Jazabas v Botany Council

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CONSTRUCTION LIST

55043/1998 - JAZABAS PTY LIMITED v CITY OF BOTANY BAY COUNCIL

HIS HONOUR: 1 On 24 February 2000 I delivered my reasons for concluding that the plaintiff was entitled to a basic verdict against the Council in the sum of $900,550, and I continued:- "To this figure there will have to be added interest and from this figure, perhaps, there will have to be made certain adjustments. I think it better for me to publish these reasons and then to allow the parties to argue those points or, hopefully, to agree upon them. I shall also hear submissions on costs." 2 In this addendum to those reasons I shall deal with the further submissions made and my conclusions in relation to them, and I shall refer to the parties as in my original reasons. 3 The parties' submissions have ranged over the various issues to which I have referred, and several others, viz an apparent mathematical error in the calculation of the number of developments the plaintiff would have built and the proper amount to be deducted in respect of the profit made on the sale of the land.

1. Error In Calculation 4 In paragraph 284 of my original reasons, the number of additional developments which, in my opinion, the plaintiff would have built was stated, and I said it totalled 9. In fact it totalled 11. 5 It was also submitted by the plaintiff that I should have had regard to the fact that Bas Developments Pty Limited, ("Bas"), would not have built the property at 29 Woomera Road during the 1994 year, because the plaintiff would have undertaken another development, which would have proved profitable. Mr Tobias submitted that if this approach was to be adopted it was necessary to offset the profit from that development. Mr Rayment submitted that this was not so because Bas and not the plaintiff carried out the development at 29 Woomera Road, and that the profits of Bas have been excluded from the claim for damages. He submitted that there was no occasion for any profit made on this project to be brought to account by the plaintiff. 6 The evidence satisfies me that Bas would not have proceeded with this development if the land had not been purchased, but that the energies of the various companies controlled by Mr Haigh and Mr Kikiras would have been channelled through the plaintiff. This would have meant that the plaintiff would have carried out a further development, which I find would have been profitable, but as there was no profit element of Bas included in the plaintiff's claim for damages, there is no occasion for reducing the figure on which I rely, in respect of developments which would have been carried out, by deducting the profit Bas derived. The evidence at Tpp.149-150 does not change this conclusion. 7 Accordingly, the number of developments should be increased to 12, thus correcting my additions and giving a credit for the additional property. 8 The base figure is $151,563 which, when multiplied by 12, produces $1,818,756. That is to be reduced by thirty per cent and rounded to the nearest dollar becomes $1,273,129.

2. The Amount Of Profit On The Sale Of The Land 9 I deducted $54,296.95 as the profit on the sale of the land, being the figure for which Mr Rayment contended. In the circumstances referred to in the most recent submissions, I consider it appropriate to revisit this figure. 10 Mr Gower, in Exhibit 2B, suggested that the proper deduction was $172,142. In doing so he started with the sale price of $886,000, but he has re-adjusted:-

(a) interest on director's loan accounts; (b) finance costs of $394,392, which he considered "unreasonably excessive"; (c) substantial costs in refinancing the Souleles loan through NAB and Suncorp-Metway facilities, which refinancing he thought was caused by the dispute between Mr Haigh and Mr Kikiras and "not reasonably to be attributable to the complaint in these proceedings"; and (d) interest charged on the NAB Flexi-Plus account. In his calculations he deducted interest charged on directors' loan accounts and NAB charges other than those referable to the bill facilities. He also assumed selling costs at 4 per cent. 11 Mr Rayment's submissions of 10 February 2000 identified by reference to the evidence the gross selling price of $886,000 from which was deducted: (a) Adjustments on settlement as appearing at p.10185 $ 2,560 . 33

(i) Stamp Duty $ 10,794 . 00 (ii) Solicitor's costs $ 2,966 . 80

Ex M3 $ 57,437 . 38 12 Nextly, Mr Rayment added the various charges referred to in paragraphs 34 and 35. 13 The Council complains that if Mr Gower's figures are not accepted, which, in my opinion, they should not be, the figure of $54,297.00 should be built up by the addition of $2,280.54 for directors' loans in respect of non-Jazabas amounts; $16,197.68, being for land tax, other solicitors, establishment fee and brokers; $10,074.92 for non specific Schedule 3 amounts; $34,000 for the deposit; $10,794 for stamp duty; and $1,605.41 for other amounts. 14 Mr Rayment submitted that Mr Gower had not done a sufficiently detailed analysis to challenge the actual sale costs and other expenses, with which I agree. It is for that reason that I do not consider his figures should be accepted. Further, I agree with Mr Rayment's submissions that the proper inference is that Jazabas owes Evenvest the amounts of the deposit, $34,000, the Stamp Duty of $10,794, and other amounts Evenvest paid in entering into the initial contract. The evidence was that Jazabas took over Evenvest's interests, which, on the submission, included the benefit and burden of those interests Whilst there was no direct evidence of any requirement by Jazabas to repay Evenvest those amounts, the proper inference is that the parties intended that Jazabas would take the benefits and the burden of Evenvest's interests, the burden including the obligation to repay Evenvest for the benefit Jazabas obtained from payments made by Evenvest. Mr Rayment submitted that the intention was to make the plaintiff a debtor of Evenvest, rather than for Evenvest to make a gift to the plaintiff. In my opinion this is the correct approach and, accordingly, there is no reason for increasing the amount of $54,297. There was no cross-examination to suggest that a gift was intended. 15 Hence the figure of $1,273,129 should be reduced by $54,297 to $1,218,832.

Interest 16 Mr Rayment abandoned expressly the claim for Hungerford v Walker interest on damages. 17 Mr Tobias submitted that no interest under s.94 should be awarded as the damages had been assessed on the basis that all profits would be used to build further developments and there had been no discount from Mr Hughes' figure, which I adopted. In paragraphs 5.1.1.3 and .4 Mr Hughes assumed that the plaintiff would have used the funds from the sale of developments to finance the acquisition of more land and further developments, and, in the event of a shortfall, joint venture parties would have been found. Further "to the extent of the funds available to acquire sites after September 1996, the Company would have carried out multiple developments". 18 Mr Tobias submitted that this made it clear that funds would have been used in the business and, therefore, there was no basis on which to award interest on the basis that the plaintiff had been deprived of money it would otherwise have had available or not had to borrow, because the award of damages contemplated the use of money earned, which otherwise would not have attracted interest, and, because the way in which damages were assessed picked up all profit elements. In particular, the figure of $151,563, which is attributed to the development at 32 Menin Road, provides for the deduction of estimated holding charges: Exhibit M4. Thus, to allow an interest component would distort the base figure which I have accepted. 19 Mr Rayment submitted that interest should be awarded to provide proper compensation using a broad practical approach. He continued that interest may be awarded to a person even though that person would not have reinvested the money. Prima facie interest is awarded to compensate the plaintiff from being deprived of money to which it would otherwise have been entitled, thus meaning that it has not earned interest or that it has had to borrow. In the present case that is not appropriate because in the absence of evidence that the plaintiff has been kept out of money, which it would have used, otherwise than as reflected in the amount on which the award of damages is based, this is a case where I do not consider the plaintiff has established an entitlement to interest. Such cases are rare, but the way in which damages were assessed and found leads me to that conclusion. 20 In Bushwall Properties Limited v Vortex Properties Limited [1975] 1 WLR 1649 on which Mr Rayment placed reliance, Oliver J, at p.1680, said in relation to a claim for interest under s.3(1) of the Law Reform (Miscellaneous Provisions) Act 1934:- "It appears to me that the proviso was clearly aimed at the sort of case where an interest-bearing debt is sued for, for instance, or mortgage debt or an instalment of interest in arrears. In such a case the court is not to award interest upon such part of the sum claimed as represents contractual interests. Although what is claimed here is simply a replacement of a sum of money, the quantum of which is calculated by reference to interest which the plaintiffs have had to pay, the sum so claimed is not in any sense interest itself; it is the sum payable by way of damages for breach of contract, and I see no reason why it is not capable of carrying interest in the ordinary way."

The difference between that situation and the present is that the plaintiff was kept out of its money. In this case the money was immediately re-used to finance the next project, the profit providing part of the funds needed. 21 Mr Rayment submitted that the continuing cash flow would have prohibited the continuation of building four developments each year. For that the plaintiff has been compensated. I do not propose to award interest in the particular circumstances of this case.

Inflation 22 Mr Rayment has submitted that an amount should be awarded for inflation over the years. In my opinion the rate at which I have fixed the calculation of damages does not require any further adjustment. Inflation is covered, in part, by utilisation of profits in further developments. Further, if regard was to be had to inflation, increased costs would have to be considered and, if, as is reasonable to assume, they existed, they would have to be taken into account. These figures, on a broad approach, balance showing that there is no necessity, in awarding damages, to allow for inflation.

Costs 23 Mr Tobias has submitted that the Council has been successful on a number of issues, notwithstanding the plaintiff's basic success, and that certain time has been wasted in the hearing by the late service of some of the plaintiff's evidence. Mr Rayment countered that his client won and that this was an inappropriate case for the Court to seek to divide up the costs by reference to issues on time lost, some of which he said was the fault of the Council, or by reference to success on individual issues. The general rule, of course, is that costs follow the event. In the circumstances of this case the plaintiff has enjoyed an essential measure of success arising from the basic factual matrix, which gave rise to the litigation, and which had to be litigated for the issue on which the plaintiff succeeded. I have considered the various submissions and ultimately concluded that the proper exercise of discretion, balancing all the features of the litigation, leads to the conclusion that the ordinary costs' order should not be varied.

Orders 24 I order: 1. Judgment for the plaintiff in the sum of $1,218,832. 2. The defendant pay the plaintiff's costs. 3. Exhibits be returned at the expiration of 28 days unless, within that time, an appeal has been lodged. ******

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