the remaining part of the premises would leave but that they would be replaced and the remaining vacant shops would be sublet to a combination of retail and "specialty" stores. He then estimated the rent that each tenant would pay by reference to rent payable at comparable sites, identified various expenses and took account of those to arrive at his final figure. 48In arriving at the $20 million figure, Mr Price assumed the construction of two 7 - 9 storey commercial buildings in accordance with the concept plan approved by the Minister for Planning on 2 January 2009. Mr Price assumed that approval for the construction of the buildings was given in March 2003. He estimated that it would take a year to obtain development approval and another three years to construct and let the buildings. Once again, he then estimated the rent that each tenant would pay by reference to rent payable at comparable sites and took account of various expenses to arrive at his final figure. 49In my opinion, Mr Price's report does not provide an adequate foundation for the true value of the leased premises on either approach that he took. 50There are two interrelated difficulties with Mr Price's valuation on the first approach (without redevelopment). The first is with his "assumption" that the premises would be fully leased within a period of 9 months. This is not an assumption in the strict sense. It was an opinion held by Mr Price. That opinion should be given some weight. However, in my opinion, it was overly optimistic having regard to what had happened at the site. SEGA World was not a success and Jacfun was having difficulties attracting other tenants. Mr Price explained that he thought that part of those difficulties was due to the fact that Jacfun was looking for a single major tenant to replace SEGA World rather than a number of smaller tenants who could appeal to different demographics. In addition, Jacfun had put its search for new tenants on hold for a period of time when it expected that it would reach agreement with SHFA on redeveloping the site. Consequently, little weight should be given to the fact that it had not attracted new tenants following the closure of SEGA World. Even so, the site had not been a success, although no doubt it was thought at the time SEGA World was established that it would be. Both SHFA and Jacfun thought that the original plans for the site were flawed, and that view appears to have been shared by Mr Hayson, who recommended that the site be redeveloped to include offices. SHFA had at least raised the possibility of compulsory acquisition, which is not something that Mr Price took into account. Moreover, the site was a unique one. That makes predictions about what was likely to happen based on what had or was happening elsewhere difficult. Against that background, in my opinion, it was necessary for Jacfun to point to actual likely tenants and to explain why those tenants were likely to be attracted to the site before the court could be satisfied that the basis on which Mr Price was proceeding was a reasonable one. 51Secondly, it was always open to Jacfun not to agree to surrender its lease and to seek to relet the premises. It chose not to do so and instead it agreed to surrender its lease on the terms that it did. In my opinion, the terms on which it did so are a better indication of the likely value of the lease as things stood than an analysis which depends on forming a view about the ability of Jacfun to let the premises. 52The difficulty with Mr Price's valuation on the second basis (with redevelopment) is that Mr Price assumes that approval would have been given to a redevelopment in March 2003. As Mr Price readily conceded, that was a true assumption made by him. He thought that it was one that he was required to make by the instructions he had been given. In my opinion, there is no basis for that assumption. The facts do not support it. Ministerial approval of the concept of redevelopment was not given until 2 January 2009, with the result that the 3 year period allowed for by Mr Price for the actual development would only start to run from that time. Jacfun sought to answer this point by pointing to the fact that cl 7.1 of the surrender deed provided SHFA with an incentive not to do anything until after 1 July 2008. There is no reason to think that Ministerial approval would have taken so long absent that clause. This point may provide a reason for discounting what actually happened as an indicator of what was likely as at March 2003. But it does not justify the assumption made by Mr Price. Without that assumption, Mr Price's report does not prove the value of the lease with a commercial development. There are no other facts from which it is possible to estimate how long it would take for a change of use to be approved and there is no means of knowing what consequences a delay would have on Mr Price's valuation. That problem is exacerbated by the fact that Mr Price assumes that a commercial development would have been permitted in March 2003. However, even taking Jacfun's case at its highest, the most that could be said was that there was a reasonable possibility of that happening in the foreseeable future and that Jacfun lost the opportunity to obtain the benefit of that redevelopment. Mr Price cannot be criticised for failing to discount his valuation to reflect the fact that what was lost was a chance not a certainty. That is a task for the court. But it is not a task the court can perform without a starting point and, for the reasons I have given, Mr Price's report does not provide one. In addition to these considerations, it would also be necessary to take account of the likelihood that SHFA would seek compulsorily to acquire the lease if it could not reach agreement with Jacfun. SHFA certainly had the power to do so and had made a threat that that is what it would do if agreement could not be reached. Taking all these matters into account, I do not think that Jacfun has established that it is entitled to any damages on its preferred basis for assessing them. 53That leaves Jacfun's case based on the loss of a chance. This case did not depend on Mr Price's evidence but rather on other evidence of value - principally the offer of Mr Robinson, the report of Handley Paris & Partners and the views expressed by Jacfun. 54In my opinion, it is appropriate to characterise any loss Jacfun suffered as a loss of a chance. Essentially, its case was that it was deprived by SHFA's conduct of the opportunity to take the benefit of a redevelopment of the site if that opportunity arose. There is no doubt that, if Jacfun can establish a breach of s 42 of the Fair Trading Act and that there was a substantial chance of a redevelopment, it is entitled to be compensated for that lost chance, even if the chance is less than 50 percent and even if the task is difficult and some guess work is involved: Sellars v Adelaide Petroleum NL [1994] HCA 4, (1994) 179 CLR 332; Malec v JC Hutton Pty Ltd [1990] HCA 20, (1990) 169 CLR 638 at 643 per Deane, Gaudron and McHugh JJ; La Trobe Capital & Mortgage Corporation Limited v Hay Property Consultants Pty Ltd [2011] FCAFC 4 at [90] per Finkelstein J. 55However, in my opinion, the evidence is inadequate to establish that that chance had value in addition to the amount that it received. I do not think that Mr Robinson's indication that SHFA would be prepared to pay $15 million for the lease provides an indication of the value of that chance. That offer was withdrawn at a time well before Mr Bowen is alleged to have engaged in the misleading conduct. Nor do I think that a hope on the part of Jacfun that it could negotiate a surrender price of between $15 million and $20 million provides an adequate basis to value the lost chance. That hope was, no doubt, a product of Mr Robinson's suggestion that an appropriate price was $15 million. That leaves the report of Handley Paris & Partners. That report valued the lease at between $12 million and $16 million on the basis of a compulsory acquisition. But that is not the lost chance in respect of which Jacfun makes a claim. The report goes on to recommend an "acquisition range" of $7,500,000 and $12,000,000. It is not clear how those figures are arrived at, but they need to be considered in the context where Handley Paris & Partners had expressed the view that the commercial value of the lease was $0. 56Two other matters also need to be taken into account. One, which has already been mentioned, is the risk of compulsory acquisition. Handley Paris & Partners' report suggests that that risk had some worth, but it is noteworthy that Jacfun was concerned about the risk of compulsory acquisition and that that was one of the matters that caused the board to agree to surrender the lease on the terms that it did. The other matter that needs to be taken into account is cl 7.1 of the surrender deed. The benefit of that clause had some value to Jacfun. It compensated it for the chance that there might be a disposal of the lease within the next 5 years and, in doing so, compensated it for the chance that a redevelopment would be approved in that time. The fact that that chance turned out to be worthless does not mean that Jacfun was not compensated for it. The question, then, is whether the payment of the $10 million adequately compensated Jacfun for any other chance it missed out on bearing in mind that Jacfun also faced the very real risk of a compulsory acquisition if it did not reach agreement with SHFA. In my opinion, Jacfun has failed to establish that that chance had a significant value over and above what it received. 57For these reasons, Jacfun's claim based on s 42 of the Fair Trading Act must fail.

Jacfun Pty Limited v Sydney Harbour Foreshore Authority

At a glance

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Judgment (7 paragraphs)

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Cases Cited (15)

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