Lindsay-Owen v HWL Ebsworth Lawyers

indsay-Owen (First Plaintiff) Dairycorp Pty Limited (Second Plaintiff) Martin Downing & Ors Trading as HWL Ebsworth Lawyers (First to One Hundred and Sixth Defendants) Representation: Counsel: T Alexis SC with P Afshar (Plaintiffs) T Faulkner SC with C Bannan (Defendants)

Solicitors: Gadens (Plaintiffs) Gilchrist Connell (Defendants) File Number(s): 2016/85879 Publication restriction: Nil

Judgment

1. HIS HONOUR: By their amended statement of claim filed on 8 July 2016 the plaintiffs, Gregory Hamilton Willoughby Lindsay-Owen and Dairycorp Pty Ltd, claim damages from their former solicitors, the partners of HWL Ebsworth Lawyers ["HWLE"], for negligence and breach of retainer arising out of advice provided to the plaintiffs concerning their acquisition and development of land at Schofields in the western suburbs of Sydney. There is no issue concerning the scope of the retainer or the existence of the duty of care.

Introduction

1. Until early 2015, Mr Lindsay-Owen and Dairycorp owned a large parcel of approximately 56 hectares adjacent to Schofields railway station on the Blacktown-Richmond line within the North West Growth Centre of Sydney. Mr Lindsay-Owen wanted to sub-divide and develop the land so as to maximise his return upon a rezoning from rural to urban, together with an experienced developer. In about 2005, Mr Lindsay-Owen retained Martin Downing of HWLE, one of the defendants, to advise in relation to the development of the land and the preparation of a joint venture agreement. On 29 March 2010, the plaintiffs entered into a Joint Venture Agreement with Schofields Property Development Pty Ltd ["Schofields"], a special purpose vehicle of Villawood Management Group Pty Ltd ["Villawood"].
2. Since 2006, and at the time that the joint venture agreement was executed, the plaintiffs had a loan facility with the National Australia Bank for approximately $20M secured by mortgage over the land. It was essential for the plaintiffs in committing to any joint venture to develop the land that the incoming joint venture partner should agree that the debt would become a joint venture liability: Mr Lindsay-Owen had no independent means from or with which to discharge the existing loan. Mr Downing knew and understood his instructions in that regard.
3. However, the joint venture agreement when executed contained a provision that obliged the plaintiffs to repay the loan and procure a release of all securities from the title when "planning approval" was obtained. Clause 11(b) was as follows: "11. By the date which is 30 Business Days after Planning Approval is obtained: (a)… (b) Dairycorp agrees to repay its existing debt facility and procure the release of all securities in relation to that debt facility from title to the Joint Venture Assets and the Land."
4. When planning approval was obtained in April 2014, Mr Lindsay-Owen was unable to discharge the debt in accordance with this clause and the joint venture partner relied on this as a default enabling it forcibly to sell the land with the benefit of planning approval. The land was sold to Stockland for $103,500,000 on 26 March 2015. In the result, the plaintiffs allege that they incurred significant expenses and lost the opportunity to develop the land and earn substantial profit.
5. The relevant contention advanced by the plaintiffs about this was pleaded in paragraph 18 of the amended statement of claim filed on 8 July 2016 in these terms: 18. The plaintiffs instructed the defendants that: (a) one of the key objectives of any joint venture (or similar transaction) was that the Existing Debt be discharged by external loan funds: and (b) such funds were to be borrowed by any joint venture (or similar transaction) into which the plaintiffs entered into [sic] for the Development.

The Claim

1. The plaintiffs contend that HWLE's breaches and their statutory contravention caused them to suffer loss and damage, falling into two separate categories. First, the expenses incurred by the plaintiffs and paid out of the proceeds of sale of the land. Secondly, the sum representing compensation for the plaintiffs' lost opportunity to develop the land in accordance with an amended joint venture agreement either with Schofields or some other joint venture partner and to receive a share of the resulting net development profit.
2. The plaintiffs also maintain that HWLE's breaches were a necessary condition of the harm that they have suffered. Schofields' default notice and the resulting forced sale of the land would not have occurred but for the breach. Further, they contend that it is appropriate for HWLE's liability to extend to the harm they caused, and that the loss was wholly foreseeable. The same conclusion applies to causation in respect of damages for misleading or deceptive conduct.
3. The plaintiffs maintain that Schofields would have accepted an amendment to clause 11 of the joint venture agreement so as to make it clear that the joint venture parties would assume liability for the NAB loan after planning approval was obtained. The amendment would have unambiguously linked Dairycorp's performance obligation in clause 11(b) to the external loan funds in clause 11(a). The plaintiffs and Schofields would thereafter have proceeded in accordance with a joint venture agreement amended in this way. The plaintiffs contend that the lost opportunity to have the joint venture agreement amended had some value, not being merely a negligible value.
4. Alternatively, if Schofields did not accept the amendment to the joint venture agreement, Mr Lindsay-Owen would not have executed it with clause 11 in its then terms but would have proceeded to negotiate an alternative joint venture on similar terms with the other interested developers such as Australand. He would have negotiated extensions of his loan obligations to the NAB until this occurred. The opportunity to negotiate an alternative joint venture on similar terms with other interested developers had some value, not being a merely negligible value.

Defences

1. Although HWLE originally, and for some time, maintained a series of defences, including contributory negligence, failure to mitigate, novus actus interveniens, proportionate liability and advocate's immunity, these were ultimately not pressed. HWLE now relies only upon a specific denial of the misleading and deceptive conduct allegation together with their general response to the whole of the plaintiffs' claim that neither their admitted breach of duty and breach of retainer nor their alleged misleading and deceptive conduct caused the plaintiffs to suffer any loss.
2. Put simply, HWLE maintains that by the time that Villawood terminated the joint venture agreement relying upon the plaintiffs' failure to comply with clause 11(b), the relationship between the joint venture partners was so dysfunctional as to be in a state of incipient failure: the agreement would in effect have come to an end for some other reason at about the same time resulting, presumably, in a sale of the land in circumstances not dissimilar to what occurred in fact. The prospect that Villawood would have renegotiated the deal on terms that corrected HWLE's breach was, on this analysis, non-existent. The so-called lost opportunity to renegotiate the terms of the agreement with Villawood was an illusion with no real or discernible value: the opportunity was worthless.
3. By the same token, according to HWLE, there was no realistic prospect in the alternative that the plaintiffs would or could have found some other joint venture partner on no less favourable terms than those to which HWLE failed to give effect if Villawood had not agreed to proceed at the time that it did. Put another way, Villawood was the only joint venture prospect at the time and the plaintiffs suffered no lost opportunity in the relevant sense because there was no other available or interested player who would have joined them to develop the land.

The land

1. The land at Schofields had been in Mr Lindsay-Owen's family since 1947. It comprised Lot 200 and Lot B at Bridge Street, Schofields. Mr Lindsay-Owen inherited a one-half share of the land from his mother in 1990 and his company Dairycorp Pty Limited purchased the other half share from his sister in early 2006 for $16M. In order to fund that acquisition, Mr Lindsay-Owen obtained a loan facility from the National Australia Bank with an initial limit of $21.5M in December 2005. This was later increased to $22.6M in December 2006. The facility allowed interest to be capitalised and was secured by a mortgage over the land. Mr Downing, the first defendant, acted for Mr Lindsay-Owen in relation to the land debt. Although the facility was initially granted for a term of two years, it was extended numerous times.
2. It does not appear to be controversial that the land was a unique development prospect and had significant development potential. First, it was a very large parcel by Sydney standards with effectively one owner. The size was advantageous because it enabled development in isolation without the need to amalgamate a number of parcels of land owned by several proprietors. Secondly, unlike other areas of Northwest Sydney, the land was and came to be at the epicentre of the vision for the development of growth centres by state and local governments. For example, the land ended up directly adjacent to a new railway station and was to be serviced by substantial infrastructure, including a Metro station.

Planning changes

1. On 4 December 2005, the NSW Premier and the Minister for Planning released "The City of Cities Report" that outlined the state government's metropolitan strategy for Greater Sydney. As part of the strategy for growth in Western Sydney, the report identified land release areas in the Northwest that included the land. It was around this time that developers and other interested parties began approaching the plaintiffs with proposals to develop the land. Those approaches took place in two distinct phases, which straddled the announcement of the new Schofields railway station.
2. The first phase (2005 to 2008) saw approaches from a variety of different kinds of partners (developers, financiers and project managers) with various proposals in terms of the development itself and the commercial terms for doing so. The second phase (2008 and 2009) is characterised by the existence of serious (and persistent) interest in a joint venture from experienced and well-funded developers such as Peet Limited, Australand and Villawood Management Group Pty Limited. This phase was also characterised by discussions on more concrete terms as to the commercial operation of the proposed joint ventures. Mr Lindsay-Owen's debt to NAB was an important part of these discussions.
3. Mr Downing was retained to advise the plaintiffs in relation to these negotiations and other matters and the plaintiffs followed his advice on significant or major issues. The close professional relationship between the plaintiffs and Mr Downing continued until late 2014.

The SEPP and the Precinct Acceleration Protocol

1. On 28 July 2006, the Growth SEPP was gazetted. The stated aims of the policy included the release of land for residential, employment and other urban development in the North West and South West Growth Centres of Sydney.
2. In February 2008, a "Precinct Acceleration Protocol" was announced by the Department of Planning to allow landowners and developers to apply for the early release of land in the Schofields precinct for urban development.
3. Importantly, on about 26 February 2008, the Minister for Transport announced a new railway station at Schofields. The Transport Infrastructure Development Corporation (TIDC) then clarified that Schofields railway station would be relocated about 800 metres to the south of its then existing location, and in due course, a 3.5 hectare portion of the plaintiffs' land was resumed for that purpose. That station is now built adjacent to the land.
4. The railway station and the proposed Metro substantially enhanced the desirability of the land as a development site. Unlike other similar areas, the Growth SEPP did not provide maximum dwelling controls, so as to encourage development. Whereas maximum dwelling controls were introduced elsewhere, the land was insulated from such changes, because it was considered to be a town centre.
5. On 5 August 2008, the NAB increased the limit of the land debt to $24.2M to accommodate interest capitalisation. On 30 October 2008, a Precinct Acceleration Protocol Submission was made by consultants on behalf of the plaintiffs to the Growth Centres Commission (Department of Planning).
6. On 19 November 2008, the NAB gave the plaintiffs a formal default notice with respect to the land debt. That notice related to a non-financial covenant concerning a valuation of the land. The NAB loan continued nevertheless to be extended from time to time. Importantly, NAB chose not to apply the relevant default rate of interest under the facility but instead opted to charge a less aggressive option of 1% per annum. It did so because of its "continued preference to work together with [the plaintiffs] to achieve a palatable solution".
7. The plaintiffs maintain in these proceedings that there is no evidence that the NAB was considering a forced sale of the land at this time based on the formal default notice. Further, there is no evidence that the plaintiffs' facility was in fact moved to the "debt recovery" department within the NAB, despite NAB's statements to the plaintiffs to that effect. Mr Moses of NAB and his assistant Ms Chung continued to be the relationship managers for the plaintiffs and the absence of any communication from the bank's debt recovery team supports that proposition.

The 2014 proceedings before Ball J

1. Well before the current proceedings were commenced, the plaintiffs took proceedings that came before Ball J in the Equity Division seeking to rectify clause 11(b) of the Joint Venture Agreement to give effect to their instructions to Mr Downing concerning joint venture responsibility for the NAB debt. HWLE were obviously not a party to those proceedings. However, his Honour's reasons for judgment contain an historical review of the contractual negotiations that bears to some extent upon what the parties rely upon in these proceedings. It is convenient to adopt his Honour's recitation of these matters for present purposes.
2. Commencing at [5] of his judgment in Lindsay-Owen v Schofields Property Development Pty Ltd [2014] NSWSC 1177, his Honour sets out the relevant agreements as follows: "[5] Two agreements are relevant to the resolution of the issues in this case. The first is the JVA itself. The second is a Facility Agreement by which Schofields agreed to advance the plaintiffs certain sums of money. [6] The joint venture was established by cl 3 of the JVA. Clause 3.1 provides: The Joint Venture Parties agree to form an unincorporated joint venture to carry out the Project on and subject to the terms and conditions set out in this Agreement. The expression 'Joint Venture Parties' is defined to mean Dairycorp and Schofields. 'Project' is defined relevantly to mean 'the development, subdivision, marketing and sale of the Land primarily for residential purposes and other ancillary uses as Lots, super Lots or in its entirety ...'. [7] The parties' participating interests in the joint venture are set out in cl 4. They change over time depending on the amount advanced under the Facility Agreement. [8] Clause 4 of the Facility Agreement provides for five types of advance to be made by Schofields to the plaintiffs: ● A 'Prior Advance' to be made within 14 days of the date the conditions precedent set out in the JVA are satisfied. That advance consisted of $3,000,000 plus the difference between the amount of the plaintiffs' existing debt facility and the amount for which they were able to refinance that facility (in excess of $18.8 million); ● Eight 'Interim Advances' each of $250,000 to be paid quarterly, the first of which was to be paid on the date that was one calendar quarter after the date of satisfaction of the conditions precedent set out in cl 2 of the JVA; ● 'Interest Advances' on the plaintiffs' existing debt. These amounts were to be advanced from 1 April 2010 up until the time when 'Planning Approval' was obtained for the Land. They were to be made to the extent that interest was not paid by the plaintiffs and could not be capitalised under the relevant facility; ● 'Capital Advances' in respect of the plaintiffs' existing debt. These advances were required to be made from the date of the agreement until Planning Approval if the plaintiffs were required to repay part of the existing debt in circumstances described in cl 6 of the JVA to the extent that the repayments were not made by the plaintiffs; ● A 'Valuation Advance' payable in accordance with cl 4.4(b) of the Facility Agreement, which provides: (b) If Planning Approval is obtained at any time during the term of this agreement, the Financier shall, within one month of obtaining a Valuation of the Land, provide to the Borrower an Advance calculated as follows: A = (50% - PI) x (V - LA) - I where: A = amount of the Advance V = the amount of the Valuation LA = the amount owing by the Borrower to other lenders and secured by the Security Property in priority to the Securities PI = the Financier's then existing Participating Interest under the Joint Venture Agreement expressed as a percentage I = the amount of interest paid by the Financier in respect of the LA and treated as an Advance under clause 4.5 and A is a positive number. If A is not a positive number the Financier will not be required to make any further Advance and clause 4.1(n)(ii) of the Joint Venture Agreement will apply. 'Planning Approval' is defined to mean 'approval by the relevant consent authority of the first development application ... which must allow for the delivery of at least 100 lots lodged in accordance with the relevant precinct plan ...'. [9] By making the Prior Advances, Interim Advances and Capital Advances, Schofields obtains an interest in the land and the joint venture in the proportion that the amount advanced bears to an agreed or notional value of the land of $30 million. So, for example, on the payment of the Prior Advance of $3 million, Schofields obtained a 10 percent participating interest. [10] Schofields also obtains a participating interest by making Interest Advances. However, cl 4.1 of the JVA provides that the interest it obtains depends on when the advance is made. If the advance is made prior to 30 months after the date of the agreement, the interest is the proportion that the amount of the advance bears to $30 million. If the Interest Advance is made between dates that are 30 months and 48 months from the date of the agreement, the interest is the proportion that the amount of the advance bears to the market value of the property at the date that is 30 months after the date of the JVA as determined in accordance with cl 25 of the JVA. If the Interest Advance is made between dates that are 48 months and 66 months from the date of the agreement, the interest is the proportion that the amount advanced bears to the market value of the property at the date that is 48 months after the date of the JVA. [11] On making the Valuation Advance, Schofields obtains a 50 percent interest in the joint venture. Under cl 4.1(n)(ii), if the Valuation Advance is a negative figure, the plaintiffs must repay the overpayment, and, if they fail to do so, cl 4.1(n)(ii)B provides that 'each Joint Venture Party will have a Participating Interest equal to the actual interest existing at the date Planning Approval was obtained'. [12] There appears to be a minor drafting error in clause 4.4(b) of the Facility Agreement. 'I' is defined to be the amount of the Interest Advances. However, it also appears from cl 4.6(b) that it was intended to include Capital Advances. That clause provides: Each payment under clause 4.6(a) [which provides for the payment of Capital Advances] will constitute an Advance under this Agreement and will be deducted from Advances in accordance with clause 4.4. [13] Clause 4.3 of the JVA sets out how the joint venture is to be funded. It provides that a committee established under the JVA may make cash calls. However, cl 4.3(a) provides: The Joint Venture Parties acknowledge that it is their intention to fund all Joint Venture Costs, whether before or after the date that Planning Approval is obtained by way of External Loan Funds. 'Joint Venture Costs' is defined broadly in cl 1.1 to mean 'the aggregate of all costs, expenses and outgoings incurred by the Joint Venture Parties in connection with the Project, the Land or the Joint Venture Assets, as detailed in the Project Budget or otherwise approved by the JV Committee and accounted for in accordance with generally accepted accounting principles in Australia'. The definition goes on to list a number of inclusions, including (in para (d)) 'other costs necessarily incurred as a result of ownership of the Land excluding any interest payable under any refinancing obtained under clause 2(b)'. There is no mention in the definition of the costs of repaying the NAB facility following the granting of Planning Approval. [14] Clause 5.4 of the Facility Agreement provides: If a Participating Interest is taken by [Schofields] under clauses 4.1 of the Joint Venture Agreement then, to the extent applicable, the relevant Advances under this Agreement will be deemed to have been repaid. [15] Clause 2 of the JVA sets out several conditions precedent. Relevantly, cl 2(a)(i) provides that the agreement is conditional on: [R]efinancing of the debt facility taken out by Dairycorp and secured against the Land as at the date of this Agreement by Dairycorp on terms acceptable to both Dairycorp and Schofields including those terms set out in clauses 2(b)(iv) and (v) by the Refinance Condition Date [16] Clause 2(b) sets out the obligations of the parties in relation to the refinance. It is evident from that clause that the parties proceeded on the basis that the refinancing would be for an amount of at least $18.8 million. Under cl 2(b)(iii), Schofields agreed, if required by the new financier, to provide a guarantee of Dairycorp's obligations limited to an amount equal to three years worth of interest. Clause 2(b)(iv) required that it be a term of the new facility that the financier would agree to a transfer of parts of the land to Schofields to correspond to its participating interest. Clause 2(b)(v) required it to be a term of the new facility that the financier would execute a tripartite agreement with Dairycorp and Schofields, which gave Schofields step-in rights in the event of a default by Dairycorp. Clause 2(d) provides: For the avoidance of any doubt, Dairycorp acknowledges that Schofields is under no obligation to assume any liability under Dairycorp's existing debt facility (or any refinance of that existing debt facility). [17] Clause 11 sets out what is to happen when planning approval is obtained. It provides: External Loan Funds By the date which is 30 Business Days after Planning Approval is obtained: (a) the Joint Venture Parties agree to: (i) borrow all External Loan Funds required to complete the Project in proportion to their Participating Interests, with each Joint Venture Party being severally liable for its share of borrowings; and (ii) execute all documents and do all things necessary to provide security to any provider of External Loan Funds over their respective interests in the Joint Venture Assets and the Land, including signing any mortgage over the Land under which the Joint Venture Parties will be tenants in common in proportion to their Participating Interests in the Land or any charge in respect of the Joint Venture Assets and the Land. If Schofields does not hold an Interest in the Land, Schofields will be liable for the External Loan Funds to the extent of its Participating Interest in the Joint Venture Assets; and (b) Dairycorp agrees to repay its existing debt facility and procure the release of all securities in relation to that debt facility from title to the Joint Venture Assets and the Land. [18] 'External Loan Funds' is defined in cl 1.1 to mean: any loan: (a) provided by any party who is not a Joint Venture Party to the Joint Venture Parties for the purposes of the Project after the Planning Approval is obtained; and/or (b) in respect of which the Joint Venture Parties become severally liable in proportion to their Participating Interests after the Planning Approval is obtained, and includes all unpaid interest and all capitalised interest in relation to that loan from time to time. [19] Clause 15 provides a mechanism to deal with defaults by either party. It provides for the service of a default notice and a cure period. Ultimately, if a default is not remedied, the non-defaulting party has a right to buy out the defaulting party's interest at the 'Valuation Amount'. 'Valuation Amount' is defined to mean: An amount equal to VA where: VA = (V - EL - C) x PI x 0.94 V = the Valuation as advised by the Valuer PI = the Participating Interest of a Defaulting JVP EL = all outstanding External Loan Funds C = outstanding Joint Venture Costs [20] Clause 23.1 of the JVA provides: Standstill Period Unless required to do so in order to comply with its obligations under this Agreement, a Joint Venture Party must not Alienate or in any other way deal with the whole or part of its Participating Interest or the Land before Planning Approval is obtained in respect of the Land other than with the consent of the other Joint Venture Party which consent may be withheld without reason or given on condition. 'Alienate' is defined in cl 1.1 to mean, relevantly: ... sell, lease, licence, assign, transfer, grant options or rights of pre-emption (other than by way of security) over, create trusts in respect of or otherwise part with possession of any Joint Venture Asset or Participating Interest or the Land or any interest in the whole or any part of it ..."

CAUSATION

1. The plaintiffs frame their case in alternative ways. First, as a loss of the opportunity to amend the joint venture agreement with Villawood
2. It is trite to observe that no amendment could have been achieved without Villawood's agreement. Accordingly, in order to establish that HWLE's conduct caused the plaintiffs to lose a valuable opportunity, they must establish that they would have sought amendments to the draft joint venture agreement that was ready for execution on 29 March 2010, that Villawood would have agreed to those amendments, that NAB would in addition have agreed to a further extension on the loan so that that could happen and that the amendments would have had a value that was not merely negligible, speculative or theoretical. The first of these requirements is hardly controversial as the plaintiffs always anticipated that the land debt would become a joint venture liability. The remaining requirements are very much in issue.
3. HWLE submits that the plaintiffs have not proved and cannot establish as a probability the hypothetical possibility that Villawood would have agreed to amend clause 11(b) to conform to the plaintiffs' instructions to them if the mistake had been drawn to the attention of Villawood by 29 March 2010 and the amendment had been requested. To start with, the terms of the joint venture agreement had been negotiated over a considerable period of time. There is in those circumstances no warrant for the assumption that Villawood would have given up its anticipated contractual benefits simply to alleviate the consequences of HWLE's mistake. That is more so when the terms of clause 11(b) were valuable to Villawood, a fact that is well demonstrated by Villawood's ultimate reliance upon the plaintiffs' failure to conform with the obligation it imposed upon them. In a related sense, the plaintiffs have not established what consequential amendments Villawood would have required to account, and compensate them, for the loss of the benefit of clause 11(b) to them. As a matter of commercial reality, any such amendments would need somehow to have balanced a loss or detriment in the order of $10M to account for the NAB debt to which the clause related. HWLE submits that the complexity of the joint venture agreement and the history of negotiations between its parties make it clear that a simple linear reduction in an amount payable by Villawood was unlikely.

Loss of chance - legal principles

1. HWLE provided a brief and uncontroversial analysis of the legal principles that apply in a case, such as this, where loss is said to be constituted by the loss of a chance. In such a case, the Court must undertake a two-step analysis: see Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4 at 355. First, a plaintiff must prove that it has suffered some loss by demonstrating that the defendant's conduct caused the loss of a commercial opportunity which had some value. This is a question of causation, and the plaintiffs must prove this aspect of their case on the balance of probabilities.
2. Different opportunities raise different questions of causation and have different values. The opportunity that a plaintiff claims to have lost must therefore be identified with precision: Hart Security Australia Ltd v Boucousis (2016) 339 ALR 659; [2016] NSWCA 307 at [165]. Where a plaintiff claims to have lost the opportunity arising from particular contractual relations, it must prove on the balance of probabilities that it would have entered into those contractual relations with the prospective counterparty: Hart at [135] - [137], [141] - [142], [165]. The plaintiff must prove both the hypothetical of what it would have done and what the prospective counterparty would have done.
3. The question of whether these hypothetical parties would have agreed to a particular contract cannot be decided in a vacuum. The Court must have regard to the terms of the hypothetical contract and each party's attitude to the particular terms. HWLE provided the following examples:

• in Sellars, the Court assessed the terms which had been the subject of negotiations at the point of breakdown, including the requirement for underwriting and the conditions precedent to completion;
• in Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; [1986] HCA 3 at 13, the Court said that the plaintiff had to prove that an alternative insurance policy was available in the market and the benefits provided by that alternative policy;
• in Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; [1998] HCA 69, the Court concluded that the plaintiffs suffered no loss because they failed to prove that there was an alternative loan available in the market with terms more beneficial to them than the loans they in fact ultimately received from GIO;

Loss of opportunity to amend

1. There is no dispute that Mr Downing did not appreciate that his instructions concerning the land debt had not been incorporated in the Joint Venture Agreement before it was signed. The plaintiffs' case is that if Mr Downing had appreciated this, he would have been able to avoid the problem by securing Schofields' agreement to amend the document to reflect his instructions.
2. Mr Downing conceded, if concession is the correct analysis in this setting, that he expected that Clayton Utz would have agreed to make changes to the draft Joint Venture Agreement to give effect to the plaintiffs' fundamental requirements concerning the repayment of the land debt: "Q. So, Mr Downing, I don't want to go over old ground, but can I just draw some threads together before I come back to the question that I asked you that drew the objection. We know that you spoke with Mr Mazzone on 1 December 2009 and told him that it was fundamental for the joint venture to assume liability for the NAB debt. A. Correct. Q. And we know that after that, the revised term sheet came forward in response to which you deleted option 1 because it was only option 2 that satisfied that fundamental objective, correct? A. Correct. Q. And we know that after you got the draft joint venture agreement, you made the drafting comment to which we've referred this morning, and you got the response that said that your presumption was correct, we know all that? A. Yes, we do. Q. So, if you'd realised that clause 9 that then became clause 11 should be amended for the purpose of making clear in or by ordinary language, that it was the joint venture that would assume liability for the NAB debt upon a rezoning or a planning approval as it later became, and that the joint venture agreement ought to be amended to make that clear. A. Yes. Q. You would have expected that Clayton Utz would have accepted that, correct? A. Without the benefit of hindsight, yes, I would have, yes. Q. That's simply because you had received not one word from the other side in the negotiation that suggested that any of this was controversial. Correct? A. No. Correct."
3. Presumably Mr Downing's reference to hindsight was an implicit acknowledgement that he no longer maintained that view in the events that have occurred, including Schofields' reliance upon clause 11(b) to terminate the joint venture. Be that as it may, it was submitted on behalf of the plaintiffs that Mr Downing gave no evidence that he expected that any other changes were needed to accommodate the plaintiffs' fundamental requirement, nor any evidence that he considered that other changes to the transaction documents were necessary. He was not re-examined on this point.

Loss of opportunity to proceed with some other partner

1. The plaintiffs next contend that "the evidence is also all one way on [their] alternative case on causation". Had Mr Downing raised what they refer to as the red flag with Clayton Utz and had Schofields not agreed to amend the draft Joint Venture Agreement and ended negotiations, the plaintiffs maintain that they would have been able to conclude a successful joint venture agreement that implemented their fundamental requirements with other developers.
2. If negotiations for an amendment had failed, contrary to the plaintiffs' primary position, it would have occurred towards the end of 2009 or in early 2010. The plaintiffs submitted that in those circumstances they would have been able to deal with at least three other developers with the relevant skills and experience and financial backing. Mr Downing accepted that such approaches had been made: "Q. In the next sentence, you'll see that you told council in this memo, that Dairycorp as that term is used in the joint venture agreement, you were meaning by that to include Mr Lindsay-Owen of course, negotiated with several possible joint venture partners, all of whom had strong financial backing and relevant skillsets-- A. Yes. Q. --including Villawood, Peet and Australand, do you see that? A. Yes, I do see that. Q. So, may we take it that at least at the time you wrote the memo, you well understood that each of those three including Peet and Australand had strong financial backing? A. Yes. Q. And the relevant skillsets to fully develop and exploit the development potential of this land. A. Yes. Q. Do you accept that? A. Yes, I do."
3. The plaintiffs submitted that if negotiations with Villawood had failed, they would have had "no hesitation" in dealing with the other potential joint venture partners. There would have been no legal or ethical impediment to doing so.
4. The plaintiffs submitted that the evidence supports a finding that these other parties would have been interested in partnering the plaintiffs to develop the land. For example, Australand pursued the plaintiffs until February 2010. Mr Lindsay-Owen referred to this in evidence: "Q. That was the truth, wasn't it, on 19 February 2010 when you wrote and sent this email you wished to joint venture with Australand, didn't you? A. The only thing that I was looking for is cover for my rear end if Villawood walked away."

Is Robert Gordon's evidence admissible?

1. Robert Gordon prepared a report dated 20 December 2019 on behalf of the plaintiffs. Mr Gordon was employed by Macquarie Bank Limited for 23 years from April 1990 until August 2013 in various capacities, culminating in his position as Division Director - Corporate and Asset Finance Group. Among other duties with Macquarie Bank, Mr Gordon was responsible for overall management of the $2.5billion Macquarie Real Estate Structured Finance Australian property loan and transactions portfolio. Mr Gordon's extensive experience in the banking industry with Macquarie bank was not in dispute. Since leaving the bank, Mr Gordon has been self-employed as an "expert witness property financier".
2. The plaintiffs sought to rely upon this report in order to support their contention that the NAB would have been prepared, in the circumstances as they existed in late 2009 and early 2010, and in particular having regard to the bank's deadline of 31 March 2010, referred to earlier in these reasons, to accommodate the delays that might have been occasioned by the time it would theoretically have taken either to amend the draft Joint Venture Agreement or to find an alternative joint venture partner. As will be apparent, I have already concluded, without the benefit of Mr Gordon's evidence, that the bank would, in the circumstances as they prevailed at these times, have given the plaintiffs time to seek to amend the agreement in the way for which they contend. I formed that view having regard to all of the evidence in much the same way as Ball J concluded that a particular matter made perfect commercial sense in his judgment referred to earlier. The issue of Mr Gordon's evidence, and whether it is admissible, does not therefore strictly arise.
3. However, for more abundant caution I should indicate that in my opinion, Mr Gordon's evidence is inadmissible on the question of what the NAB would have done in 2010. His report does not satisfy the requirements of s 79 of the Evidence Act 1995. Mr Gordon purports to express opinions about what the NAB might have done, about what NAB's state of mind was, and even about what an alternative joint venture partner might have done. These opinions are not evidence of banking practice or any other fields of expertise based on specialised knowledge.
4. In the events that occurred, HWLE's series of objections to Mr Gordon's evidence were less significant than might at first sight have appeared. Mr Gordon gave the following evidence: "Q. Could I ask you to go to the same expression of opinion in paragraph 69 of your report? At paragraph 69 you've said, 'In my opinion if NAB or a lender in its position was faced with the hypothetical scenario posed for my instructions, NAB or a lender in its position would likely have', and then you've put a list of actions. What you're saying there is that's what you would've done, is that right? A. What I've written there should be interpreted on the words that I've used, and that is that in my opinion NAB or a lender in its position would've done those things and I would've as well. Q. I understand you saying what you would've done, but the question of what NAB would have done, that's just a hypothetical, you don't know the answer to that do you? A. I can't know what NAB would've done, only NAB can know that. I, I don't pretend to know what NAB would've done. But what I can do, as I've said, is use my 32 years' experience of dealing with lenders in the Australian market of all sizes and all types. And as I've said, my observation is they all have the same motivations, procedures and desired outcomes. They all act in a very, very similar way. So whilst, whilst I don't know and I can't claim to know what NAB would've done, only NAB would know that, I, I can be very confident in, in the opinions that I've written. But yes, they're my opinions of what I - you know, I would've done and what I think NAB would've done, or any lender in those same situations - in the same situation."

Is Michael Dyson's evidence admissible on his question 1?

1. The second area of expert evidence upon which the plaintiffs rely to prove causation of some loss is the response given by Mr Dyson to the question of whether it was more probable than not that a joint venture with a different partner would have proceeded on enumerated terms if the joint venture with Villawood had not been formed. Mr Dyson is a Certified Practising Valuer with over 30 years' experience with the Australian Valuation Office.
2. Mr Dyson was asked to answer two questions: "92.1 In about March 2010 (or within a further period of about 3 months) assuming the venture with Villawood did not proceed, is it more likely than not that another developer (the alternate JV partner) would have agreed to a joint venture with GLO/Dairycorp, where the key items were similar to the JVA with Villawood and the Terms Sheet…[Question 1] 92.2 In your opinion, assuming development of the subject property had gone ahead (whether with Villawood or another joint-venture partner) what cash flows would the joint venture have been likely to receive from the development, and over what period?..." [Question 2]
3. At paragraphs 103 and 104 of his 27 May 2020 report, Mr Dyson expressed the following opinions with respect to the first question: "103. It is therefore my considered opinion that the subject property, in early to mid-2010 would have been seen in the market as an attractive property to either purchase or more particularly become a prospective joint venture partner to, on the basis of the JV terms. On the basis of the above, it is considered that such an interest in the subject property would have been attractive to institutions and other parties for future development. 104. As such, my opinion in response to question 1 is that had the agreed JVA not proceeded, a similar JVA would have been achieved within 3 to 6 months on terms that were consistent with the terms sheet."
4. HWLE objected to the reception of that opinion in answer to question 1 by Mr Dyson upon the basis that it was not a matter of expertise upon which Mr Dyson, or indeed anyone, could express an admissible opinion. Whether a hypothetical joint venture would have proceeded on the precise terms put to Mr Dyson for his consideration is a matter to be assessed having regard to the circumstances prevailing at the time. Mr Dyson's opinion is not based upon a recognised field of study. It is no more than an opinion about what might have happened, and as such remains in the realm of hypothesis or speculation.

DAMAGES

1. The plaintiffs' claim is now one for damages calculated as the loss resulting from the lost commercial opportunity to develop the land in accordance with an amended Joint Venture Agreement where the joint venture assumed liability for the NAB loan after planning approval was obtained. It falls to me to try to determine the quantum of loss the plaintiffs have sustained by reference to future hypothetical events and the probabilities and possibilities. As explained in Malec v JC Hutton Pty Ltd at 643, it is necessary to determine the degree of probability of the event occurring and then adjust the award of damages according to that calculation, unless the probability is so low (less than 1%) as to be speculative or so high (more than 99%) as to be practically certain.
2. The plaintiffs' claimed loss falls under two categories. 1. First, there are expenses the plaintiffs incurred that were largely paid out of their share of the proceeds of sale of the land to Stocklands on 26 March 2015. The plaintiffs would not have incurred these expenses under an amended joint venture agreement with Schofields where the joint venture assumed liability for the NAB loan after planning approval was obtained; 2. Secondly, the plaintiffs lost their share of the development profit under an amended joint venture agreement, where the joint venture assumed liability for the NAB loan after planning approval was obtained.
3. The first is certain in amount and requires no adjustment. The second requires assessment according to the degree of probability or possibility.

Expenses

1. The plaintiffs' share of the proceeds of the sale of the land to RMS and Stocklands do not appear to be controversial. This was largely regulated by a Deed of Acknowledgment between the plaintiffs, Stocklands and Winton dated 6 December 2014. However, the plaintiffs' claim for expenses is not entirely conceded by HWLE.
2. The monies received by the plaintiffs following the sale of the land are as follows: 1. Share of sale proceeds from RMS (after costs): $5,474,469 2. Share of sale proceeds from Stocklands (less adjustments and costs): $56,932,976 3. Reimbursement of share of planning debt: $651,782 TOTAL: $63,059,227
3. From the monies received by the plaintiffs, they paid out expenses in the sum of $33,648,042, incurred as the direct result of HWLE's breaches of duty, itemised as follows: Description of expense Amount Interest payment on the NAB loan (initially paid by Schofields) that was reimbursed by the plaintiffs to Schofields $127,437 Extension and rollover fees paid to NAB after 16 April 2014 ($300,000 on 28 October 2014 and $235,000 on 2 February 2015) $535,000 Penalty interest on the NAB loan after 16 April 2014 $1,147,397 The plaintiffs' share of consultant fees initially paid by Schofields that was reimbursed by the plaintiffs to Schofields $152,633 Repayment of 100% of the NAB loan (paid in two tranches of $9,227,151.50 and $13,713,418.98) $22,940,570* Fees paid to Winton by the plaintiffs in connection with sale to Stocklands $5,747,718 Schofields' costs and disbursements $2,384,205 Mills Oakley's costs and disbursements $456,608 HWLE's costs and disbursements $156,474 Total $33,648,042

1. The expense item relating to the repayment of 100% of the NAB loan is marked with an asterisk to indicate that in the calculation of the expenses as damages, a credit of 50% of the NAB loan should be allowed.
2. Thus, the plaintiffs' claim the tabled expenses less 50% of the NAB loan amount as damages amounting to $22,177,757 together with interest from 26 March 2015. The plaintiffs emphasise that these expenses are recoverable even if the joint venture were destined to fail at the time that the land was sold, as HWLE maintains, but which the plaintiffs dispute.
3. HWLE disputes the plaintiffs' entitlement to the Winton payment as well as the claim for penalty interest, Schofields' costs and disbursements, Mills Oakley's costs and disbursements and HWLE's costs and disbursements.

The Winton payment

1. HWLE submitted that the Winton payment was not a compensable loss and should be excluded from any calculation of the plaintiffs' loss.
2. The so-called Winton payment was an extraordinary fee of $5,747,717 that Dairycorp paid to a land development company called Winton.
3. The circumstances in which Dairycorp became liable to pay the fee to Winton are explained in the judgment of Hammerschlag J in Winton Partners Funds Management Pty Ltd v Lindsay-Owen [2016] NSWSC 640: "[6] At some point during 2014, DairyCorp and Schofields fell out. There was litigation between them in this Court. DairyCorp was, by all accounts, under financial pressure, particularly with respect to repaying NAB. [7] Winton is a privately owned company which specialises in residential property development. [8] On 30 September 2014, Mr Lindsay-Owen was introduced to Winton's Chief Executive officer, Mr Chris Meehan (by a Mr Iain Murray, a business acquaintance of Meehan), as a person who might be able to assist DairyCorp. Mr Lindsay-Owen maintained that Villawood was trying to back him into a corner so that he would default on the NAB loan, and they could then 'steal the property' from him. [9] Endeavouring to assist DairyCorp, Winton made contact with NAB. Winton reported back to DairyCorp that it was unlikely that NAB would agree to an extension for repayment. [10] On 6 October 2014, Schofields gave DairyCorp notice under the Joint Venture Agreement requiring the land to be sold. [11] Subsequently, various proposals were made by Winton with a view to resolving DairyCorp's difficulties with NAB and Schofields. By 27 November 2014 however, no solution had been achieved. Winton then proposed that it could be of assistance, given the acrimony between DairyCorp and Schofields, by being involved in the sale which was anticipated to result from Schofield's notice. [12] Winton and DairyCorp then started to discuss the terms of what ultimately became the Mandate."
4. Accordingly, on 6 December 2014, a Deed of Acknowledgment was executed by Villawood and the plaintiffs. It was described by HWLE in written submissions, and would appear on any view to have been, an "extraordinary document". In particular: 1. although a stranger to the joint venture and the land, Winton became a further party to the deed in its own capacity; 2. Dairycorp and Mr Lindsay-Owen personally promised that neither would attend any meeting with, or communicate with, Villawood or anyone engaged by Villawood in relation to the joint venture or the land - clause 3(c); 3. instead all such attendances and communications would be conducted by Winton - clause 3(c); 4. even though the plaintiffs had the majority interest in the land, the management of the sale process was undertaken by Villawood - clause 5; 5. safeguarding the plaintiffs' interests (including the exercise of discretions) was left in the hands of Winton, not the plaintiffs - clause 5; 6. Villawood agreed to consult with Winton about the sale, not the plaintiffs - clause 5(d); 7. Winton, Dairycorp and Mr Lindsay-Owen personally agreed not to approach or communicate with any potential purchaser or agent - clause 5(d); and 8. the plaintiffs were required to give Winton a power of attorney in order for Winton to perform its role in the sale process.

Other expenses

1. With respect to the balance of the expenses claimed, the significant area of dispute appears to be whether the plaintiffs have actually established by evidence what the quantum of the expenses is said to be. For example, HWLE maintains that the document relied upon by the plaintiffs to establish the penalty interest claimed on the NAB loan after 16 April 2014 contains no entry relating to the suggested sum of $1,147,397 and so does not prove the claim for that amount. Similarly, the document provided in support of the claim for consultant's fees does not establish that those fees were incurred by reason of any negligence by HWLE. Similar arguments are raised concerning various claims for costs and disbursements.
2. I am not satisfied that these are matters that cannot and should not conveniently be referred out to an appropriate expert accountant or some other appropriately qualified person for consideration and assessment if the parties are not otherwise able to agree upon them among themselves. I shall invite the parties to respond to this proposal if it becomes necessary to do so in the absence of agreement about these expenses.

Lost development profits

1. The plaintiffs claim that they would have earned substantial profits from the joint venture's development, subdivision, marketing and sale of the land for residential purposes and other ancillary uses as lots and super lots. These were the "Project Objectives" referred to in clause 8 of the Joint Venture Agreement. The whole purpose of the joint venture was to maximise profit from the project in an efficient and timely manner.
2. The parties' respective submissions on the losses claimed by the plaintiffs for these lost development profits are detailed and complicated, as is the expert evidence marshalled for and against the proposition that the plaintiffs lost substantial sums by reason of having been denied the opportunity to exploit the land in accordance with the terms of the Joint Venture Agreement. Two preliminary things should be noted about the claim.
3. First, it is known that Stocklands, which company purchased the land for $103M plus GST, went on thereafter to subdivide and sell some of it over a number of years. In the strict forensic sense, little is known of the details of that company's activities in doing so. In particular, in circumstances that draw no criticism from me, having regard to the commercial sensitivities involved, there is no case mounted by the plaintiffs in this Court suggesting that their losses should be assessed by specific and particular reference to the cashflows generated by Stocklands in carrying out the development that the plaintiffs and Schofields had hoped to complete together.
4. However, secondly and in a related sense, in the absence of any benchmark by reference to which the claimed losses can be gauged, the plaintiffs have necessarily resorted to the postulation of a series of hypotheticals. In essence, these hypotheticals pose the extraordinarily difficult question of what would have happened if the Joint Venture Agreement had been permitted to take its own course. In order to support this approach, the plaintiffs have relied upon Mr Dyson who has posited three possibilities, which he has described as scenarios. It must be accepted that these are not the only possibilities that might be postulated and that there is an infinite number of others that could be considered.
5. The parties have indicated that I ought to approach the calculation of these damages by making the findings that determine each of the integers across the applicable calculations so that they can then attend to the determination of the appropriate arithmetical result with the assistance of their respective accounting experts. In this respect, HWLE have suggested that there are a series of issues to which I could direct attention in aid of that approach. Having regard to these matters, and in accordance with the parties' invitation, I offer the following responses to the issues for decision posed by HWLE in its outline of closing submissions.

(a) the specification of his three hypothetical scenarios?

(d) nothing?

1. Mr Dyson's three scenarios are described as follows in his 27 May 2020 report: "Scenario 1 - Base Case Model 49. Development Approval (DA 12-1948) was granted for the subdivision of part of the subject property (Tranche 1) in December 2013 and a submission was prepared by the JV parties and submitted to NAB at the time, which outlined a proposal for proceeding to develop the subject property. DA 12-1948 provides a base as to the potential development of this part of the subject property in 2014, with most of this part being zoned R2 Low Density Residential and a small component zoned RE1 Public Recreation for parks. The remainder of the subject property (Tranche 2) was included in the submission to NAB and was suitable for varying densities of development which ideally would be sold as development 'super-lots'. Lot B (on the northern side of Schofields Road) was not included in either Tranche 1 or 2 and therefore subject to separate development. As Development Approval was granted for subdivision of a large part of the subject property, (Tranche 1) it is my considered opinion, based on the advice that I have provided that bears on the timing of stages of development and from my observations over many years of the progress of similar developments, that on this scenario the development of the subject property would commence quickly with sale of the lots commencing within 12 months of the commencement of development. This scenario has been assessed on the basis of the subdivision, timing as outlined in the NAB application, with Lot B being developed in accordance with the lands surrounding it on the northern side of Schofields Road. 50. I consider this scenario was the most likely in 2014 however no flexibility is contemplated as it is based on the market at the beginning of the development period (2014) only. Scenario 2 - Optimum Development Model 51. I have considered the Mecone Report. This report describes the maximum potential that the subject property could be developed to. It provides for higher density development within Tranche 1 than DA 12-1948 as well as high rise development within Tranche 2, including the increases in density and development envisaged as a result of the recently proposed Metro Station at Schofields (near the existing Blacktown to Richmond Railway line) as a result of a proposal to extend the existing Metro Line from Tallawong Station to Marsden Park. The report also envisages high density development on Lot B. As the land was not developed in 2014, this scenario is assessed on the basis that the subject property is developed to its maximum potential in accordance with the Mecone Report. 52. Part of the Mecone Report has been adopted as the basis of assessing the development of the later stages of Tranche 1 (Stages 3, 4 and residue) and for Tranche 2, as Option 2 Optimum Development Model with an extended development period, due to the delay as a result of achieving the higher density provided in the report. The earlier Stages (Stages 1, 2 and 5) and Lot B have been modelled on the Stockland development which occurred in 2015 - 2016 as this is considered to represent a combination of the highest potential realisation in the shortest time frame as any major changes as envisaged would take considerable time to be prepared and approved by Council. 53. I consider this scenario to be the least likely as it is based on hindsight as to market conditions and delays the development of Tranche 2 into the present time or future to achieve higher densities that may not be able to be achieved and may be out of line with current market conditions, as it assumes that Tranche 2 is still vacant at the end of 2019. Scenario 3 - Scenario 1 with Increased Development in line with market changes 54. It is noted that the subject property was sold to Stockland Corporation in early 2015 who have since developed the subject property in stages with some areas sold as single dwelling lots and others as townhouse style (attached) dwellings to increase density above that as approved in Development Approval (DA 12-1948). For the purposes of this Scenario 3, Tranche 1 has been assessed on the basis that Stages 1, 2 and 5 are developed in accordance with DA 12-1948, as this provides earlier Cash Flow to reduce interest costs. The balance of Tranche 1, being Stages 3, 4 and the residue are developed at a slightly higher density as the market for land changed with acceptance of smaller lots. This allows for higher realisation of the subject property in line with market changes. Tranche 2 has been assessed on the basis that it was developed as 'super-lots' with these sold from the end of 2016. Lot B has been assessed on the basis it was developed at the same time and in the same density as the surrounding lands. 55. I consider this scenario to be the most likely as it is based on the market at the beginning of the development period (2014) and then the development scenarios of future stages changes in line with market supply and demand."

Is there any basis on which the Court can find that the joint venture parties would have pursued one of Mr Dyson's hypothetical scenarios to completion (if so, which one), or alternatively some other hypothetical scenario (if so, what other scenario)?

1. In my opinion, the joint venture parties would have proceeded to develop the land. I do not accept that the relationship between the plaintiffs and Schofields had irretrievably broken down in the way contended for by HWLE. There were certainly tensions in existence in the period leading up to April 2014 but there is insufficient evidence for me to conclude that these difficulties would alone have precipitated a collapse of the joint venture.
2. The question is whether there is any basis on which I can find that the joint venture parties would have pursued one of Mr Dyson's hypothetical scenarios or some other hypothetical scenario. HWLE submitted that there was no basis to find that any of Mr Dyson's three hypothetical scenarios was more likely to have occurred than any of the countless alternatives and that none has any probative value. They submitted in detail as follows.
3. A large scale development of land on the edge of Sydney is a highly complex undertaking, yet Mr Dyson's scenarios are described at the highest level of generality only. Although opaque, the only matters that distinguish the three scenarios are the number of lots for each stage of a multi-stage development and the time at which a 12-month construction period would have started for each stage.
4. Mr Dyson has expressed the (inadmissible) view that, hypothetically, his scenario 2 is the least likely to have occurred. HWLE does not dispute that. However, scenario 2 is a set of assumptions made by Mr Dyson built upon another set of assumptions by an expert planner (Ms Sedgmen), which in turn rests upon another set of alternative assumptions by an expert architect (Mr Pearse). HWLE submitted that this is speculation upon speculation and will not assist me to determine the quantum of the value of the lost chance. HWLE perceives that the only purpose of scenario 2 in the scheme of the plaintiffs' evidence is to portray scenario 3 as the reasonable mid-point.
5. Mr Dyson has expressed the view that his scenario 3 is the "most likely", by which he means more likely than scenario 1 and scenario 2. Mr Dyson is a valuer and not a land developer. HWLE again submitted that Mr Dyson is not qualified to express an opinion about the options to develop the land in 2014, which would have depended upon many matters, including commercial considerations, finance, costs and planning issues. However, I have already indicated that the scenarios should be considered in the context of an amended joint venture with Schofields, not some other hypothetical partner, so that Mr Dyson is suitably qualified. I have also already indicated that the question of which scenario is more likely than any other is not one upon which Mr Dyson can express an admissible opinion. I indicated as much in the course of the hearing: "HIS HONOUR: He makes an assumption about what is likely and values it accordingly, whether that assumption proves to be correct remains to be seen. His view about the likelihood of it coming to pass is irrelevant, isn't it? ALEXIS: It remains to be seen in the sense that it's a matter for your Honour."

For the purpose of determining the nominal cashflows for each of Mr Dyson's three hypothetical scenarios:

(a) would a hypothetical development of home lots on Tranche 1 and Lot B have proceeded by way of pre-sales, thus requiring gross realisation to be assessed as at the date of commencement of the construction period for each stage (Mr Dempsey) rather than halfway through the construction period (Mr Dyson)?

1. HWLE submitted that even if Mr Dyson's three scenarios are accepted, the gross realisation figures which he has used in his nominal cashflow for each scenario are excessive. HWLE contends that Mr Dempsey's figures are to be preferred.
2. HWLE submitted that I should find that for each of Mr Dyson's three scenarios, the sales of the Tranche 1 and Lot B home lots would have proceeded by way of pre-sales, with the result that the gross realisation ought to be determined as at the dates used by Mr Dempsey, not Mr Dyson. An important difference between Mr Dyson and Mr Dempsey is the date at which sales of the Tranche 1 and Lot B home lots would have occurred for each of his three scenarios.
3. Mr Dyson has specified the date at which construction of each hypothetical stage would have commenced and the duration of each construction period (uniformly 12 months). Although not stated in his first report, Mr Dyson has assumed that the hypothetical joint venture would have sold the home lots progressively over each stage and he has taken six months after the construction period commenced as the date at which to estimate the gross realisation for each stage.
4. On the other hand, Mr Dempsey has assumed that the hypothetical joint venture would have sold the home lots by way of pre-sales before construction commenced for each stage, similar to selling apartments off the plan. Mr Dempsey's date of valuation is therefore uniformly six months earlier than Mr Dyson's.
5. Hindsight reveals that the market was rising throughout the relevant period, sometimes significantly. The six month delay for the estimate of proceeds from each stage means that Mr Dyson's estimates are higher than would be the case if he had also assumed the development would have proceeded by pre-sales.
6. HWLE submitted that the objective facts which pertained in 2014 onwards as established by the contemporaneous documents strongly support the conclusion that the hypothetical joint venture would have sought to pre-sell and that Mr Dyson's suggestion that this was conservatism on the part of Mr Dempsey should be rejected. In a "hot" market, the developer knows only that the current market is hot; a delay risks missing out on taking advantage of market conditions. As Mr Dempsey put it, "a developer doesn't know the future". This concern is apparent in the documents prepared by the joint venture prior to its collapse. As I observed during the proceedings, buying off the plan is a fact of life where demand exceeds supply.

(b) are there other reasons why Mr Dyson or Mr Dempsey's figures ought to be preferred for Tranche 1 and Lot B?

1. HWLE submitted that I should find that for scenario 1, Mr Dyson's gross realisation figure for the Lot B home lots is overstated when regard is had to the market value of the Lot B home lots. For Lot B in scenario 1, Mr Dyson considered that the home lots in Lot B ought to be valued at $505,000 per lot (or $1,300 per m2). In his first report, Mr Dyson did not identify any comparable sales to support those figures. He has provided a schedule of comparable sales with his second report, but he does not attempt to explain how they support the figure of $1,300 per m2 and none of the sales listed in that schedule comes close to $505,000 for a 396m2 lot in November 2015. He was not able to explain his position in cross-examination. HWLE submitted that Mr Dempsey's figure of $415,800 per lot (or $1,050 per m2) is to be preferred.
2. The plaintiffs' comprehensive contentions were as follows.
3. The planning experts agree on the applicable zoning, permissible land use and minimum lot sizes, as outlined in Ms Sedgmen's report. Notably under the Growth Centres SEPP, there was no maximum density control. This was explained by Ms Sedgmen as encouraging development, rather than a control on overdevelopment.
4. There are no planning issues in relation to Tranche 1 between the planning experts. They agree that Tranche 1 has been developed with many smaller lot sizes and that the registered development is a 35% increase in the number of lots that were approved under DA 12-1948. They agree that the Housing Diversity package was implemented through the Growth Centres SEPP in August 2014 and that there was time available to redesign the approved lot layout in Tranche 1. They also agree that the actual yield for Lot B was 43 lots.
5. The plaintiffs maintained that this "strongly supports scenario 3 as a reasonable postulation of the hypothetical development for Tranche 1 and Lot B".
6. In relation to Tranche 2, the planning experts agree that the development yield will increase with the location of the proposed Metro station and interchange at Schofields. While future Floor Space Ratio (FSR) is not certain, forecasts of potential FSR's and yields can be made based on available precedent. Ultimately, however, this is determined by the evidence of the architectural experts who opine on developable lot area in terms of Gross Floor Area (GFA) and the evidence of the valuation experts who express opinion on the gross realisations of Tranche 2 based on saleable area or GFA.

1. Mr Dempsey adopted Mr Dyson's indicative timing for the construction and the settlement of sales on each of the scenarios. The revenue differences between Mr Dempsey and Mr Dyson are distilled into separate tables for each scenario. To illustrate the position with respect to scenario 3, it can be seen: 1. The revenue from the RMS acquisition was agreed at $10,897,260; 2. The revenue from Tranche 1A (155 lots across stages 1, 2 & 5) is between $68,517,000 (Dempsey) and $75,535,000 (Dyson); 3. The revenue from Tranche 1B (144 lots across stages 3, 4 & the residue lots) is between $68,666,400 (Dempsey) and $70,200,000 (Dyson); 4. The revenue from Lot B (only 21 lots) is between $10,810,800 (Dempsey) and $10,605,000 (Dyson); and 5. The revenue from Tranche 2 is between $131,244,960 (Dempsey) and $182,550,600 (Dyson).
2. Mr Dyson has been a valuer for over 40 years. He has extensive experience in subdivisions and particular experience in valuing englobo (undeveloped) development land and undertaking development modelling. He is routinely required to consider the earning capacity of proposed development sites involving various combinations of individual lots, englobo and super lots. This generally requires the preparation of expected cashflows and involves a consideration of anticipated timing of various stages in the development project and the expected revenues, costs and profits as set out in the cashflow analysis.
3. In determining the gross realisations for the Tranche 1 land, Lot B land and the Tranche 2 land Mr Dyson:

• determined the gross realisations from the sale of the land in lots over the various stages of the development by reference to actual sales analysis, including sales prices and volumes of sales as well as local knowledge of the sales and marketing of comparable land subdivisions in the Schofields area. The comparable prices were identified by reference to the zoning of the different parts of the land, in particular as applicable to Tranche 2;
• relied on the Brown Smart Consulting costings, checked those costs for reasonableness against industry benchmarks as set out in the Rawlinsons Costs Guide and his own previous experience of costs of similar subdivisions. He escalated those costs at 5% based on the aforementioned industry benchmarks;
• determined other costs by reference to the joint venture's documents and based on his own experience;

1. The plaintiffs contended that the differences between Mr Dyson and Mr Dempsey on the net development profit are explained entirely by the differences on the gross realisations.
2. In relation to the costs of the development on each scenario, Mr Dyson relied on the "Opinion of Probable Costs" from Brown Smart Consulting for the development costs of Tranche 1 (stages 1, 2 and 5 and stages 3 and 4) and for Tranche 2, that was included in the finance application to the NAB. Further, Mr Dyson checked the costs for reasonableness by comparing those costs to industry benchmarks obtained from Rawlinsons Costs Guide and against his previous experience of costs from other similar subdivisions. As the development costs would be expended over the development period, Mr Dyson escalated the costs by 5% per annum. The escalation factor was derived from industry benchmarks (Rawlinsons) and other increases in development costs as provided by quantity surveyors over the period.
3. Despite the estimate of the development costs being prepared by the joint venture consultants and submitted to the Bank, HWLE seeks to impugn the reliability of the estimates. However, the plaintiffs submitted that there is no demonstrable reason why the consultants' estimates cannot be used to inform the net development profit of each hypothetical development model.
4. The plaintiffs anticipated that HWLE would maintain that the estimate understates the likely development costs, but insists that there is no evidence of this. Nor is there any evidence that any of the formal notations at the end of each estimate are likely to be engaged in any material way. HWLE has not led any evidence to rebut the inference clearly arising in the case that the joint venture parties were proceeding on the basis of the development costs that were estimated to the Bank. The assertion, that the estimate was unreliable or did not reasonably estimate the proposed costs of the development, was put for the first time in the cross examination of Mr Dyson. In other words, HWLE could have led evidence of that contention (from a quantity surveyor, for example) to demonstrate that the proposed costs were "hopelessly inaccurate" or some cognate submission, but have not done so.
5. In relation to the other costs, including marketing (advertising) and sales (agents commission and legal fees), Mr Dyson used a combination of those provided in the finance application to the NAB, with a check from valuation benchmarks including his previous experience of costs from other similar subdivisions and discussions with agents and lawyers in this field. He also applied GST on the sale of the land, with credits applicable from the costs of the development.

(c) would a hypothetical development of super lots on Tranche 2 have proceeded by way of pre-sales, thus requiring gross realisation to be assessed as at the date of commencement of the construction for Tranche 2 (Mr Dempsey) rather than halfway through the construction period (Mr Dyson)?

1. Having regard to the view I have expressed about Tranche 2, this question is academic. However, I have no reason to suspect that the joint venture partners would have approached the issue of pre-sales or otherwise in any different manner to that which I consider would have been adopted with respect to Tranche 1 and Lot B.

(d) would Lot 14 and Lot 13 have each been bisected by a road with the result that the area used by Mr Dyson for Tranche 2 is too big?

1. This question also does not arise having regard to my findings.

(e) are there other reasons why Mr Dyson or Mr Dempsey's figures ought to be preferred for Tranche 2?

1. This does not arise.

(f) is the result that Mr Dempsey's figures for gross realisation are to be accepted?

1. Yes.

Is there any evidence before the Court to allow it to make a finding as to what the development costs would have been for any of Mr Dyson's scenarios (or otherwise)?

1. HWLE submitted that I ought to find that there is no evidence as to what development costs would have been incurred by the hypothetical development, so as to leave that aspect of the case largely a matter for speculation.
2. For a development from which proceeds of a quarter of a billion dollars were hoped to be realised, very significant development costs would have been incurred. Inaccuracies in the estimation of the development costs, even small inaccuracies, may result in very large overestimates of the profit which might have been made from a hypothetical development.
3. The plaintiffs have not adduced any credible or reliable evidence about the development costs which would have been incurred for the work on any of Mr Dyson's three hypothetical scenarios. Mr Eversgerd is not a property developer and disclaims any relevant expertise. For this half of the cashflows, Mr Eversgerd has relied entirely on Mr Dyson.
4. Mr Dyson does not have any relevant expertise. He indicated that he did not have the expertise to determine the costs of a project, which is usually provided by a quantity surveyor. Mr Dempsey is in the same position. The plaintiffs have not adduced evidence from a quantify surveyor.
5. As for the historic facts, from 2015 Stockland undertook development work on the Tranche 1 land and on Lot B, albeit in accordance with a different plan from that upon which the Villawood/Dairycorp joint venture embarked in 2010. There is no evidence of the development costs incurred by Stockland in that historic work.
6. In order to address the establishment of hundreds of millions of dollars of hypothetical development costs, the plaintiffs proceeded as follows:

• by taking a draft "opinion of probable development costs" by Brown Smart Consulting which was prepared in late 2013; and
• the unqualified Mr Dyson has used that opinion to calculate the costs for each stage of each Tranche for each of his three Scenarios; and
• where a stage, Tranche or scenario differed from the specific development considered by Brown Smart Consulting in 2013, Mr Dyson has "adjusted" the costs "as considered appropriate".

For the purpose of determining the amount of the final equity payment which would have been received or paid by the plaintiffs upon planning approval:

(a) would the parties to the hypothetical JVA have agreed to:

(i) the formula in clause 4.4(b) of the Facility Agreement (Eversgerd I);

(ii) the formula in clause 4.4(b) modified as contended by Villawood in the counter-rectification proceedings before Ball J (McGuiness II);

(iii) the formula used by Mr Eversgerd in his report of 23 December 2021 or

(iv) some other formula (if so, what formula)?

1. The parties are agreed that Schofields' participating interest was 40.67% at planning approval and that any adjustment would have been calculated on that basis. It has also now been accepted that the relevant sum for use in the formula in clause 4.4(b) of the Facility Agreement was $20.5M, rather than the facility limit of $22.650M.

(b) would the final equity payment have been calculated by reference to a Villawood participation interest of:

(ii) a mid-point between 36.48% and 33.99% (Eversgerd II); or

(iii) some other participation interest (if so, what participation interest)?

1. The final equity payment would have been calculated by reference to a participation interest of 40.67%.

(c) would the final equity payment have been calculated by reference to a valuation of the land of:

(i) $102M (as per the Paul Dale valuation as instructed to Mr Eversgerd);

(ii) $51M (as per the JLL valuation as instructed to Mr McGuiness); or

(iii) some other valuation (if so, what valuation)?

1. The plaintiffs now accept that the final equity payment would have been calculated by reference to a valuation of the land of $51M.

(d) would the final equity payment have been calculated by reference to a land debt of:

(iii) some other land debt amount (if so, what amount)?

1. The final equity payment would have been calculated by reference to a land debt of $22.65M.

Should the nominal cashflows be considered on a pre-tax basis (Mr Eversgerd) or a post-tax basis (Mr McGuiness)?

1. HWLE made the following submissions.
2. The authorities make clear that in the circumstances of this case, loss is to be assessed on a post-tax basis and the final award of damages (but not interest) is to be grossed up to compensate the plaintiffs for having to pay tax on the damages. In assessing loss and damage, the reality of the impact of taxation must be recognised and allowed for: Gill at 807; Sydney Local Health District v Macquarie International Health Clinic Pty Ltd (2020) 105 NSWLR 325; [2020] NSWCA 274 at [474].
3. To comply with that requirement, the approach which is "routinely" taken in commercial cases in Australia is for the Court to determine the amount of the damages having regard to the tax which would have been paid upon the lost income, and then gross up the damages to that which is necessary to leave the plaintiff with that amount: Sydney Local Health District v Macquarie International Health Clinic Pty Ltd at [478]. This is especially so where there is a "marked" difference between the tax which would have been paid on the lost income and the tax which will be paid on the award of damages. This marked difference is likely to occur in any case where the alleged lost earnings are spread over a period of years (whereas damages are assessed and taxed in a single year): Gill at 800-1.
4. Another circumstance where it is necessary to assess loss on post-tax cashflows is where a plaintiff claims interest for losses suffered some years ago. In such a case, a "grossly unjust result" will be suffered by the defendant if the interest is calculated on pre-tax losses: Gill at 806-7. That calculation will result in the defendant having to pay interest to compensate the plaintiff for not having the use of sums which the plaintiff would never have enjoyed but instead have paid away as tax: Sydney Local Health District v Macquarie International Health Clinic Pty Ltd at [541]-[546].
5. Atlas Tiles Ltd v Briers (1978) 144 CLR 202; [1978] HCA 37 at 236 was a wrongful dismissal case in which Stephen J in a dissent later followed in Cullen v Trappell (1980) 146 CLR 1; [1980] HCA 10 described the approach as follows: " … if the aim is to award damages which will as nearly as possible fairly compensate for economic loss measured in net, after tax, terms, the first step will be to estimate in net terms the plaintiff's loss due to his wrongful dismissal, applying the rate of tax appropriate to what would have been his taxable income, including income from other sources, but for his dismissal. This done, the damages to be awarded, after taking into account any adjustment for contingencies or discount for present payment if applicable, will be such a sum as will leave that amount of net loss in the plaintiff's hands after five per cent has borne tax at the rate of tax applicable to the plaintiff, again taking account of income from other sources."

What was the date of the loss?

1. HWLE submitted that the parties entered into the Joint Venture Agreement on 29 March 2010 on which date the plaintiffs became contractually bound to repay the NAB debt when planning approval was obtained. The plaintiffs claim that they were never able to discharge that obligation. Indeed, that lies at the heart of their case on liability. It is not a case where there was some contingency that remained unfulfilled so that no loss was suffered until that contingency was realised. Dairycorp actually suffered a loss on 29 March 2010 when the defective document was executed.
2. The plaintiffs contended that they merely suffered a potential loss on 29 March 2010 when they entered into the defective Joint Venture Agreement. That loss did not become an actionable or actual loss until Mr Taber's letter dated 29 April 2014 that required the plaintiffs to perform clause 11(b). It was only when that demand was first made that the defect was manifest and the actual loss arose. The commencement of the construction suit thereafter on 29 May 2014 is ample evidence of this. Ball J then declared the proper construction of clause 11 of the Joint Venture Agreement on 28 August 2014.
3. I disagree with the plaintiffs' submission. They suffered loss when they were bound to an agreement that did not comply with the instructions they gave to Mr Downing who acted on their behalf. That breach was immediately actionable. The fact that the quantification of the loss that the plaintiffs sustained as a result of the breach could not immediately be quantified does not alter the date upon which the loss was sustained.

(c) some other (if so, what)?

1. The plaintiffs emphasised that the general rule that damages for tort or breach of contract are assessed at the date of breach is not universal and must give way in the particular case to solutions best adapted to award an injured plaintiff an amount of damages that will most fairly compensate for the wrong. What is in the interests of justice is the guiding principle.
2. The plaintiffs submitted that, for the same reasons, the appropriate time or date for the assessment of damages in this case is from early 2015 when the revenues from the settlement of sales of residential lots would have commenced and the opportunity to develop the land in accordance with the amended Joint Venture Agreement was irretrievably lost by the sale to Stocklands. The date of assessment must necessarily follow the date when the defect in the Joint Venture Agreement first became manifest and actual loss that was actionable arose.
3. The plaintiffs submitted that HWLE's submissions inviting the assessment of damages as at 29 March 2010 should therefore be rejected. The plaintiffs conceded, however, that ultimately little turns on the date of assessment, whether in 2015 or at the time of trial, as I am entitled (and indeed required) to take account of all of the events that have actually occurred, as HWLE appear to accept.
4. HWLE's submissions were as follows.
5. Whilst not an invariable rule, the orthodox approach to the assessment of loss for both negligence and breach of contract is to carry out the assessment as at the date of the loss. The most clearly established exception is in personal injury and fatal accident cases where damages can be measured as at the date of trial or judgment because the assessment of damages at that time enables circumstances which would otherwise have been mere prophecies to be reviewed or relied upon as facts: see, for example, Johnson v Perez (1988) 166 CLR 351; [1986] HCA 64 at 387.
6. However, that reasoning does not apply in the present case. The Court is being presented with a past hypothetical. The Court does not know what would have happened with the joint venture now. It will not know any more in five years' time when the development of Tranche 2 may be completed.
7. Rather, the Court is forced to resort to mere prophesy as to what would have been achieved by the joint venture parties. In light of the matters discussed in response to issues of causation, including the fractured relationship between the joint venture parties, HWLE submitted that nothing would have been achieved in that counterfactual beyond the very substantial profit secured by the plaintiffs in fact. If, however, the Court concludes that something more could have been achieved by the parties (or some unidentified third party), then the date on which loss should be assessed is 29 March 2010, being the conventional approach.

Should the nominal cashflows be discounted for non-diversifiable risks?

1. The essential question is whether a discount for non-diversifiable risk should be applied when the gross realisations or cashflows are achieved from the sale of subdivided land in a ready market.
2. Mr McGuiness gave evidence about this. It included the following exchange: "ALEXIS: If it be the case that the subject of risk is already reflected to a reasonably substantial extent already in each of the three scenarios, such as to within those three scenarios, bear on the degree of probability or possibility of each occurring, is that something that you have taken into account or you have ignored? WITNESS MCGUINESS: I think there's a confusion in your question, with respect. The matter of estimation risk goes to the expected cashflows. That is entirely different to the matter of non-diversifiable risk. ALEXIS: It might be but-- WITNESS MCGUINESS: Now, you've got three different estimates in Mr Dyson's first report, you've got three different estimates in Mr Dyson's second report, you've got three different estimates in Mr Dempsey's report. They all show quite a wide range of outcomes, I think at the lowest, $124 million worth of development profit and the highest of $240 million. To me, that looks and feels very much like variable or risky cashflows. I can't accept the proposition that they are risk free cashflows. So, they are risky cashflows, so, yes I have considered the nature of those cashflows but the variability of those estimates of cashflows says nothing about the market risk. It says nothing about the cost of capital. ALEXIS: In other words and this perhaps goes back to Mr Eversgerd's example earlier where he used different scenarios to earn, I think, $100 or $70 and he was using that by way of analogy with the three scenarios we have here. WITNESS MCGUINESS: To do with tax? ALEXIS: In approaching the question of discount and informing ultimately the rate that you've applied, you haven't adjusted that to take account of the fact that perhaps on one view, scenario 1 is less risky than for example scenario 3. WITNESS MCGUINESS: It might be you don't need to because the work that a cost of capital has to do is to account for the incremental market risk. It doesn't account diversifiable risk. What you're talking about is diversifiable risk. ALEXIS: Yes, but that all just shows that your evaluation of risk and the discount rate that you've applied has no regard to each of those three scenarios, correct? WITNESS MCGUINESS: It does have regard to the three scenarios but it's not accounted for on the cost of capital."

If so, what is the appropriate discount rate?

1. I consider that a discount rate of 5% should apply.

Should there be a further discount for diversifiable risks (possibilities and probabilities as per Sellars)?

1. Although the reference to a "further" discount for diversifiable risks assumes a position with which the plaintiffs disagree, I take their submissions uncontroversially to accept that a discount for the possibilities and probabilities peculiar to this subject development is appropriate. This follows from the fact that the plaintiffs do not claim compensation for loss of profits which would have been received from completion of one of Mr Dyson's scenarios but for the loss of the opportunity to pursue them, or one of them. Indeed, the plaintiffs' submission accept in terms that a Sellars discount for contingencies and vicissitudes should apply.
2. I have already concluded that I do not accept that the relationship between the joint venture parties was so dysfunctional that it was doomed or destined to fail. I am also satisfied that the NAB would have remained cooperative until then in accordance with a recognition by the bank that its security was well protected by the development of the land and the generation of the cashflow that it would have produced. All other things being equal, the prospect of the commercial exploitation of the opportunity presented by the Joint Venture Agreement would have seen, in my estimation, a continuation of the relationship at least to the conclusion of Tranche 1 and Lot B. Anything beyond that enters the realm of speculation.

If so, what is the appropriate discount?

1. In the circumstances, I consider that a Sellars discount of 15% should apply.

If the nominal cashflows are considered on a pre-tax basis, should pre-judgment interest include interest on that part of the loss which represents profit which would have been paid as tax?

1. I have determined that the plaintiffs' loss should be assessed on a post-tax basis. This issue does not therefore arise.

If the nominal cashflows are considered on a post-tax basis, should there be a tax gross up:

(b) on the pre-judgment interest?

1. HWLE accepts that the plaintiffs are entitled to a gross up for the tax they will be required to pay on the damages they receive. The plaintiffs should be given the opportunity to prove what that tax will be in general terms: see Gill at 804. However, for the purposes of calculating the gross up so as to leave the amount of the net loss in the plaintiffs' hands, prejudgment interest should be ignored as it is awarded without regard to the tax that would have been paid on any profits derived from the beneficial use of the money in the meantime: Sydney Local Health District v Macquarie International Health Clinic Pty Ltd at [541]-[546].

Conclusions

1. It will be apparent that I have not yet calculated the final sum representing the plaintiffs' damages. Having regard to the manner in which the quantum claim has been approached, I consider that, as the parties have anticipated, they should have an opportunity to consider my reasons so far and provide me with their respective contentions about how best to proceed from here. The burden of my findings on lost development profits is that Mr Dempsey's calculations on the basis of Mr Dyson's scenario 1 most closely represent the loss suffered by the plaintiffs under that head. I accept that some further clarification of that conclusion may be required. It may also be worthwhile giving some consideration to whether or not any outstanding issues upon which the parties cannot agree should be referred to an appropriate referee for determination.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 February 2023