Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd - [2016] NSWSC 1587 - NSWSC 2014 case summary — Zoe

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Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd

[2016] NSWSC 1587

Supreme Court of NSW|2014-02-12|Before: Kunc J, Windeyer J, Bhs J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2014-02-12

Before

Kunc J, Windeyer J, Bhs J

Source

Original judgment source is linked above.

Judgment (104 paragraphs)

[1]

Introduction

On 13 December 2010 the Court of Appeal declared that the defendant, Sydney South West Area Health Service (now the Sydney Local Health District) (the "Health District") was precluded, as lessor, from taking possession of two adjacent sites (the "Car Park Site" and the "Hospital Site") at the Royal Prince Alfred Hospital ("RPAH") in Camperdown on 17 March 2000 and that its eviction of Macquarie International Health Clinic Pty Ltd ("Macquarie"), the plaintiff lessee, constituted a trespass against Macquarie. The Court of Appeal made consequential orders including that there be an enquiry as to the amount of damages, if any, payable by the Health District to Macquarie in respect of Macquarie being kept out of possession "between 17 March 2000 and the date of being restored to possession".
I heard the enquiry as to damages over the course of 100 hearing days commencing on 10 February 2014 and ending on 26 August 2015. Further hearings, which took place upon Macquarie retaking possession of the two sites, took the total number of hearing days to 106.
The issues that the parties posed for the Court's determination are set out in Schedule A to these reasons.
In these reasons all monetary amounts (unless stated otherwise) are inclusive of GST insofar as they relate to the period after the introduction of GST on 1 July 2000. In the case of amounts to be calculated from before that date (e.g. staff car parking rates), I have proceeded on the basis that there was or is not to be allowed any increase in the price of something solely due to the introduction of that tax. If it cost $2.00 on 30 June 2000, then it still did so on 1 July 2000, but inclusive of GST from that date.

[2]

Summary

The commercial relationship and litigious history between the parties dating back to Heads of Agreement signed in 1989 are complex and the materials voluminous. As I observed in an earlier judgment, the dispute between the parties has now been running longer than the Trojan War. To put these proceedings into their complete context, the reader will need to refer to (and I incorporate herein by reference) these judgments: 1. Windeyer J's refusal of Macquarie's application for the return of the Car Park Site: Macquarie International Health Clinic Pty Ltd v Central Sydney Area Health Service (Supreme Court (NSW), Windeyer J; 28 March 2000, unrep); 2. Nicholas J's rejection of Macquarie's case at first instance: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738 (23 July 2008); 3. Nicholas J's determination of the Health District's cross-claim in its favour: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2009] NSWSC 629 (7 July 2009); 4. The Court of Appeal's decision upholding Macquarie's appeal in part: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (2010) 15 BPR 28,564; [2010] NSWCA 268 (14 October 2010); 5. The Court of Appeal's orders including for this enquiry and the stay of the orders for possession: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 348 (13 December 2010); 6. The High Court's rejection of the Health District's application for special leave to appeal from the Court of Appeal's decision of October 2010: Sydney South West Area Health Service v Macquarie International Health Clinic Pty Ltd [2011] HCATrans 155 (10 June 2011); 7. The Court of Appeal's further observations on the possible procedure to be applied in this enquiry: Macquarie International Health Clinic Pty Ltd v Sydney Local Health Network [2011] NSWCA 231 (1 August 2011); 8. My judgment allowing Macquarie's second contested application to amend its pleadings: Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 6) [2014] NSWSC 1549 (6 November 2014); 9. The Court of Appeal lifting the stay of its orders for possession in favour of Macquarie: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2015] NSWCA 323 (15 October 2015).
On 30 June 1988 the Minster for Health announced approval for the development of a private hospital and a car park on adjacent sites at RPAH. RPAH is owned by the Health District. Macquarie was the successful tenderer.
At all relevant times Macquarie was a subsidiary of Macquarie Health Corporation Ltd ("MHC"). Through its subsidiaries, MHC developed and operated a number of private hospitals and health care facilities on a large scale. The principal of Macquarie is Dr Thomas Wenkart.
On 18 September 1989 Heads of Agreement were signed by Macquarie, MHC as guarantor and the Health District for the development of the car park and private hospital. It was not long before the parties fell into dispute and it took several years before the Heads of Agreement were translated into something more.
On 2 December 1996 Macquarie and the Health District executed six agreements (the "Transaction Documents"). These included a deed for the design and construction by Macquarie of a car park and a 200-bed private hospital (the "Construction Deed"), two leases (the "Hospital Lease" and the "Car Park Lease"), and a sub-lease (the "Car Park Sub-Lease").
Under the Hospital Lease, the Health District granted a lease to Macquarie over the Hospital Site for the proposed private hospital for a term of 103 years. Under the Car Park Lease, the Health District granted a lease over the Car Park Site for the proposed car park to Macquarie and itself as tenants in common in equal shares for a term of 103 years. Under the Car Park Sub-Lease, the Health District let its interest as co-lessee under the Car Park Lease to Macquarie for a term of 28 years.
Within a year of executing the six agreements the Health District became concerned that Macquarie had not got on with fulfilling its obligations in a timely fashion. On 20 November 1997 the Health District gave notice to Macquarie of defaults under the Construction Deed for failure to comply with various timetabling requirements for building approvals, excavation works and the commencement of construction of the car park.
On 16 March 1998 the Health District served a notice of default on Macquarie for failing to have commenced substantial bulk excavation works.
By November 1998 excavation of the Hospital Site had begun and construction of the car park had commenced.
On 13 September 1999 the Health District served notice of default on Macquarie under the various leases and the Construction Deed and, on 15 September 1999, an amended notice of default under the Car Park Lease.
On 24 September 1999 the car park was opened by Macquarie. The private hospital was never built.
On 1 November 1999 South Sydney Council ordered Macquarie to cease operation of the car park on the grounds that it was being operated unlawfully without an occupation certificate as well as in breach of certain conditions of consent.
On 17 March 2000, the Health District served notices of termination on Macquarie under each of the Construction Deed, Car Park Lease, Car Park Sub-Lease and Hospital Lease and it re-entered and took possession of the two sites. It locked Macquarie out of the car park. At the time, the car park had 1,026 car spaces.
Macquarie sued the Health District in relation to the Transaction Documents. Macquarie lost at first instance but was successful in part on appeal. The Court of Appeal found that the notices of default issued by the Health District did not comply with the requirements of s 129 of the Conveyancing Act 1919 (NSW) (the "Conveyancing Act") rendering its re-entry and continued possession of the two sites a trespass against Macquarie. The issue which fell for determination before me is the amount of damages (if any) payable by the Health District to Macquarie for this trespass.
In relation to the Car Park Site, the Court has concluded that Macquarie is entitled to mesne profits calculated by reference to the "user principle" (see paragraphs 111 to 118 below) on the basis of the following integers: 1. Period of damage: 17 March 2000 up to 9 am on 2 November 2015 2. Number of car spaces: 1,026 3. Users: Staff only 4. Rate: Staff rate of $3.00 per day as at 17 March 2000 adjusted annually for CPI with effect on and from 1 July in each year. 5. Daily turnover per space to reflect "100%" occupancy: 1.45 times per day. 6. Deductions in favour of the Health District: All proven expenses incurred by the Health District in each year in relation to the maintenance and operation of the car park and the annual rental that would have been payable by Macquarie to the Health District. 7. Interest: At Court rates on the annual net amount, assuming that amount is positive.
In relation to the Hospital Site the Court has concluded that Macquarie is entitled to damages in the form of mesne profits calculated by the residual land value method and by reference to the user principle by the application of the following integers: 1. The cost of building the hypothetical private hospital (excluding fixtures, fittings and equipment) ("FFE") is to be calculated as follows: 1. Net construction costs of $48,000,000 (June 2001 prices); 2. Subtract $1,737,000 for work already done; 3. Add $6,289,000 for preliminaries; 4. Add $4,138,470 for contingencies; 5. Add 5% builder's allowance; 6. Add $6,524,988 for design fees and subtract $2,000,000 for fees already incurred; 7. Add $1,053,410 for costs escalations; and 8. Insofar as amounts have to be escalated to present day values, such costs escalations should be done using the published NSW Building Price Index. 1. An Earnings Before Interest and Taxes ("EBIT") margin of 15%. 2. For the purposes of determining the revenue rate for the hypothetical private hospital, the Court adopts expert witness Mr Greg Anderson's approach, however he should recalculate his figures on the assumption of there being two catheterisation laboratories. 3. FFE costs for the initial construction period of the hypothetical private hospital of $19,000,000 (in 2003 dollars). 4. A discount rate when valuing the Private Hospital Lease as at 17 March 2000 of 8.94% (after tax). 5. No capital replacement in relation to the hypothetical private hospital building in years 1 to 5. 6. A factor of 0.5% of total capital value should be applied for capital replacement in years 6 to 10. 7. A factor of 1.5% of total capital value should be applied for capital replacement in years 11-20. 8. For the first 20 years, building capital expenditure should be escalated at 1.5% each year, compounding. Thereafter the full inflation rate should be applied. 9. FFE life cycle replacement costs should be calculated by reference to expert witness Mr Tim Staker's life cycle period for replacement. Furthermore, the calculation should be made in accordance with the annual costs set out in Mr Staker's report pro-rated upwards by a figure of 1.2257. 10. FFE replacement costs should be escalated by 1% simple interest in years 1 to 20 and thereafter a value of 2.5% for inflation should be applied. 11. For the purpose of determining the market rental of the Hospital Site, what must be considered is the period of the trespass (approximately 15 years) out of the 103 year life of the Hospital Lease and not a notional 15 year lease or sub-lease.
In addition to damages in the form of mesne profits, Macquarie is entitled to additional damages of: 1. $1,048,800 for additional building and consultancy costs that it would not be incurring but for the Health District's trespass; and 2. $301,990 (excluding GST) for remediation and excavation work to restore the Hospital Site to the condition it was in on 17 March 2000.

[3]

Procedural History

By amended summons filed on 27 March 2000, Macquarie commenced proceedings seeking declarations that the notices of default and notices of termination upon which the Health District acted were void and should be set aside. It also sought by notice of motion an interlocutory order for the return of the Car Park Site to its possession. This motion was dismissed by Windeyer J on 28 March 2000 (Supreme Court (NSW), Windeyer J; 28 March 2000, unrep) on the basis, inter alia, that damages would be an adequate remedy. His Honour was of the view that if Macquarie had been improperly locked out of the Car Park Site, damages "would be reasonably easily quantified": Macquarie International Health Clinic Pty Ltd v Central Sydney Area Health Service (Supreme Court (NSW), Windeyer J; 28 March 2000, unrep) at 10. Unfortunately the complexity and duration of the present enquiry have belied the optimism of that interlocutory assessment by a judge of great experience.
It should be noted that although counsel for Macquarie before Windeyer J mentioned in opening an argument about the Health District's failure to comply with s 129 of the Conveyancing Act, the argument was not pressed as a basis for interlocutory relief. It was also accepted, at least before Windeyer J in March 2000, that at that time Macquarie had no intention of building the private hospital.
The matter came on for trial before Nicholas J on 6 February 2006 and occupied 86 hearing days through to 28 May 2008. The trial was conducted on the basis of Macquarie's Fifth Further Amended Statement of Claim (the "Fifth Claim") filed on 2 May 2007. Macquarie relied on various bases to support the declaratory relief sought, including that it was not in default as alleged in the default notices, that the notices were invalid under s 129 of the Conveyancing Act, and that the notices were issued contrary to express terms in both the Construction Deed and the various leases which required the parties to act in utmost good faith in the performance of their duties and dealings with one another. Nicholas J resolved each of these substantive issues in favour of the Health District: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738 (the "Principal Judgment").
The Health District was also partially successful on its cross-claim against Macquarie which was heard over seven days between 1 August 2008 and 20 April 2009: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2009] NSWSC 629 (the "Cross-Claim Judgment").
Macquarie appealed from the whole of Nicholas J's decisions and the Health District cross-appealed from certain parts of those decisions.
The appeal was heard over nine days between 7 and 18 June 2010. The Court of Appeal (Hodgson JA, Allsop P and Macfarlan JA agreeing) found that the notices of default issued by the Health District in September 1999 did not comply with s 129 of the Conveyancing Act: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (2010) 15 BPR 28,564; [2010] NSWCA 268 (the "Principal Appeal Judgment"). The Court of Appeal held that this finding entitled Macquarie to the legal remedy of a judgment giving it possession of the Car Park Site and the Hospital Site. Put another way, the Court held that s 129 operated to preclude the Health District from re-entering and taking possession of the two sites on 17 March 2000 and that the Health District's action in so doing constituted a trespass against Macquarie.
A declaration to this effect was made by the Court of Appeal in a separate judgment: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 348 (the "Orders Judgment"). The relevant orders and declarations (the "CA Orders") are found in order 4 (at [10]): "4. … (1) Judgment and an order for possession by [Macquarie] of Lot 11 in DP 809663 ("the Car Park Site") and Lot 12 in DP 809663 ("the Hospital Site"); … (11) A declaration that by virtue of s 129 of the Conveyancing Act 1919 (NSW) [the Health District] was precluded from taking possession of the hospital and car park sites on 17 March 2000 and [the Health District's] eviction of [Macquarie] was a trespass against [Macquarie]. (12) A declaration that the Car Park Lease, Hospital Lease, Sub-Lease and Construction Deed continue to operate and bind both the appellant and the respondent. (13) Order that there be an enquiry before a Judge or Associate Judge other than Nicholas J as to the amount of damages which are payable by the [Health District] to [Macquarie], or an account of moneys received by the [Health District] (which account would include both revenue received and reasonable expenses incurred and rental from 1 December 1999), at [Macquarie's] election, in respect of being kept out of possession of the Car Park Site and the Hospital Site between 17 March 2000 and the date of being restored to possession."
On 10 June 2011 the Health District's application for special leave to appeal to the High Court was refused: Sydney South West Area Health Service v Macquarie International Health Clinic Pty Ltd [2011] HCATrans 155 (Gummow and Hayne JJ).
Certain further questions then arose as to the effect of Order 4(13) of the CA Orders. The matter was re-listed before Hodgson JA. On 28 June 2011 in Macquarie International Health Clinic Pty Ltd v Sydney Local Health Network [2011] NSWCA 231 at [17] his Honour directed that Macquarie: 1. Make the election referred to in Order 4(13) between an enquiry as to damages or an account of moneys received promptly on being given accounting material kept by the Health District up to 22 February 2010 and similar material up to the then present; and 2. That if an election was made for an enquiry as to damages, the matter be listed before a judge of the Equity Division to determine the scope of discovery.
In the course of this judgment, Hodgson JA considered the evidence upon which the enquiry as to damages should proceed, should Macquarie so elect: "11. Assuming [Macquarie] elects for an inquiry as to damages, [the Health District] contends that the inquiry should proceed on evidence before the primary judge, supplemented only by evidence of events occurring since the trial before the primary judge, and that discovery should be limited to events occurring since the trial. 12. Mr Burton pointed out that the trial before the primary judge was not a separate trial of liability. The relevant statement of claim sought damages, not an inquiry as to damages, and no order was made splitting the trial. 13. However, since the Court of Appeal has ordered an inquiry as to damages before a judge other than the primary judge, I do not think the evidence is necessarily limited in this way. 14. I think it will be a matter for the judge hearing the inquiry to determine what procedure would be just, quick and cheap. 15. In my opinion, it would be a reasonable approach to determine that the inquiry be on the basis of the evidence before the primary judge and evidence of events occurring since the trial, with other evidence of events occurring up to the end of the trial being permitted only if substantial grounds are made out for permitting such evidence. 16. Similarly, I think it would be a reasonable approach to have discovery on a similar basis; that is, to order discovery going to matters occurring before the end of the trial only if substantial grounds are made out for ordering such discovery, taking account of the circumstance that there has already been a full hearing on the question of damages, in which both parties have had discovery and have led the evidence they wished to rely on in relation to that question."
His Honour also ordered that the costs of those proceedings - i.e. arising from the clarification sought as to the meaning of Order 4(13) - be costs in the enquiry.
Macquarie elected for an enquiry as to damages.
At a directions hearing before the Chief Judge in Equity on 24 July 2012, counsel indicated that the "best guess" for the likely duration of the hearing would be "over a week". In the events that happened, that estimate proved to be literally correct. The enquiry was originally fixed for hearing by the Chief Judge in Equity for ten days commencing on 17 June 2013. On 26 April 2013 the Chief Judge vacated these hearing dates and refixed the matter for final hearing for three weeks commencing on 14 October 2013.
The matter first came before me for case management on 22 May 2013 at which time Macquarie indicated that it wished to amend its pleadings. By notice of motion filed on 28 May 2013, Macquarie sought leave to amend the Fifth Claim to include an allegation of breach of Macquarie's right to quiet enjoyment under the leases. The Court refused that application: Macquarie International Health Clinic Pty Ltd v Sydney Local Health District [2013] NSWSC 764 (the "First Amendment Application").
At the hearing of the First Amendment Application the parties indicated that between them they expected to call 14 lay witnesses and 11 experts (two of whom were appointed jointly by the parties) on the enquiry. The week commencing 2 December 2013 was fixed for the enquiry's closing submissions.
On 6 August 2013 the hearing dates commencing 14 October 2013 were vacated when it became apparent that the matter would not be ready to proceed. The proceedings were refixed for hearing for eight weeks commencing on 10 February 2014. The Court ordered that the proceedings be the subject of a private mediation to be conducted by 23 December 2013.
At a pre-trial directions hearing on 15 November 2013, the date for the private mediation was extended to 3 February 2014. The Court also directed the parties to work co-operatively on a trial plan to have the hearing commence in February 2014. Counsel for Macquarie provided the Court with a document entitled "Draft trial plan" dated 11 December 2013. It put the best estimate for the duration of the hearing, as at 12 December 2013, at a maximum of 30 days with closing oral submissions to be completed by 30 May 2014.
On 17 December 2013, I indicated to the parties (without apportioning blame) that in light of the ambulatory pace at which the matter was progressing with regard to the filing of evidence, and in accordance with the principles of case management, there were really only two possible ways forward. The first, the traditional way, was not to fix a hearing date until the evidence was closed from all parties. At the time, my view was that were that course taken, the trial might not have commenced for another twelve to eighteen months. The second was to proceed to trial on 10 February 2014 at least to the point of Macquarie's case being finalised and openings having taken place. The latter course was taken. My reasons for doing so are to be found elsewhere: Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 6) [2014] NSWSC 1549 at [17].
The hearing of the enquiry as to damages commenced on 10 February 2014 when Mr RE Dubler of Senior Counsel, leading Mr S Phillips and Mr A Harding of Counsel, appeared for Macquarie and later in the proceedings with Mr S Kanagaratnam of Counsel, and Mr GK Burton of Senior Counsel, leading Mr P Bruckner, Mr H Stowe, Mr G Antipas and Miss N Shaw of Counsel, appeared for the Health District. A view of the relevant parts of RPAH, including the Car Park Site and the Hospital Site, was conducted that morning.
At the conclusion of opening submissions on 12 February 2014, orders were made by consent vacating the hearing dates from 13 February 2014 to 20 March 2014 and listing the recommencement of the hearing for six weeks commencing on 12 May 2014, with final oral submissions listed for two weeks commencing on 11 August 2014. Orders were made by consent that Macquarie could not rely on further affidavits or expert reports in chief without leave of the Court and requiring the parties to file a draft trial plan by 7 May 2014. This plan proposed to complete the evidence of the lay witnesses by 30 May 2014 and the expert witnesses by 20 June 2014.
Further difficulties were encountered with the preparation of evidence and an extended directions hearing was held on 1 May 2014. I indicated to the parties that the enquiry was beginning to take on a process whereby new issue after new issue seemed to emerge which each party then wanted to explore to finality. I indicated that the procedures of this Court would not facilitate that process where it was becoming disproportionate to the expense, delay and real issues in dispute. The Court confirmed the hearing date of 12 May 2014 and the parties were directed to provide a further trial plan by 9 May 2014.
During the course of the hearing on 1 May 2014 the Court also rejected the Health District's application to rely on a late expert report from Ms Christina Lynn (the "Lynn Report") in relation to the Car Park Site, dated 14 April 2014. The fate of the Lynn Report is further explained in paragraph 63 below and the judgment in paragraphs 599 to 646 below.
On 8 May 2014 the Health District submitted a further draft trial plan indicating that the totality of the evidence would spill beyond the May-June hearing dates. It proposed that the balance of the hearing could be taken in the two weeks allocated for final submissions commencing on 11 August 2014 and that further time would need to be found for those submissions.
On 12 May 2014 the hearing recommenced as scheduled. On 15 May the Court formally reallocated the weeks commencing 11 and 18 August 2014 from final submissions to the hearing of further evidence. The week commencing 25 August 2014 was also allocated to complete the hearing of evidence.
On 16 May 2014 the Court fixed a further two weeks for the hearing of closing submissions commencing on 10 November 2014. This took the time allocated for the trial to a total of eleven weeks.
On 16 June 2014 the Court directed that the hearing of evidence continue for four more days from 1 to 4 September 2014. These days were vacated on 18 June 2014 and substituted for 2 and 7 to 9 October 2014.
Evidence was heard throughout May and June and then over two further days on 5 and 6 August 2014 before the scheduled resumption on 11 August 2014. On 5 August 2014 Mr Dubler SC indicated that the three weeks allocated in August had become "a black hole" for some of the experts scheduled to give their evidence in this period: T 1360. The Court expressed its dissatisfaction with the sudden unavailability of these experts.
On 8 August 2014 I indicated to the parties that the Court's expectation was for the enquiry, with the parties acting co-operatively and sensibly, to finish by the end of the year: T 1518. This necessitated reallocating the two weeks in November set down for closing submissions for the further hearing of evidence, in addition to the time previously set aside in December for judgment writing. On 13 August 2014 the Court confirmed these arrangements and indicated that it was doing so on the basis that the hearing finish no later than the last day of term in 2014: T 1585.
However, further difficulties arose with the timely provision of expert evidence. Through no fault of Macquarie's, the hospital valuation report of Mr Lister, being the first of Macquarie's export reports which were to be provided in sequence and on which it sought to rely in support of its mesne profits case in respect of the private hospital, was not provided to Macquarie until 29 August 2014. This was some five weeks after the date originally advised by Mr Lister. When the report was provided, a contest arose in respect of the methodology adopted by Mr Lister in the preparation of his report. This led to a second application by Macquarie to amend its pleadings by notice of motion filed on 21 August 2014 (the "Second Amendment Application").
The critical amendment to Macquarie's case in respect of both sites related to the abandonment of its claim for "loss of profits", to which the Hospital District had demurred. The proposed amendments introduced a mesne profits claim in respect of the Hospital Site and an amendment to the mesne profits claim in respect of the Car Park Site introducing an alternative method of calculation.
The Second Amendment Application was heard over the course of four days in September 2014 together with an application by the Health District which sought leave to rely on two expert reports that had been served late. The Court allowed both applications. Orders were made setting out the formal resolution of the two applications on 26 September 2014. The Court's reasons were published on 6 November 2014: Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 6) [2014] NSWSC 1549.
Part of the Court's reasons for allowing the Second Amendment Application considered the case management implications of the proposed amendments. The Court indicated that there was capacity for the proceedings with the proposed amendments to be completed in the first half of 2015 without undue delay and without having to disrupt the Court's existing schedule.
The Health District filed and served an application in the Court of Appeal for leave to appeal against the contested parts of the grant of leave to Macquarie to amend its pleadings together with a notice of motion for expedition. It was given an early return date of 13 October 2014 for the expedition application. The motion was ultimately stood over to 17 November 2014.
The hearing of the enquiry proceeded and on 26 August 2014 the Court fixed an additional hearing date on 25 September 2014.
On 2 October 2014 the Court required the parties to prepare a revised trial plan for the balance of the proceedings including dates to be allocated for 2015: T 2320. On 7 October 2014 a draft plan was received with alternate "scenario analysis" with and without Macquarie's contested amendments for the balance of the hearing.
On 9 October 2014 the Court fixed the dates of 1 to 5 and 8 to 12 December 2014 as well as 4 May to 4 June 2015 for the hearing of further lay and expert evidence. Closing submissions were fixed for 20 to 23 and 27 to 31 July 2015 (see T 2423 and "Trial Plan as determined by Court 9 October 2014").
On 6 November 2014 the Court formally vacated the hearing dates fixed for 10, 11 and 14 November 2014.
On 17 November the hearing before me continued while the Health District's application for leave to appeal was mentioned before the Registrar of the Court of Appeal. I was asked to consider the possibility of vacating one of the December hearing days for the leave to appeal application and any appeal to be heard simultaneously. However, later that day the Health District discontinued its application for leave to appeal from the Court's decision in the Second Amendment Application. I was informed that it was possible the Court's decision could be the subject of an appeal as part of an appeal from the Court's ultimate determination of the damages enquiry.
At a directions hearing on 26 November 2014, further hearing dates were allocated for 15, 18 and 19 December 2014.
On 18 December 2014 the Court fixed 9 February 2015 for argument in relation to the tender of additional expert evidence and a further five hearing days for the week commencing 23 March 2015.
On 19 December 2014 the Court indicated to the parties that the time fixed for proceedings would have to conclude within the hearing of the balance of the matter in 2015: T 3452. The Court reiterated that this was not to attribute blame to either party but rather to impress upon them that when dates are scheduled to accommodate experts giving evidence it was simply not acceptable for the experts later to turn around and say they were not available.
On 9 February 2015 the Court heard a further application by the Health District to rely on the Lynn Report. Macquarie consented to the tender of a redacted version of the report but opposed the tender of the complete version. The Court refused to grant leave to rely on the disputed parts of the report. The parties agreed not to trouble the Court for reasons on that occasion and were content for the Court's reasons to be included in this final judgment. Those reasons are given in paragraphs 599 to 646 below.
The trial continued as planned through the March hearing dates. At a directions hearing on 1 April 2015 a revised draft trial plan was provided to the Court indicating a further "slippage" in the provision of expert reports, this time on the Health District's side. I indicated that by this stage the Court's tolerance was exhausted in relation to these matters: T 3776. Completion of all outstanding expert conclave reports was scheduled to be completed by 8 May 2015 with the concurrent evidence of the hospital financial experts to be completed by 28 May 2015.
On 13 April 2015 the Court again ordered the parties to mediation on either or both of 10 and 11 June 2015.
By 22 May 2015 it became apparent that Macquarie's hospital financial expert, Ms Josephine Maprock, would not be able to comply with the envisaged timeframe due to ill health and that a replacement would be needed. On 27 May 2015 the Court directed that Macquarie serve any report to be relied upon from Mr Tim Staker, who was to stand in the shoes of Ms Maprock, by 1 June 2015.
The hearing of expert evidence in conclave continued through June 2015.
On 17 June 2015, Day 89 of the hearing, the evidence on the enquiry came to a close. Counsel for the Health District indicated that a mediation was scheduled before a former Federal Court judge "without the lawyers being present" prior to closing addresses: T 4936.50.
On 20 July 2015 a further view was conducted at RPAH.
Following the view, closing oral submissions commenced and were heard over the course of nine days. On 31 July 2015 the Court formally reserved judgment.
On 26 August 2015, which was to become the 100th and final hearing day on the enquiry, the Court heard argument about the admissibility of a bundle of notes that were handed up by counsel for Macquarie on 31 July 2015. Leave was formally granted, nunc pro tunc, in respect of those notes in addition to leave to the Health District to file further confined submissions in reply. These directions brought the process of submissions to an end.
In total there were 100 days of hearing on the enquiry. Sixty-two lay and expert witnesses gave evidence (including concurrent evidence). Forty lay and expert witnesses gave evidence in person, while affidavit evidence was received for a further twenty-two witnesses. The transcript ran to 5,886 pages.
However, that was not the end of the matter. During the course of the hearing the Court was told by Macquarie's counsel and by Dr Wenkart himself that Macquarie was still determined to build the private hospital. This led the Court on several occasions to raise the question of why Macquarie had not retaken possession of the two sites. The history of why that had not occurred is set out in relation to Issue 1 in paragraphs [131] to [136] below. Ultimately, the Court received evidence demonstrating that Macquarie had written to the Health District to request an orderly retaking of possession. This necessitated some planning and co-operation in relation to the car park, which the Health District had been operating in the interim as a going concern. The Hospital Site had remained undeveloped during the litigation but had been used by the Hospital District to provide additional parking.
Following a tender process, Macquarie entered into a contract with Secure Parking Pty Ltd to manage the car park. That company, on behalf of Macquarie, took possession of the Car Park Site on and from 9 am on 2 November 2015. Until that time the Health District had operated the car park and had collected all revenues it generated. Macquarie had not been in possession of the Car Park Site since 17 March 2000.
There was no dispute that, for the purposes of these proceedings, Macquarie also retook possession of the Hospital Site on 2 November 2015. However, Macquarie's retaking of possession made real an issue that had been addressed as part of the hypothetical or counterfactual world that had been advanced during the damages enquiry. That issue was whether or not development consent D1997/154 granted by the NSW Land and Environment Court on 19 June 1997 (the "Consent") for construction and other works on the Private Hospital Site had lapsed.
While the Court's judgment on the damages enquiry was reserved, a further hearing was held on the status of the Consent. For the reasons set out in Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd; Macquarie International Health Clinic Pty Ltd v City of Sydney Council (No 9) [2016] NSWSC 155 (Macquarie (No 9)), the Court held that the Consent had not lapsed.
Before leaving this account of the procedural history of the enquiry, I should record that, contrary to the impression that history might give, there was much practical co-operation between the parties. It would not do justice to what occurred if the Court did not acknowledge the many occasions during a long and complex hearing when solicitors and counsel, without resiling from the vigorous advocacy of their client's respective positions, found sensible ways to accommodate disagreements and save time and, it is to be hoped, costs.

[4]

Consideration of the parties' submissions

The length of the trial and the complexity of the issues presented by the parties was reflected in the parties' submissions. The combined written closing submissions (not including further notes and other parting shots) were 2,453 pages long and covered 47 major issues, many of which included numerous sub-issues. Every possible factual and legal question of which the industrious lawyers for the parties could conceive was exhaustively explored.
To draw these matters to attention is not to criticise the parties. However, they do have an impact on the Court's reasons. I have carefully reviewed the parties' submissions, most parts of them several times. It would be impractical, if not impossible, to resolve the minutiae of every dispute between the parties and to record consideration of every authority relied upon and the arguments made about them. These reasons - which of necessity cannot be short - only canvas those matters, which, by specific acceptance or rejection, have informed the Court's conclusions on the issues presented for determination. The fact that particular arguments or authorities are not addressed does not mean they have been overlooked. Their omission means they were not determinative in the Court's analysis.
I should also observe that because of the view I have taken as to the application of the user principle in calculating mesne profits in the, in some respects, unusual facts of this case, it has been unnecessary for me to consider a number of the issues that were presented in argument. I have retained the numbering of issues which I have decided. The impact of the user principle is more fully explained in paragraphs [111] to [118] below. Because of the length and complexity of the issues which I consider it is unnecessary for me to decide, I have not attempted to resolve those matters in case the view I have taken of the user principle is found to be wrong. Those issues would involve consideration of a very different case.

[5]

Macquarie's "core case" - an overview

Macquarie's case on the enquiry is divided into claims concerning its position as a wrongfully dispossessed lessee of the Car Park Site and the Hospital Site. Each claim corresponds to a separate lease in respect of a distinct lot of land and thus a separate trespass by the Health District as lessor. Macquarie put its two claims cumulatively in the sense that failure on one does not necessarily infect the other: T 12.20. The Health District accepted that the sites are separate parcels of land as a matter of conveyancing but put its case on the basis of an "overall outcome", emphasising that the relevant leases are "cross-linked in terms of the[ir] provisions": T 5198.27.
It should also be noted that the precise basis upon which Macquarie formulates its entitlement to an award of damages in trespass has undergone a number of iterations.
One of the complexities thrown up by the facts of this case is the quite different circumstances surrounding the state of the two sites at the time the Health District re-entered and took possession in March 2000. On the one hand, the car park was operational and functioning as such with 1,026 available car spaces. There is a reasonably clear proposition to be made as a matter of precedent that the case of Inverugie Investments Ltd v Hackett [1995] 1 WLR 713 ("Inverugie") is on all fours with, or at the very least provides a ready basis for comparison with, Macquarie's case in being wrongfully dispossessed of its leasehold interest in, and use of, the Car Park Site: T 4985.5.
The private hospital, on the other hand, was never built (putting to one side certain excavation works). This engages a different set of considerations vis-à-vis the car park: T 4987.17. Macquarie submitted that the question of the appropriate measure of damages in trespass in these circumstances was to be considered in relation to a tenant who has been put out of an asset which, as it were, had not yet come into existence. The asset in this sense is not the land itself (from which the tenant has been excluded) but a particular use to which the land was to be put in the future but for the intervening ejectment.

[6]

The Car Park

Macquarie's principal case in opening submissions was that it was entitled, by way of damages, to the lost profits from its wrongful eviction from the Car Park Site in March 2000 on the basis that it would have continued operating the car park and collecting rents as it had done from September 1999. It said that these profits correspond to a 1,026 space car park, with 465 spaces allocated for staff parking (increasing to 1,225 and 600 respectively by July 2002). Macquarie also said that it would have enjoyed the increased patronage corresponding to the completed adjacent private hospital by July 2004.
The Health District was content to join issue in respect of this claim by way of general demurrer on the basis that a claim for damages for the lost opportunity to earn profits was not a claim for damages in trespass known to the law. Macquarie eventually abandoned its claim for "lost profits".
The alternative heads of damages referred to in Macquarie's outline of opening submissions were for an assessment of damages on the basis of a market rent, said to be the traditional method of assessing mesne profits in a trespass case, or on the basis of a reasonable rent calculated in accordance with what is referred to as the user principle. Following judgment on the Second Amendment Application, these alternate bases became the primary way in which Macquarie put its car park case.
As set out in Macquarie's Fourth Further Amended Points of Claim ("FFAPC") filed on 17 April 2015, Macquarie claimed damages for trespass, being "a claim for mesne profits", measured by: (1) the difference between the market rent for the car park and the rent and outgoings payable to the Health District under the Car Park Sub-Lease over the period 17 March 2000 to the date possession is restored; or alternatively (2) applying a reasonable rate of return per annum on the market value of the Car Park Lease and/or Car Park Sub-Lease over the same period; or alternatively (3) on the premises that the Health District would have served a fresh Notice of Default (and sought to terminate) and Macquarie would have exercised its rights to assign the various leases or alternatively would have been paid a premium on reletting on a lawful termination pursuant to cls 17.9 and 16.9 of the Hospital Lease and Car Park Lease respectively: (i) the loss suffered by being kept out of the use of the payment Macquarie would have received upon an assignment or reletting on termination for the period of the dispossession, by Macquarie's mesne profits claim remaining or being assessed from the dates of the hypothetical assignment or reletting on termination until judgment or repossession; or alternatively (ii) by applying a reasonable rate of return per annum on the market value of the various leases from the date that Macquarie would or could have received such capital sum in consequence of any alleged hypothetical further Notice of Default that could not have been remedied or in consequence of any hypothetical termination until judgment or repossession.

[7]

The Private Hospital

In opening Macquarie put its claim in respect of the Hospital Site as being for "damages for loss of profit or loss of the commercial benefit as a whole that has arisen from the trespass": T 12.25. In summary form, it described its "core case" as seeking to prove "the greatest likelihood [on the evidence] of what would have happened but for the tort": T 12.28.
As with its original case on the Car Park Site, Macquarie's principal claim pressed in opening submissions was that it was entitled to its loss of profits corresponding to the difference between the position it would have been in today had it remained in possession of the Hospital Site and built the private hospital - it would now be the owner of a profitable business of significant value - and the position it is in now: being required to build the hospital after judgment.
Again Macquarie put forward various other heads of damage and possible alternative contingencies (referred to in the sense of a sensitivity analysis) in support of its claim. It claimed, for example, to be entitled to damages to compensate it for its loss of opportunity to earn profits by having been kept out of its land.
Following the abandonment of its "lost profits" claim, Macquarie's primary claim for damages in trespass in respect of the Hospital Site crystallised as being a claim for mesne profits measured by the market rental or the letting value of the site: T 5029.36; 5037.36. That is, Macquarie said in the FFAPC that its damages should be assessed by: 1. Applying a reasonable rate of return per annum on the market value of the Hospital Site over the period 17 March 2000 to the date possession is restored; or alternatively 2. The market rent for the Hospital Site over the same period; or alternatively 3. The method described in [paragraph 2(2)(c)(ii) of the Amended Reply to the Defendant's Points of Response to the Second Further Amended Points of Claim on the Enquiry].
It was ultimately accepted as common ground between the parties in closing oral submissions that the correct method of calculating Macquarie's loss on its mesne profits case in respect of the Hospital Site was through a discounted cash flow analysis of the site's "residual land value": T 5030.40-50; 5031.35. Where the parties differ is on the appropriateness of various inputs and parameter values which are to be fed into the relevant discounted cash flow model: T 5031.1.
When pressed on the precise nature of the loss that it had suffered, no hospital having been built on the site, Macquarie submitted that its case fitted within the classic test of any trespass to a piece of land: T 5038.44. It said that it should be compensated for the lost rental (being the letting value or market rental of the site per annum) that in the market the site, at the time a development site, would have yielded per annum for the period of the trespass: T 5038.35; 5039.28.
Independent of and in addition to its claim for mesne profits, Macquarie claimed that it is entitled by way of damages to what it referred to as Private Hospital Approval Costs and Excavation Costs. Estimates of these amounts are said to represent costs that Macquarie will incur in the future, it being obliged to build the private hospital upon being put back into possession, and which would not have been incurred but for its wrongful eviction. Briefly stated, these damages related to the cost of re-applying for statutory approvals which have lapsed and the cost of re-performing some of the excavation works that Macquarie had already completed. An additional claim for damages pleaded under the head of "Escalation Costs" (said to measure the escalated costs of building the hospital in the future rather than in the period 2000-2004) was abandoned in closing oral submissions: T 5167.7.

[8]

Dramatis Personae

It is necessary at this point to identify the key participants who, or which, played a role in the events forming the subject matter of this enquiry.
As set out above, Macquarie is a company within the Macquarie Group, the ultimate holding company of which is MHC. The principal witness for Macquarie on the enquiry was Dr Wenkart.
Dr Wenkart is the chief executive officer and a director of Macquarie. He describes himself as a medical practitioner but with his main daily activity being his chief executive role in the corporation: T 2954.11. Nicholas J, in a passage adopted by the Court of Appeal in paragraph [36] of the Principal Appeal Judgment, described Macquarie and its related companies as effectively the alter ego of Dr Wenkart.
A sequestration order was made against Dr Wenkart on 28 October 1999 in relation to a judgment debt in the amount of approximately $1,300,000. This was subsequently annulled on 15 March 2002.
During the period October 1999 to June 2002, Dr Wenkart was not a director of Macquarie or MHC. However, he was employed by MHC in this period as a medical administrator and "corporate manager".
Dr Wenkart's cross-examination spanned nine hearing days on the enquiry (10, 11, 12, 15, 16, 19 December 2014 and 20, 21, 22 May 2015).
Mrs Christine Wenkart is the wife of Dr Wenkart. She gave evidence in Macquarie's case and was cross-examined. She is and has been a director of MHC since 11 July 1996.
The eldest son of Dr and Mrs Wenkart is Mr David Wenkart. He gave evidence in Macquarie's case and was cross-examined. He is a director of Macquarie and various other companies, including MHC, within the Macquarie Group. He has been a director of both Macquarie and MHC since 1 March 1999.
During the period October 1999 to June 2002 (i.e. during the period of Dr Wenkart's bankruptcy), the only directors of Macquarie were David Wenkart and Mr Geoffrey Holden. The only directors of MHC were Christine Wenkart, David Wenkart and Mr Holden. Mr Holden died in August 2005.
Another of Dr Wenkart's sons, Mr Scott Wenkart, gave evidence in Macquarie's case and was cross-examined. During the period 1998 to 2000, Scott Wenkart was employed by Pace Property Management Services Pty Ltd ("Pace"), a company associated with Macquarie, to assist with the maintenance of some of the properties held by the Macquarie Group. He described his position as a "runner role" across a few of Pace's projects: T 3726.6. One of these projects was co-ordinating the car park development at RPAH.
The Health District is a body corporate constituted by s 17 of the Health Services Act 1997 (NSW) (the "Health Services Act"). Its corporate name has changed several times since the commencement of this matter in 2000. The Health District's current corporate name is the Sydney Local Health District as specified in Sch 1, column 1 of the Health Services Act.
The principal witnesses for the Health District on the enquiry were Dr Diana Horvath AO, Mr Michael Wallace and Mr Christopher Puplick AM.
Dr Horvath was appointed Chief Executive Officer ("CEO") of the Health District in December 1992 and held the position until early 2006. At that time the Health District's governance structure included a CEO and a board of directors of which the CEO was a member. The board of directors answered to the Minster for Health and there was a separate line of accountability directly between the CEO and the Director of Health: T 665-6. Changes in early 2005 removed the board of directors and refashioned CEOs as Chief Executives with the management and control of the Health District answerable to the Director General.
Mr Wallace was the Deputy CEO of the Health District from February 1993 to 2005. He succeeded Dr Horvath as Chief Executive in early 2006 and remained in that position until 2011.
Mr Puplick was a member of the Health District's board between July 1993 and June 2003 and was the board's Chairman between August 1996 and June 2003.

[9]

Issues for determination and the user principle

By 1 July 2015, the parties had reduced the total number of issues in dispute to 47, albeit broken down into even more sub-issues. I indicated that the Court would be most assisted by the parties adhering to an issue by issue analysis with the parties compiling their submissions jointly in a fashion that carved out the 47 discrete areas of dispute: T 4941.
The issues - more fully set out in Schedule A - were grouped under a number of sub-headings: 1. Preliminary legal issues (Issues 1-5) 2. Project definition (Issue 6) 3. Specific issues relating to the Car Park Site (Issues 7-25) 4. Specific issues relating to the Hospital Site (Issues 26-33) 5. Risk of termination (Issue 34) 6. Hypothetical assignment (Issues 35-38) 7. Compensation for termination (Issues 39-41) 8. Adjustments to avoid double compensation (Issue 42) 9. Compensatory damages (Issues 43-44) 10. Benefit to defendant (Issue 45) 11. Position at the end of the trespass (Issue 46) 12. Issues arising out of the Health District's cross-claim (2010/90340) (Issue 47)
The Court's analysis of the user principle is in paragraphs [160] to [182] below. However, because the Court's understanding of the user principle has a significant impact on what issues the Court has ultimately had to consider, it is appropriate to summarise its effect at this early point in these reasons. It will also avoid unnecessary repetition in relation to particular issues.
The user principle requires mesne profits to be calculated by reference to the trespasser's actual use of the land. It is a backward looking exercise, so the Court can take into account events which took place during the trespass.
Insofar as the user principle has an effect on the issues presented for determination, two related matters are critical. First, it means that whether the plaintiff could have, would have or ever did or did not want to do what constituted the trespass (or anything else) is irrelevant. The plaintiff is to be compensated for the wrongful use which occurred. Second, the defendant trespasser cannot seek to establish hypothetical counterfactuals to demonstrate that, if the trespass had not occurred, the plaintiff would have suffered no loss.
In this case the user principle means that the Court rejects as irrelevant submissions that: 1. Notwithstanding that during the period of the trespass only staff used the Car Park Site, damages in respect of the 1,026 spaces in the Car Park Site should take into account use by the general public of 426 spaces because Macquarie only had to provide 600 spaces for staff. 2. Macquarie cannot claim increased patronage in the car park from completion of the private hospital because the private hospital was not built during the period of the trespass. 3. At the commencement of the trespass, Macquarie did not intend to build the private hospital. 4. Macquarie had no financial capacity to build, and therefore would never have built, the private hospital. 5. If Macquarie had built the private hospital it would have been a financial disaster, from which it has been saved by the Health District's trespass. 6. The Health District would have built the multi-storey Susan Street Car Park which would have had an adverse, competitive effect on Macquarie's car park. 7. The possibility of industrial action if Macquarie charged staff more than what was referred to as the Liverpool Rate to park in its car park. 8. No third party would have considered the private hospital feasible with the specified existing design (described by the Health District as "unviable, unprofitable and inefficient") and the other contractual constraints under the Transaction Documents. 9. Damages should be assessed on the fact that at the time of its dispossession, Macquarie had been prepared to part with the Hospital Site for no value. 10. There was a risk the Transaction Documents would be validly terminated. 11. More than the risk just referred to, the Transaction Documents remained liable to termination as at 17 March 2000 and the Health District would have validly terminated them by at least late 2000.
A number of issues turned on the Court accepting submissions such as those set out in the preceding paragraph. For this reason the Court does not need to consider those issues or has considered them in a more limited way. They are issues 8, 11, 32, 33, 34, 39, 40 and 41.
However, it is important to note that while the Court's view of the proper application of the user principle means that the Health District cannot set up alternative, hypothetical "no loss" scenarios, that does not preclude the possibility of a negative value being the result of the agreed valuation methodology in relation to the Hospital Site when applied with the inputs determined by the Court in these reasons.

[11]

Issue 1 - The parties' submissions

The first of the preliminary legal issues is the question of the period over which damages are to be assessed. It is agreed that 17 March 2000 is the appropriate commencement date. In issue is the appropriate end point, that is the terminal date up to and including which damages may be said to run. Macquarie submits that it is entitled to damages up until the date of it being restored to possession of the two sites - 2 November 2015 (see paragraphs [73] to [74] above). This submission does no more than replicate the last sentence of Order 4(13) of the CA Orders (see paragraph [28] above).
In its written closing submissions, the Health District submitted that the period of trespass for the assessment of damages should be taken to have ended either on 13 December 2010 (the date of the CA Orders) or 10 June 2011 (the date of dismissal of the High Court special leave application). It says that it is open to the Court to infer from Macquarie's "failure to take possession" from either of these dates that Macquarie "did not take possession because [Macquarie] realised it was not in [its] interests to do so".
This raises the question of whether or not the stay of the order for possession of the two sites in favour of Macquarie contemplated by Order 7 of the CA Orders remained on foot (Order 4(1) - see paragraph [28] above).
Order 7 of the CA Orders provides: "7. Stay the operation of the balance of the orders: (1) for 28 days after date of making of these orders unless within that time an application for special leave to appeal to the High Court of Australia is filed; (2) until further order, but subject to any order of the High Court of Australia, if within 28 days after the date of making of these orders an application for special leave to the High Court of Australia is filed; provided that, for the purposes of the enquiry, the date of being restored to possession shall not operate until any stay of the order for possession in order 3(1) [sic 4(1)] above has been lifted."
The substance of Macquarie's submission is that the date of it being restored to possession, in accordance with the CA Orders, cannot be taken to have occurred until the stay is lifted. It says that the effect of the CA Orders is that the Health District "may keep the benefit of possession in return for the plaintiff's damages at the enquiry being assessed as if the trespass was continuing until possession is restored". It argued that the Health District had elected to remain in possession and "to derive the ongoing benefits from that possession", and that it had relied upon the CA Orders as giving rise to an entitlement to damages up to the date of it being restored to possession.
The Health District did not accept this interpretation of the CA Orders. First, it said that the stay contemplated by Order 7 ended when the High Court refused special leave on 10 June 2011: T 5208.30. Second, even if there is a stay in place, the proviso in Order 7 is that the stay "does not affect the foreshortening by any of the evidence in the case of the trespass period, for the purposes of the assessment of quantum": T 5224.44; 5213.14. In this regard the Health District submitted that Macquarie has had the opportunity to re-take possession of the two sites since the date of entry of the CA Orders but has chosen not to do so (adding that Macquarie's reasons for so choosing are irrelevant).
At the commencement of closing oral submissions on 20 July 2015 the Court indicated to counsel for Macquarie that there was a certain incongruity between, on the one hand, Macquarie's protestations through Dr Wenkart of its present and continuing wish to build the private hospital and, on the other, remaining out of possession and arguing about whether or not the stay described above had been lifted: T 4975.23.
On 31 July 2015 counsel for both parties indicated that a meeting was to occur "in two weeks' time" between the principals of Macquarie and the Health District to facilitate the orderly process of the Health District giving Macquarie possession of both sites.
Macquarie insisted that the stay be lifted by the Court of Appeal before the Health District give up possession. Accordingly, on 1 October 2015, the Health District filed a notice of motion in the Court of Appeal seeking an order that the stay, "to the extent that it is still on foot", be dissolved or lifted.
On 15 October 2015 Gleeson JA made orders that the stay be discharged with effect from 9 am on 2 November 2015: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2015] NSWCA 323. His Honour ordered that Macquarie pay the Health District's costs of the motion on the basis that Macquarie initially sought an adjournment to prepare material to oppose the relief sought and that the position it ultimately adopted on the motion was a significant departure from the position it had taken in correspondence with the Health District.
On 28 October 2015, the 101st day of hearing, the Court heard further argument, this time concerning the meaning of the orders of Gleeson JA. Macquarie submitted that the CA "implicitly accepted that their stay was still on foot": T 5563.41. The Health District pointed to passages of the transcript of proceedings before Gleeson JA suggesting that such a reading of his Honour's reasons was not open: T 5565. In subsequent correspondence, counsel for Macquarie resiled from this submission, having had the opportunity to consider the references made to the transcript before Gleeson JA "which were not previously reviewed by us" (it is not clear why any "review" of the transcript was necessary given that counsel for Macquarie appeared on the motion before Gleeson JA).
In any event, in correspondence dated 28 October 2015, Macquarie confirmed its agreement with the Health District that the alternative dates for the resolution of Issue 1 (being the terminal date of the trespass) were 13 December 2010 (the date of the CA Orders), 10 June 2011 (the date of dismissal of the High Court special leave application) or 2 November 2015 (the date possession of the sites was physically re-taken).

[12]

Issue 1 - The facts

To resolve this issue it is convenient to start by setting out in one place the short facts that are relevant.
The Court of Appeal delivered its judgment in the appeal from Nicholas J on 14 October 2010. An order was made directing Macquarie to bring in either agreed short minutes or for the parties to bring in competing versions of the short minutes and any submissions in support.
The CA Orders were not made until 13 December 2010: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 348. The Court of Appeal was provided with short minutes of order that were largely agreed. The areas of disagreement which it was required to resolve did not include any of the paragraphs which are relevant to the resolution of the present issue. The relevant orders are: "… 4. In lieu of the orders of Nicholas J set aside by this Court in order 2 above, the Court makes the following judgments, orders, declarations, notations and directions: (1) Judgment and an order for possession by the appellant of Lot 11 in DP 809663 ("the car park site") and Lot 12 in DP 809663 ("the hospital site"); (2) Judgment for the cross-appellant (the cross-claimant) against the cross- respondent (the cross-defendant) for $389,207.34 plus interest. … (11) A declaration that by virtue of s 129 of the Conveyancing Act 1919 (NSW) the respondent was precluded from taking possession of the hospital and car park sites on 17 March 2000 and the respondent's eviction of the appellant was a trespass against the appellant. (12) A declaration that the Car Park Lease, Hospital Lease, Sub-Lease and Construction Deed continue to operate and bind both the appellant and the respondent. (13) Order that there be an enquiry before a Judge or Associate Judge other than Nicholas J as to the amount of damages which are payable by the respondent to the appellant, or an account of moneys received by the respondent (which account would include both revenue received and reasonable expenses incurred and rental from 1 December 1999), at the appellant's election, in respect of being kept out of possession of the car park site and the hospital site between 17 March 2000 and the date of being restored to possession. (14) The Cross Claim is otherwise dismissed. … 6. Stay the operation of the judgment in 3(2) above (sic), including any form of enforcement of such judgment, until the conclusion of the enquiry or further order of the Court. 7. Stay the operation of the balance of the orders: (1) for 28 days after date of making of these orders unless within that time an application for special leave to appeal to the High Court of Australia is filed; (2) until further order, but subject to any order of the High Court of Australia, if within 28 days after the date of making of these orders an application for special leave to the High Court of Australia is filed; provided that, for the purposes of the enquiry, the date of being restored to possession shall not operate until any stay of the order for possession in order 3(1) above (sic) has been lifted."
On 10 January 2011 (i.e. within 28 days of the CA Orders), the Health District filed an application for special leave to appeal to the High Court.
The Health District's special leave application was refused on 10 June 2011: Sydney South West Area Health Service v Macquarie International Health Clinic Pty Ltd [2011] HCATrans 155. The only orders made by the High Court were (at line 525) that "Special leave is refused with costs".
No further order was made in relation to the CA Orders until 15 October 2015 when Gleeson JA ordered that the "Stay ordered by this Court by order 7(2) made on 13 December 2010, be discharged with effect from 9.00am on Monday 2 November 2015": Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2015] NSWCA 323.

[13]

Issue 1 - Legal principles

In construing the meaning of an order, and unless the meaning is clear from the actual terms of the judgment or order, the Court may have regard to the reasons given for that order, surrounding circumstances and extrinsic evidence relied upon by the Court so as to place the order in the context of the matter to arrive at its true construction: Australian Energy Limited v Lennard Oil NL (No 2) [1988] 2 Qd R 230 at 232.
The words "until further order" generally mean that an order is intended to have interlocutory operation only, i.e. intended to operate only until the first to occur of some further order verifying or vacating that order or final judgment in the suit. The principles in relation to construing "until further order" were set out by JC Campbell J (as his Honour then was) in Fatimi Pty Ltd v Bryant & Ors (2002) Aust Torts Reports 2002; [2002] NSWSC 750 ("Fatimi") in terms which I respectfully adopt: "226 When Hodgson J made the Mareva Order on 9 August 1993 (paragraph 13 above) it was in proceedings 4703 of 1992. It was an order expressed to be made, "until further order". The suit in proceedings 4703 of 1992 was disposed of by Master Macready on 20 May 1994. The orders then pronounced are set out at paragraph 15 above. Thus, apart from the money judgment and the foreshadowed costs order, the Summons (including the prayer for Mareva relief) was dismissed. 227 Daniell's Chancery Practice, 7th edition (1901), page 1369 says: An interlocutory injunction may be discharged at any time before the trial of the action, and is ipso facto discharged by the dismissal of the action (Bliss v Collins 2 Mer 62, Green v Pulsford [1839] EngR 879, (1839) 2 Beav 75 [48 ER 1105]. See also, to similar effect, Seton's Judgments and Orders, 7th edition (1912), page 517, Kerr on Injunctions, 5th edition (1914), page 679. Green v Pulsford was a case where a bill was dismissed entirely, not a case where one order was made in a suit, and the balance of the prayers for relief dismissed. For that reason, I would not regard the principle expressed by Daniell as governing the present fact situation. 228 Regardless of that general principle, the Mareva Order was expressed to be made, "until further order". In Attorney General of the Commonwealth v Davids Holdings Pty Ltd (1993) ATPR 41-247 Drummond J said, at 41,349: The expression "until further order" in the restraint on Davids, imposed as it was at an interlocutory hearing, is the classic formulation of an order intended to have interlocutory operation only, i.e. intended to operate only until judgment in the action is given. That it was intended to have that effect is, I think, clear. The intent of the order was to restrain Davids only until the rights of the parties were determined by judgment. I cannot accept that it is open to a reading that would give the restraint a continuing operation even if Davids had obtained a final judgment in the action in its favour from the trial judge. See also In the Marriage of I H & S A Millar (1983) 9 Fam LR 5 at 6-7 per Nygh J, Fylas Pty Ltd v Vynal Pty Ltd [1992] 2 Qd R 593 at 399 per McPherson SPJ. 229 One application of the rule of construction that an order made, "until further order" is interlocutory is shown by authorities which decide that an injunction expressed to be made "until (a particular date, or the happening of some specified event) or further order" is one which stops automatically on that particular date or on the happening of that specified event, but can stop earlier if the court so orders: Bolton v London School Board (1878) 7 Ch D 766, at 771; In the Marriage of King (1976) 13 ALR 401, at 404-405: 230 A particularly persuasive reason why Hodgson J's order should be construed in the fashion of most interlocutory orders, as lasting until judgment, is that, if that were not so, it would be, potentially, an order which had perpetual effect. If a perpetual order is within the scope of the Court's power concerning the granting of Mareva Orders, it would only be in a rare case that it would be appropriate. There is nothing in the wording of this order to show it is perpetual. There is no other sensible end point for a non-perpetual order, which could be read into the order as a matter of implication, than the determination of the suit. 231 In Blacktown Concrete Services Pty Ltd v Ultra Refurbishing & Construction Pty Ltd (in liq) (1998) 43 NSWLR 484, at 491-2 Santow J said: To the extent that there is ambiguity in the orders, the authorities on construing court orders are usefully reviewed in a note by Justice Young (1998) 72 ALJ 117-118. "The court order is construed according to accepted applicable guides of construction so that, in the case of real ambiguity extrinsic material such as the reasons for judgment may be considered: Gordon v Gonda [1995] 1 WLR 885, Australian Energy v Leonard Oil NL (No2) [1988] 2 QDR 230 at 232, and see also Repatriation Commission v Nation [1995] FCA 1277, (1955) 57 25 at 33-34."" 232 The preferable construction of the order of Hodgson J, in my view, is that the order terminated in accordance with the usual principles for construing an order made "until further order", upon the termination of the suit. However, if I be wrong in that, it would be possible to look to the reasons for judgment as an aid to construction. The reasons for judgment of Hodgson J contain no hint that he was intending to make an order which was anything other than a conventional interlocutory order."
The Court of Appeal has recognised that those principles may apply to construction of a stay granted "until further order" because of the close similarity between the stay granted on those terms pending an appeal and an interlocutory injunction. So much appears from that Court's brief judgment in Klewer v Official Trustee in Bankruptcy (No 2) [2010] NSWCA 258: "1 THE COURT: The Court delivered judgment and made orders in this matter on 29 September 2010: Klewer v Official Trustee in Bankruptcy [2010] NSWCA 220 2 In the course of the reasons for judgment, the Court omitted to deal with one matter that had been the subject of submissions. This judgment corrects that omission. 3 The orders of Schmidt J made on 18 December 2009 included judgment for possession of a particular property, and leave to issue a writ of possession. On 29 June 2010 Beazley JA ordered that the writ of possession be stayed until further order. 4 The submissions of the Official Trustee in Bankruptcy in the present case included a submission that the Court should lift the stay of execution of the writ of possession granted by Beazley JA on 29 June 2010. 5 The orders that the Court made on 29 September 2010 did not expressly deal with the stay of the writ of possession. 6 An interlocutory injunction that is granted "until further order" is frequently construed as operating until the determination of the proceedings or further order, which ever happens first: Attorney-General (Cth) v Davids Holdings Pty Ltd (Drummond J, 2 June 1993); [1993] ATPR 41-247; In the Marriage of IH & SA Millar (1983) 9 Fam LR 5 at 6-7 per Nygh J; Fylas Pty Ltd v Vynal Pty Ltd [1992] 2 Qd R 593 at 599 per McPherson SPJ; Fatimi Pty Ltd v Bryant [2002] NSWSC 750; (2002) Aust Torts Reports 81-677 at [228]. 7 Given the close similarity between a stay granted "until further order" pending an appeal, and an interlocutory injunction, it well may be that, as a matter of construction, the stay ceased to be operative when the Court's orders were pronounced on 29 September 2010. However, it is preferable to make an express order, so that the position is clear beyond argument."

[14]

Issue 1 - Resolution

For the reasons which follow the Court has concluded the answer to Issue 1 is up to 9 am on 2 November 2015. This conclusion involves the rejection of the Health District's fundamental submission that the High Court's order dismissing Macquarie's special leave application brought the stay to an end.
The starting point of my analysis is that I am satisfied that the proper construction of the CA Orders and, in particular, order 7, does not require recourse to any materials outside the four corners of the CA Orders themselves. In any event, because the stay was not the subject of argument, the Orders Judgment says nothing about it.
Next, it is important to note that the proviso to order 7 ("provided that, for the purposes of the enquiry, the date of being restored to possession shall not operate until any stay of the order for possession in order 3(1) above has been lifted") is an order directed to, and which governs, the conduct of the enquiry before me. Understanding the proviso in that way goes some distance to overcoming the infelicity of the proviso speaking of a date "that shall not operate". Notwithstanding the infelicity, the identity of the language "the date of being restored to possession" makes it clear that the proviso to order 7 is trying to say something about "the date of being restored to possession" referred to in order 4(13). In the context of the Court ordering an enquiry by reference to a specified period that Macquarie was kept out of possession of the two sites, the proviso, on its proper construction, specifies that for the purposes of the enquiry the date of being restored to possession will be the date upon which the stay of the order for possession of the Hospital Site and the Car Park Site is lifted.
The conclusion expressed in the preceding paragraph is supported by two matters. First, it would appear that the CA Orders have been drafted on the basis that the making of the order for possession constitutes restoration to possession. So much is apparent from the contrast with order 6, ("stay the operation of the judgment in 3(2) above (sic), including any form of enforcement of such judgment, until the conclusion of the enquiry or further order of the Court"), which expressly refers to enforcement of the judgment (which is for a money sum). The absence of an express reference to enforcement of the order for possession is consistent with a view that the date of being restored to possession was intended to be the date the stay was lifted on the basis that nothing more (e.g. enforcement by the issue of a writ) was required.
The second consideration is that, pursuant to Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") Pt 36 r 36.4, the order for possession took effect as at the date it was made: 13 December 2010. Although inelegantly worded, it is clear enough that the purpose of the proviso was to ensure that, for the purposes of this enquiry, the date of being restored to possession (which would otherwise be the date upon which the order was made) would extend until any stay of the order for possession had been lifted. In other words, Macquarie's entitlement to damages would continue to run while the stay was in place. This construction gives some sense to the notion of the "operation" of a date, perhaps best paraphrased as the "operative date" of being restored to possession, which would not be until the date on which the stay was lifted.
The preceding paragraphs are really introductory insofar as they beg the question of when, in accordance with the terms of order 7, the stay was lifted. There was no dispute between the parties that until an application for special leave to appeal was filed, the stay was effected by order 7(1) providing 28 days within which that application should be filed. If such an application was filed (and it was), then the stay continued to operate in accordance with order 7(2). Turning to that order, there is no suggestion anywhere in the Orders Judgment relating to those orders that the stay was intended to be perpetual. The references to an application for special leave to appeal make it clear that the stay was intended to enable that application to be made and, if successful, for any appeal to be heard and determined.
The Health District's submission that the High Court's dismissal of the special leave application brought the stay to an end might have been correct if order 7(2) had merely said "until further order" and had not gone on to say "but subject to any order of the High Court of Australia". In accordance with the classical use of the expression "until further order" referred to by JC Campbell J in Fatimi (see paragraph [138] above), the order dismissing the special leave application could have been understood as the "further order".
The difficulty for the Health District is the express reference to "any order of the High Court of Australia". If those words are to have any work to do they cannot be the type of order encapsulated in the expression "until further order". This means that the opening of order 7(2) must be read as though it said "until further order [of this Court], but subject to any order of the High Court of Australia".
The High Court's order dismissing the special leave application with costs said nothing about the operation of the CA Orders, including the stay. In those circumstances, the stay created by order 7 operated until further order of the Court of Appeal. Given that the Court of Appeal proceedings had been concluded, what I referred to as the classical interpretation of the words "until further order" is inapplicable because they came after resolution of the dispute in the Court of Appeal and the ordinary, literal meaning of the words applies. The stay operated until a further order of the Court of Appeal. That "further order" was the order made by Gleeson JA in 2015 specifying 9 am on 2 November 2015 as the date on which the stay would cease to have effect. That is the time and date which the Court must use "for the purposes of the enquiry" pursuant to the proviso to order 7 of the CA Orders.
Another factor in support of the Court's interpretation of the CA Orders is that where there is doubt about the meaning of an order, the Court ought not lightly arrive at a construction that puts a party in contempt. It is somewhat curious that it was the Health District, for the obvious reason of trying to reduce the damages period, that was advancing a construction of the CA Orders which, if adopted, may have meant that it was in contempt by not giving up possession shortly after the dismissal of its special leave application. One of the reasons why a court strives for clarity in the terms of its orders it to ensure that a party knows exactly what it must do in order to comply with the court's orders so as to avoid being in contempt.
After the dismissal of the Health District's special leave application, it was open to either party to approach the Court of Appeal for the stay of the CA Orders to be lifted. One of the few matters upon which the parties agreed was that Macquarie's reasons for not seeking to lift the stay were irrelevant. That, with respect, is correct. Similarly, no legal significance can be attached to the Hospital District's delay in approaching the Court of Appeal for the stay to be lifted. The course which the Court must adopt "for the purposes of the enquiry" is laid down by the proviso to order 7 in the CA Orders. That is the approach which I will follow. This conclusion means that it is unnecessary for the Court to consider Macquarie's submissions, based in principles of estoppel or agreement which, if accepted, would have brought about the same result.

[16]

Issue 2 - The parties' submissions

This issue is one of general principle and raises the question of the nature and purpose of an award of mesne profits in an action for trespass to land. The parties are at issue not so much on what has been referred to as the juridical underpinnings of a mesne profits claim, but rather their application to the unique circumstances of this case, particularly as applied to Macquarie's claim in respect of the Hospital Site.
The following propositions may be said to summarise fairly the areas of common ground between the parties: 1. An action for mesne profits is a species of the action for trespass (a tort). 2. Mesne profits represent the traditional measure of assessing damages where one party's possession or occupation of land has been wrongly interfered with. 3. Mesne profits are damages which compensate for the wrongful denial of property rights (i.e. the loss of use of those rights). 4. The "yardstick" or "normal measure" of mesne profits is an amount calculated by reference to the "reasonable letting value", "reasonable rent" or "market rental" of the land the subject of the trespass, which it would be reasonable for the trespasser to pay, and the party whose property rights have been wrongfully denied to accept, for the period of wrongful occupation. This yardstick is sometimes referred to as the user principle. 5. Whilst it is the interference with or infringement upon actual possession of the relevant property rights which provides the basis for an award of compensation, it is not necessary to establish actual financial loss, or a financial benefit to the trespasser, to recover damages. 6. There is some uncertainty in the authorities (both English and Australian) as to whether the "juridical underpinnings" of mesne profits are such that the assessment of damages is governed by principles of compensation or restitution, or elements of both. 7. This Court should follow the approach set out in Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] 82 NSWCA 342 ("Bunnings") at [177] per Allsop P (Macfarlan JA agreeing) (a case dealing with wrongful detention of chattels), namely that damages in accordance with the user principle for the wrongful interference or denial of property rights are compensatory in nature.
In order to tease out precisely where the parties differ on this issue, it is convenient to turn first to the Health District's submissions. The Health District submitted that the possessory right which Macquarie may be said to have lost, and for which damages are to be measured by a reasonable rental, is Macquarie's "contractual entitlement (with interdependent obligations) to exploit an opportunity to change the existing state and use" of the two sites (emphasis added). It characterises this possessory right as a bundle of contractual entitlements and obligations with their associated risks.
The Health District described Macquarie's claim for mesne profits as "ambitious and novel" because "the value of the claimed loss is dependent on the fulfilment of its contractual obligations to realise an opportunity". Its submissions conjured up an image of the Court as an ancient mariner buffeted in a sea of inconstant principle: It is submitted that, for the purposes of assessing the quantum, if any, of the plaintiff's claim a steady hand and eye needs to be applied when steering a course through the various cross-currents and eddies of the choppy seas that have buffeted the development of mesne profits and its application as the measure of damages for trespass to land.
The Health District accepted that, in line with cases like Inverugie and Bunnings, the conduct of the plaintiff (specifically what it would or could have done but for the trespass) is irrelevant to the assessment of a reasonable rental in circumstances where there is a fully built and functional asset on the land (e.g. a hotel, as in Inverugie). It said, however, that in circumstances where there is no existing asset but simply an "opportunity to develop" an asset, the plaintiff's conduct, including its capacity to realise that development opportunity, must be borne in mind when looking at the "reality of the possessory rights" to which a value must be attributed. This submission was developed: "It is one thing to say that a claimant may be entitled to be compensated for the loss it has suffered on land in an existing state which the claimant had the opportunity to develop, it is quite another to say that it should be compensated for the use of the land in an existing state which it has no possibility of developing so as to realise the opportunity, particularly where lack of development of one leasehold interest impacts on the realisation of the opportunity on the other leasehold interest. Put simply, there cannot be any value in an opportunity that has no possibility of fulfilment. Such value is illusory; it is a chimera."
The essence of the submission was that if Macquarie had been in possession of the Hospital Site, it had no financial capacity to build the Hospital and thus it would be wrong to assess damages on a basis that ignored this. In closing oral submissions, this was described by the Health District as its "lay down misere" submission. It was propounded not as part of what was described as the "objective valuation process" but rather as a part of the Health District's broader submission that in the overall circumstances of this case, a just and equitable result would be to deny Macquarie relief (beyond a sum representing the revenue the Health District received from the use of the two sites during the period of the trespass less the rent payable by Macquarie).
The Health District said that Macquarie's "contractual entitlement" to realise the opportunity to develop the Hospital Site was contingent on its contractual obligations to achieve the necessary changes to the existing state and use of the land, as to which, the Health District submitted, Macquarie was in "essential default" as at 17 March 2000.
Macquarie submitted that the approach taken in Inverugie represents the law in NSW and that the task for the Court is to apply the user principle having regard to all the information known to the Court at the time of the award. It submitted that the Health District's submission, that the Court may adjust the damages award to take account of the subjective circumstances of the plaintiff, is unsupported by authority and inconsistent with the user principle. It argued that the correct approach for this Court to adopt is to proceed on the same basis as that adopted by the experts, namely: "(a) calculate the net present value of both rights and obligations under the leases (including contract rent); and (b) derive an annuity (annual market rent) from that calculation. The resulting calculation of annual market rent is then payable over the period of the trespass as the proper measure of damages."
Macquarie submitted that considerations such as its ability to derive a profit from the use of the land (the Health District submitted its trespass "saved the Plaintiff from itself and from financial disaster") are the very considerations that are not to be taken into account when applying the user principle.

[17]

Issue 2 - Resolution

For the reasons which follow the Court has concluded, at the level of principle, that Macquarie's approach is to be preferred. To explain why that is so, it is necessary to consider Inverugie and Bunnings in some detail.
The parties accepted that, as a first instance judge, I am bound to apply the principles set out in Bunnings. The Health District reserved its rights, in another place, to contend that Bunnings ought not to be followed or was wrongly decided. Such submissions are not a matter for me. The approach to the assessment of damages set out in Inverugie was expressly approved in Bunnings. It is therefore convenient first to consider the Privy Council's decision in Inverugie.
Inverugie was an appeal from the Bahamas. It was the culmination of a piece of litigation the length of which rivalled the present proceedings. The case concerned 30 apartments in what might be recognised today as a timeshare resort development that were leased to Mr Hackett. The litigation was twice before the Privy Council. It is the second appearance before the Board which is relevant to the present proceedings, being an appeal from an assessment by a registrar of the Bahamian court of mesne profits arising from Mr Hackett's wrongful exclusion from his 30 apartments.
A convenient summary of the history of the litigation is found in the decision of Melville P in the decision of the Bahamas Court of Appeal, Civil Side, in Hackett v Inverugie Investments Ltd [1993] BHS J. No. 126: "2. A short history of the matter is that Myra Investments Ltd (Myra) developed a site in Grand Bahama which later became the Silver Sands Hotel. It consisted of 144 apartments which together with another building containing 20 apartments were operated as an hotel-styled enterprise. Before the project was completed Myra experienced financial difficulties, and the appellant came to the rescue. He invested $300,000 in 30 of the apartments on 99 year leases. These apartments were managed by Myra in the hotel trade on behalf of the appellant. 3. Myra later failed to meet its mortgage obligations and after foreclosure proceedings, the respondent eventually became the owner of the complex on 5 November 1974. On 25 November 1974, the respondent ejected the appellant from his apartments which were thereafter used as a part of the operations of the hotel by the respondent. Thereupon the appellant brought an action against the respondent in trespass. He claimed possession of the apartments and mesne profits among other things. He was unsuccessful in the Supreme Court but his appeal was allowed by a majority in this Court on 8 July 1982. 4. In allowing the appeal daCosta J.A. among other things granted the appellant a declaration that he was entitled to possession of his apartments, an order for possession of those apartments and in particular paragraph (4) reads: "And counsel for Hackett abandoning any claim for exemplary damages, an enquiry as to mesne profits and damages, including damages for trespass to Hackett's furniture." 5. The respondent's appeal to the Privy Council was dismissed on 5 December 1984, in these terms: "Accordingly their Lordships will humbly advise Her Majesty that the appeal should be dismissed and that Mr. Hackett is entitled to the reliefs set forth in the judgment of H.L. daCosta J.A. in the Court of Appeal …" 6. Thereafter, matters seem to have proceeded in a most lethargic manner. The summons seeking an order for enquiry as to mesne profits and damages was not issued until May 1986, and the order thereon was not made until 3 December 1987. It was not until 27 February 1990, that the enquiry itself was begun and the award was handed down on 14 September 1990. Before us the notes of the proceedings as recorded by the learned Registrar were woefully inadequate, but with the consent of counsel, the notes of the proceedings made by both sides were included as part of the record of appeal. … 12. As to the method by which the mesne profits were assessed, the learned Registrar held that the mesne profits should be the reasonable rent or ordinary letting value or open market value and that due weight should be given to any relevant circumstances but that profitability as such was not an example of such circumstances. Reasonable rent, found the Registrar, was rent which in all the circumstances is reasonable for the trespasser to pay. Speaking of special circumstances the Registrar found as follows: "What was styled as a hotel, was in fact a particular mix. There were privately owned and occupied apartments. Others which formed part of a pool and were available for occupation by hotel guests. Most apartments were in the pool. At the same time, apartments were being sold to purchasers who might occupy them themselves from time to time, or permit them to be part of the pool of the available rooms. Room occupancy and rates fluctuated widely. This led to negotiated rates with tour operators, the major source of business, that were invariably lower than the published rates … There were at any given time three types of rates; they were the long term rates, the published rate and the negotiated rate of tour operators: …" 13. While the learned Registrar may have regarded some matters as special circumstances which in my view were not, in the end he seemed to have disregarded special circumstances and even his own earlier ruling as to what mesne profits should be in making his assessment. What the Registrar did was to take the capital sum which the appellant had invested, that is $300,000.00 and awarded simple interest on that amount at 12 1/2% per annum over the period that the appellant was kept out of possession of his apartments. This was wholly erroneous as no such argument seemed to have been addressed to him, and the method of assessment was contrary to all the cases cited in argument."
The Bahamian Court of Appeal overturned the decision of the Registrar. In that Court Rowe JA was in the minority. However, in the Privy Council it was his approach that was approved. Because of the importance to the resolution of the present proceedings it is necessary to quote from that decision at some length. The opinion of the Board was delivered by Lord Lloyd of Berwick, who summarised Rowe JA's approach (at 716-717): "Rowe J.A. adopted a radically different approach. He rejected McArthur & Co. v. Cornwall as irrelevant. He followed a line of cases starting with Phillips v. Homfray (1871) L.R. 6 Ch.App. 770 , and including Whitwham v. Westminster Brymbo Coal and Coke Co. [1896] 2 Ch. 538 , Penarth Dock Engineering Co. Ltd. v. Pounds [1963] 1 Lloyd's Rep. 359 , Swordheath Properties Ltd. v. Tabet [1979] 1 W.L.R. 285 and Brynowen Estates Ltd. v. Bourne (unreported), 21 October 1981; Court of Appeal (Civil Division) Transcript No. 432 of 1981 . Their Lordships would quote the following passages from Rowe J.A.'s judgment to explain his approach: "The defendants have by trespass made use of the plaintiff's apartments and the plaintiff is entitled to receive by way of damages such sum as should reasonably be paid for the use. I therefore agree with the registrar that in assessing damages in the instant case profitability is not a relevant circumstance …. The defendants were in physical possession of the plaintiff's apartments for 365 days in each year of the trespass and are liable in trespass to pay to the plaintiff the reasonable rent for the apartments whether or not the defendants wished to rent them or was able to let them. The guest who from time to time paid for the privilege of occupation of the plaintiff's apartments was not the trespasser to whom the plaintiff will look for compensation in damages and I repeat that whether an apartment was occupied or unoccupied the defendants have an obligation to pay damages to the plaintiff …. On this my approach, the total amounts actually earned by the defendants for the operation of the Silver Sands Hotel are irrelevant for the purpose of assessing the damages due to Hackett. An examination of the defendants' accounts … would be equally irrelevant." Turning to the facts he said: "It seems to me, based on the findings of fact by the registrar, that the reasonable rent which could be obtained for the plaintiff's apartments in summer and in winter were the rates which tour operators were prepared to pay and that these rates when properly negotiated would be 35 per cent. lower than the published seasonal rate. This is the rate, which in my opinion, ought to be applied to the plaintiff's apartments for the [15] years of the trespass without any deduction for gaps in the actual occupancy of the apartments."
His Lordship noted that Mr Hackett's claim was brought for a reasonable rent for the apartments throughout the 15 and a half year period of the trespass. Mr Hackett was not asking for an account of profits (which was unsurprising given that the hotel was running at a loss), nor did he assert a restitutionary claim as an independent cause of action. The issue before the Board was how reasonable rent should be calculated.
His Lordship then set out the law (which statement I respectfully adopt) (at 717-718): "Before stating their own conclusions on the facts, their Lordships should say a brief word on the law. The cases to which they have already referred establish, beyond any doubt, that a person who lets out goods on hire, or the landlord of residential property, can recover damages from a trespasser who has wrongfully used his property whether or not he can show that he would have let the property to anybody else, and whether or not he would have used the property himself. The point is well expressed by Megaw L.J. in Swordheath Properties Ltd. v. Tabet [1979] 1 W.L.R. 285 , 288: "It appears to me to be clear, both as a matter of principle and of authority, that in a case of this sort the plaintiff, when he has established that the defendant has remained on as a trespasser in residential property, is entitled, without bringing evidence that he could or would have let the property to someone else in the absence of the trespassing defendant, to have as damages for the trespass the value of the property as it would fairly be calculated; and, in the absence of anything special in the particular case it would be the ordinary letting value of the property that would determine the amount of damages." It is sometimes said that these cases are an exception to the rule that damages in tort are compensatory. But this is not necessarily so. It depends how widely one defines the "loss" which the plaintiff has suffered. As the Earl of Halsbury L.C. pointed out in Mediana (Owners of Steamship) v. Comet (Owners of Lightship) [1900] A.C. 113 *718 , 117, it is no answer for a wrongdoer who has deprived the plaintiff of his chair to point out that he does not usually sit in it or that he has plenty of other chairs in the room. In Stoke-on-Trent City Council v. W. & J. Wass Ltd. [1988] 1 W.L.R. 1406 Nicholls L.J. called the underlying principle in these cases the "user principle." The plaintiff may not have suffered any actual loss by being deprived of the use of his property. But under the user principle he is entitled to recover a reasonable rent for the wrongful use of his property by the trespasser. Similarly, the trespasser may not have derived any actual benefit from the use of the property. But under the user principle he is obliged to pay a reasonable rent for the use which he has enjoyed. The principle need not be characterised as exclusively compensatory, or exclusively restitutionary; it combines elements of both."
His Lordship then went on (at 718) to apply those principles to the facts: "If this is the correct principle, how does it apply to the facts of the present case? Mr. Mowbray argues that it makes no difference whether there were 30 apartments, or only one. If there had been only one, the defendants would have been obliged to pay a reasonable rent for the use of the apartment for 365 days in the year, even though the apartment might not be taken by a tour operator, or otherwise occupied, for more than 35 per cent. of the time. The same must apply, says Mr. Mowbray, to each of the 30 apartments. Mr. Price argues that the unusual facts of the present case take it outside the normal rule. The defendants are hotel operators. If one assumes that the parties had negotiated a notional rent for the 30 apartments as a whole, they would have taken account of the average occupancy. What has to be valued is the chance of the defendants making a profit from the letting of the 30 apartments to tour operators, not the rent which an individual operator would pay per apartment. On the basis of $3 per day per apartment - the figure calculated by the registrar - a hotel proprietor would not have been prepared to pay more than $400 per apartment per year. In this way Mr. Price arrives at $159,360 as the appropriate measure of damages. The point is not altogether easy. But their Lordships have concluded that Mr. Mowbray's argument is to be preferred. If a man hires a concrete mixer, he must pay the daily hire, even though he may not in the event have been able to use the mixer because of rain. So also must a trespasser who takes the mixer without the owner's consent. He must pay the going rate, even though in the event he has derived no benefit from the use of the mixer. It makes no difference whether the trespasser is a professional builder or a do-it-yourself enthusiast. The same applies to residential property. In the present case the defendants have had the use of all 30 apartments for 15 ½ years. Applying the user principle, they must pay the going rate, even though they have been unable to derive actual benefit from all the apartments for all the time. The fact that the defendants are hotel operators does not take the case out of the ordinary rule. The plaintiff is not asking for an account of profits. The chance of making a profit from the use of the apartments is not the correct test for arriving at a reasonable rent."
Finally, his Lordship determined the question of the reasonable rental value of the 30 apartments for the period of the trespass (at 719): "What then is a reasonable rental value for the 30 apartments for 365 days a year? Rowe J.A. might have taken the published rates for each of the apartments. But as has been seen, he took instead the "wholesale" rate paid by tour operators, that is to say, the published rate less 35 per cent. in the winter, and 65 per cent. in the summer. Their Lordships see no reason to take a different view. For the reasons already explained, it is wholly irrelevant that the plaintiff would not himself have been able to let the apartments to tour operators for 365 days in the year. The final question is what, if any, deductions should be set off against the reasonable rental value of the 30 apartments. Mr. Mowbray concedes that the defendants are entitled to set off the sums which would have been payable under the lease. The relevant provisions are to be found in schedule 4 to the lease dated 5 June 1970. Rowe J.A. deducted $226,800 for ground rent and $950,331 for the cost of maintaining and refurbishing the common areas, making $1,177,131 in all. Mr. Mowbray agrees that these were correct deductions. Rowe J.A. also deducted $974,574 for electricity and the plaintiff's share of the cost of interior maintenance and repairs. This appears to have been conceded below. But Mr. Mowbray does not accept this deduction. Mr. Price submits that Rowe J.A. was right to make this deduction, and should also have deducted $387,279 for 10 per cent. management commission and $1,832,721 for the plaintiff's share of the general expenses of running the hotel. For the reasons given by Rowe J.A., he was plainly right not to deduct anything for general expenses. They are not a set-off against rent. The same applies to the management commission. The position with regard to electricity and the cost of interior maintenance and repairs is not so clear. But it matters not. For even if $974,574 was correctly deducted, the final figure on Rowe J.A.'s approach comes to well in excess of the $1,800,000 awarded by the majority. The defendants have thus failed to show that the figure should be reduced."
Bunnings applied, with approval, the principles concerning a claim for mesne profits in relation to a different sort of trespass, being a claim in respect of chattels rather than land (and so was a claim for conversion and detinue). The decision was an appeal from the finding by the primary judge that Bunnings was liable to CHEP in conversion and detinue in respect of a large number of CHEP's storage pallets that, at all materials times, CHEP owned and to which it had the immediate right to possession. The leading judgment in the Court of Appeal was delivered by Allsop P (as his Honour then was), with whom Giles and Macfarlan JJA agreed.
Allsop P's analysis of the law began with the decisions of the English Court of Appeal in Strand Electric and Engineering Company Limited v Brisford Entertainments Limited [1952] 2 QB 246 ("Strand Electric") and the decision of Giles J (as his Honour then was) in Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175 ("Gaba Formwork"). Again, because of its seminal importance to the present proceedings, it is necessary to set out Allsop P's analysis at length (emphases added): "171. In Strand Electric , the plaintiffs lent to the defendant, a theatre company, portable switchboards pending the installation of permanent switchboards. Initially and by agreement no hire was charged but the defendant subsequently refused to return the portable switchboards as demanded by the plaintiffs. 172. Somervell LJ (at 252) used the analogy of mesne profits for use of land. The measure of damages was the sum the user would have paid if the possession was lawful. Denning LJ at 254-255 was clear that where there has been use of the goods by the converter a reasonable hiring charge was to be paid, even if no loss was shown by the owner. This is in contrast to damages for detention by a mere detainer such as a carrier or warehouseman, where actual loss must be proved. Denning LJ said at 254-255: "If a wrongdoer has made use of goods for his own purposes, then he must pay a reasonable hire for them, even though the owner has in fact suffered no loss. It may be that the owner would not have used the goods himself, or that he had a substitute readily available, which he used without extra cost to himself. Nevertheless the owner is entitled to a reasonable hire. If the wrongdoer had asked the owner for permission to use the goods, the owner would be entitled to ask for a reasonable remuneration as the price of his permission. The wrongdoer cannot be better off because he did not ask permission. He cannot be better off by doing wrong than he would be by doing right. He must therefore pay a reasonable hire. ... The claim for a hiring charge is therefore not based on the loss to the plaintiff, but on the fact that the defendant has used the goods for his own purposes. It is an action against him because he has had the benefit of the goods. It resembles, therefore, an action for restitution rather than an action of tort. But it is unnecessary to place it into any formal category. The plaintiffs are entitled to a hiring charge for the period of detention, and that is all that matters." Romer LJ (at 256) emphasised the salient factors that the goods were of a profit earning nature, that they were ordinarily hired out and that the defendant applied the goods to its own ends. Whilst his Lordship (as had Somervell LJ) rejected notions of benefit to the defendant, in the light of the salient facts the defendant was not permitted to set up other facts denying loss (at 257). 173. In Gaba Formwork at 184-188, Giles J, as his Honour then was, examined Strand Electric and its reception in England and Australia up to 1991. I respectfully agree with the analysis of Giles J in Gaba Formwork (referred to by the learned authors of Clerk & Lindsell op cit at 1060 [17-104] ftnt 81 as a "careful and instructive" judgment, a description with which I respectfully concur). As the opinion of Giles J in Gaba Formwork reveals, Strand Electric has been accepted in Australia, though not without some reservation: Bilambil-Terranora Pty Ltd v Tweed Shire Council [1980] 1 NSWLR 465, Yakami Dairy Pty Ltd v Wood [1976] WAR 57, Egan v State Transport Authority (1982) 31 SASR 481, (1982) 31 SASR 481, Pargiter v Alexander [1995] TASSC 62, 5 Tas R 158, Finesky Holdings Pty Ltd v Minister for Transport for Western Australia [2002] WASCA 206, 26 WAR 368; cf McKenna and Armistead Pty Ltd v Excavations Pty Ltd [1957] SR (NSW) 515, and Roder Zelt-Und Hallenkonstruktionen GmbH v Rosedown Park Pty Ltd (In liq) [1995] FCA 1707. The legitimacy of assessing compensation or damages in conversion and detinue for interference with proprietary or possessory rights by use of property that earns or is capable of earning a profit, by reference to a hiring fee that is appropriate in all the circumstances, was confirmed by the Privy Council in Inverugie Investments Ltd v Hackett [1995] 1 WLR 713 at 717-718 and by the House of Lords in Attorney-General v Blake [2000] UKHL 45, [2001] 1 AC 268 at 278-279. Reference to the modern texts on damages (H McGregor, McGregor on Damages (18th Ed, Sweet & Maxwell, 2010) at 1234-1236 [33-068]) and torts ( Clerk & Lindsell op cit at 1060-1061 [17-104]; R P Balkin and J L R Davis Law of Torts (4 th Ed, LexisNexis Butterworths, 2009) at 90 [4.40] and 106 [4.64]; Green and Randall op cit at 192-194; and N Palmer and E McKendrick (eds) Interests in Goods (2 nd Ed, LLP, 1998) at 847-853) reinforces the legitimacy of the approach of Strand Electric and Gaba Formwork . 174. Stability of approach, especially in a field directly related to commercial law should be maintained. It is unnecessary to discuss the extent to which a degree of re-adjustment in taxonomy is required by reference to notions of restitutionary damages (cf McGregor op cit Ch 12). Rules of compensatory damages, sensibly and flexibly applied, are adequate to explain the theoretical and practical positions, without any extension of principle involving the award of the wrongdoer's profit as a remedial consequence of the commission of a tort. 175. The fundamental principle of damages for tort is compensation for loss caused: Butler v Egg & Egg Pulp Marketing Board [1966] HCA 38; 114 CLR 185; and Haines v Bendall [1991] HCA 15; 172 CLR 60 at 63. The damage or loss caused to the plaintiff with rights of ownership and possession who is in the business of hiring goods of the kind converted or detained is not limited to the consequences of stock depletion or to cost of replacement, but incudes the denial and infringement of its rights. Those rights have been denied to the plaintiff by the commission of a tort involving the use of the goods by the tortfeasor. It is entirely logical and in accordance with justice and commonsense that a wrongdoer should pay a price for using the goods of another as a matter of compensation for the denial of the right concerned. I do not see this as contrary to, or undermining of, the principle of compensation. To require compensation to be the operative principle is not to deny the fundamental principles discussed in cases such as Mediana, Owners of the Steamship v Owners, Master & Crew of the Lightship Comet (The 'Mediana') [1900] AC 113 [1900] AC 113 at 117 by the Earl of Halsbury LC, or Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104 at 119 by Lord Shaw as discussed by Lord Nicholls of Birkenhead in A-G v Blake at 278-279. Lord Shaw in Watson , speaking of damages for patent infringement, said: " ... whenever an abstraction of property has occurred, then, unless the abstraction or invasion were to be sanctioned by the law, the law ought yield a recompense under the category or principle ... either of price or hire." 176. The law of patents has always viewed the determination of damages arising from patent infringement as compensatory in character and as wide enough to encompass the amount which the infringer would have had to pay had he taken a licence upon terms normally granted by the patentee: see generally W Aldous et al Terrell on the Law of Patents (13 th Ed, Sweet & Maxwell, 1982) at 427 [14-160] and the cases cited at ftnt 83; and W Cornish et al Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights (7 th Ed, Sweet & Maxwell, 2010) at 81-83 [2-38]-[2-40], or on a reasonable royalty basis if the patentee does not grant licences or makes its profit as a manufacturer: Aldous op cit at 427 and [14-160] and the cases at ftnt 84; and Cornish op cit at 83 [2-40]. 177. Care needs to be exercised in any comparison between the principles attending the torts of conversion and detinue, on the one hand, and infringement of patents, on the other, and the lengths to which any such comparison is taken (cf Leman v Krentler-Arnold Hinge Last Co [1932] USSC 26; 284 US 448 at 456-457 (1932)). Nevertheless, the analogy is of assistance in understanding the concepts involved in compensation and the law's proper response to the interference with property rights. Compensatory damages for conversion of goods and compensatory damages for patent infringement have some basal features in common. The former involves the denial of the property rights of the plaintiff, including the right to possession, through an act repugnant to those rights; the latter involves the denial of the plaintiff's statutory monopoly rights by infringement being the acts that the statute identifies as the denial of, or interference with, those rights. In each, if a property right has been invaded by wrongful user, the law should and does provide a remedy for the wrong, compensatory in character in the broad sense, focusing on the interference with the right in question. Recompense is given to the wronged property owner that requires the wrong to be seen as righted, by requiring a price or hiring charge to be paid for the wrongful use. What is being compensated for is the wrongful denial of property rights, not merely the injured party's financial position analysed subjectively: see Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA (Civ) 323; [2003] 1 All ER (Comm) 830 at [26] per Mance LJ. Essential to the notion of compensation here is the use by the wrongdoer that gives reality and content to the denial of, or interference with, the plaintiff's rights. So to say is not to transform damages into restitution; rather it is to set a practical limit to the principle based on the feature of the wrong (the wrongful use) which calls for the law's response to award damages for the denial or interference with the right. 178. Though only Denning LJ in Strand Electric expressly based his judgment on restitutionary principles, Somervell LJ and Romer LJ expressing the matter in terms of compensation, each of their Lordships included as an element in his reasoning use by the converter/detainer. This element of suit for the use of the chattel was a suggestion of Lord Mansfield in Hambly v Trott (1776) 1 Cowp 371 at 375; [1776] EngR 20; 98 ER 1136 at 1138. Thus the use of a sum for the hire of the chattel to inform the monetary remedy can be seen as referable to the capacity of the chattel to be hired by the owner (and the refusal to permit the wrongdoer to assert that he would or could not): Romer LJ at 256-257, or to the actual use by the wrongdoer: Denning LJ at 254-255 or to the user of the wrongdoer based on what he would have paid if he had been lawfully in possession: Somervell LJ at 252. The element of use by the wrongdoer was central to at least two of their Lordships and it was part of the action referred to by Lord Mansfield in Hambly v Trott . The element of use can be seen in the analogue of mesne profits and like cases: Whitwham v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538 at 541-542; Hall & Co Ltd v Pearlberg [1956] 1 WLR 244; Wrotham Park Estate Co v Parkside Homes Ltd [1974] 1 WLR 798; Bracewell v Appleby [1975] Ch 408; Jaggard v Sawyer [1995] 1 WLR 269; Swordheath Properties v Tabet [1979] 1 WLR 285; Inverugie ; and in respect of a dock: Penarth Dock Engineering Co v Pounds [1963] 1 Lloyd's Rep 359. 179. If use is required for the legitimate employment of a hiring charge to assess damages or compensation or monetary relief, it is necessary to consider what kind of use will suffice. Conversion or detinue has been found. If the wrong is the mere non-return of goods that lie idle and contribute not at all to the life, work or business of the wrongdoer it may be difficult to justify conceptually, in the absence of proof of actual loss or damage, the awarding of a hiring fee. Hire is, after all, in its nature, a payment for use. Nevertheless, one need not be overly precise about the nature of the use. For instance, in Strand Electric , the switchboards were not actively operated. There was use in the relevant sense, however, because without the equipment the theatre could not be let or sold - it made the theatre more attractive and readily disposable. 180. Here some of the use was possession, for display and storage. Possession for these purposes was after a demand to return. In a sensible commercial sense, it was the deployment of the pallets in the business of Bunnings, even to the extent that they were recirculating pallets for returns. The refusal to return enabled the continued smooth operation of the Bunnings business to take place, without the inconvenience (and hence business cost) of doing that which they were legally obliged to do - return all pallets to Chep. This, in my view, is use enough for the Strand Electric principle. 181. If there were numbers of pallets always lying idle and extraneous to any aspect of the operating business of Bunnings, that was for Bunnings to show: cf Armory v Delamirie (1722) 1 Strange 505; [1722] EWHC KB J94; 93 ER 664. It did not. 182. In my view, it is appropriate to apply a hiring fee on the authority of Strand Electric ."
The learned President then went on to deal with how the hiring fee should be determined (emphasis added): "184. The question then arises what the hiring fee should be. The primary judge refused to give Bunnings the advantage of the rate Chep was prepared to take from Bunnings, being Wesfarmers' rate, which was some 40 per cent of the standard hire rate, saying at [262]-[264] of the reasons: "[262] However, I do not think that either the compensatory principle or the secondary rule as to assessment established by Strand Electric and Gaba Formwork , requires the Court to take, as the hire rate applicable, the rate paid by Wesfarmers from time to time. There are at least two reasons why this is so. The first is that the measure of damages is the loss of a market rate of hire (see Somerville LJ in Strand Electric at 252). The market was wider than Wesfarmers. The second is that, to adapt the words of Romer LJ in Strand Electric at 257, it does not lie in the mouth of Bunnings to suggest that the damages that it should pay should be reduced by reason of some benefit that it might have obtained had it bargained for the use of the chattels instead of converting or detaining them. [263] To the extent that it may be said that Chep cannot prove what particular hirers would have paid, then, I think, one should assess damages robustly and against Bunnings, whose wrongful detention and conversion of the pallets has rendered precise quantification impossible. [264] Essentially for the reasons that I have indicated already, I do not think that it is correct to say that Chep has been compensated in full by receiving (if it has done so) compensation from hirers for the loss of the pallets in question. As the figures set out at [204] and [205] above show, that compensation does not cover the capital cost of replacement. It does not compensate at all for the annual cost of repair. Chep claims neither the cost of replacement nor the cost of repair in these proceedings. It has limited its case to loss of use." 185. I respectfully disagree. First, Chep abandoned other bases of compensation. The focus should be on the appropriate measure of hire. The market or standard rate is to be chosen because it best reflects what the converter or detainer would have to pay and what the owner should obtain for his property wrongfully retained. Of course, it does not lie in the wrongdoer's mouth to posit a speculative advantage that it might have got had it not committed the wrong. That, however, is not the position in relation to the conversion or detinue after 8 August 2006. The very act of conversion and detinue was the refusal to enter a transaction, effectively on offer at the Wesfarmers' rate: see for example the Hire Equipment Proposal of March 2006 at section 3.4 (Blue Book Vol 1 p 425). In those circumstances, the very act of conversion or detinue was failing to accept the offer effectively based on the Wesfarmers' rate. This is the appropriate rate from 8 August 2006 for the quantity of pallets withheld and used by Bunnings. To give a higher rate after 8 August 2006 would be to risk over-compensation of the kind in Butler where to give damages by reference to the value of the eggs sold by the grower would have given the Board a sum greater than it would have received had the grower complied with the law, breach of which law amounted to the acts of conversion. If this is the rate, I would still maintain the primary judge's usage of 90 per cent of the pallets upon which he calculated damage, as it reflected the evidence of Chep as to usage rates and also gave a margin to accommodate the possibility that some pallets were lying idle in Bunnings without either being used by way of possession or circulating in the carrying on of Bunnings' business. 186. As to any conversion prior to 2006 of the ad hoc kind to which I have referred, there is no reason why the Wesfarmers' rate should apply. There was no overarching offer for a commercial arrangement at that time and Bunnings has, on an ad hoc basis, converted the property of Chep. The standard hire rate should apply in those circumstances, if there are to be any orders about this conversion before 8 August 2006."
In his concurring judgment Giles JA said: "198. The analogy with mesne profits upon which both Somervell LJ and Denning LJ drew in Strand Electric is of some significance. A trespasser upon land is generally liable to pay the market rent for the land whether or not the landowner would have been willing or able to let the land to someone else: see for example Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432 at 439 and cases there cited and Inverugie Investments Ltd v Hackett at 717. Once there is departure from strict compensatory principles in some circumstances, as the law undoubtedly permits, a restitutionary element for conversion or detinue in damages representing what the defendant would have had to pay for the use of the chattel can readily enough be accepted. 199. I respectfully prefer that view of Strand Electric. On strict compensatory principles, the tortfeasor's use of the chattel once conversion or detinue has been found would not matter for damages."
What emerges clearly from the foregoing statements of principle is that in Australia mesne profits are the means by which damages for trespass are awarded. Furthermore, the calculation of those mesne profits is done by reference to the user principle. The user principle means that the Court is not concerned with whether or not the innocent party could or would have used the land in question or whether the wrongdoer can demonstrate that it may have been able to gain some advantage if it had, in fact, negotiated with the innocent party for the use in question. In my view, the user principle requires a robust and straightforward inquiry firmly based upon what in fact occurred: what was the wrongful use and what is a market or going rate for that use?
This conclusion has the consequence that the Court must disregard the way in which the Hospital District put much of its case. Without intending any criticism, a great deal (but by no means all) of the complexity in, and length of, these proceedings flowed from the Health District postulating and seeking to prove a number of hypothetical counterfactuals. The most striking of these were the Health District's contentions that Macquarie would never have been able to build the hospital, or if it had, that the hospital would have been an economic disaster for Macquarie. These submissions (supported by a large amount of factual and expert evidence) were advanced in support of the ultimate proposition that Macquarie had, in fact and law, suffered no loss by reason of the Health District's trespass and had been saved from economic ruin.
As the basis for the determination of a market rate or rental, the user principle, as I understand it, obviates completely (or, perhaps, almost completely because facts are infinitely various), the role of hypothetical counterfactuals that are unremarkable features in assessing damages for other torts, such as simple negligence. Thus, for example, if Macquarie claimed that it had decided to build the car park and the private hospital in reliance on negligent technical advice, it would not be surprising if the defendant sought to minimise its liability by demonstrating that Macquarie would nevertheless have gone ahead if "non-negligent" advice would have been tendered and that, if it had done so, it would have made a large loss.
The exclusion of the hypothetical and speculative is unsurprising when the user principle is properly understood. In a case such as this, identified rights commencing with, but not limited to, the fundamental right to exclusive possession as lessee of the Car Park Site and the Hospital Site, have been infringed for a known period in the past. To borrow the Earl of Halsbury's pithy example, the chair was taken for a specified period irrespective of the facts that there were other chairs available or that the true owner could not or would never have sat in that chair. It is not an assessment of future economic loss but a retrospective one. In approaching the task, relevant events that have in fact happened or not happened during the period of the trespass are to be preferred over speculation (no matter how well informed) as to what might have happened. "Where actual facts are known, speculation as to the probability of those facts occurring is surely an unnecessary second-best": Willis v The Commonwealth (1946) 73 CLR 105; [1946] HCA 22 at 109 per Latham CJ.
Nevertheless, the user principle is to an extent counterintuitive if the classic formulation of compensation is recalled: that the injured party should receive compensation in a sum which, so far as money can do, will put him in the same position that he would have been in if the contract had been performed or the tort had not been committed: Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185; [1966] HCA 38 at 191 per Taylor and Owen JJ. In a case of trespass on a piece of land that the owner would never have used or rented out (and therefore appears to have suffered no loss by being excluded from possession) the user principle will leave the plaintiff in a monetarily better position than she would otherwise have been in. But, the fact remains that an identifiable wrong has been committed for which the principles binding upon me dictate that the law will award more than nominal damages. For a helpful discussion of this apparent dilemma and the possible justifications for the user principle see R. Mahoney, "Overcompensation and the 'User Principle' " (1996) 24 ABLR 59.
In my view, the user principle also has a corresponding consequence for how a plaintiff can put his or her case. Undercompensation is avoided by directing attention to the use that has occurred. This is irrespective of whether the landowner would or could have used the land in that same way, or any speculative advantages that the wrongdoer might have received but for the wrongful use. Similarly, overcompensation must be avoided by again focusing on the wrongful use and not permitting the plaintiff to say that but for the trespass she would have used the land for a much more lucrative purpose. Just as it cannot be said the plaintiff would never have allowed the land to be used at all (resulting in undercompensation for the wrongful use that in fact occurred) nor can the plaintiff say she would have used it for a much more lucrative purpose (resulting in overcompensation for the wrongful use that in fact occurred). The cases to which I have referred above require the plaintiff to be compensated by reference to the market rate or rental for the use that occurred.
The Hospital District's case acknowledged the application of the user principle but sought to avoid its consequences by describing what Macquarie had lost as being an enforceable right that gave Macquarie "a contractual entitlement to exploit an opportunity" to do certain things (see paragraphs [154] to [157] above). That characterisation of an "opportunity" was the Hospital District's conceptual gateway through which it sought to introduce hypothetical counterfactuals and analyses of the kind used in loss of chance cases. The Court accepts Macquarie's submission that this is not a loss of a chance case and that it would be wrong to assess damages by reference to the principles used in cases of that kind.
The Hospital District's characterisation is wrong because what Macquarie was deprived of was its contractual right to the possession of and, consequently, operation and development of the sites. Introduction of the gloss of "opportunity" adds nothing because most, if not all, contracts could be described as giving a contractual entitlement to exploit an opportunity of some kind. The user principle keeps the Hospital District's conceptual gateway firmly closed because it ignores whether the innocent party could have, would have or even wanted to exercise its right to use its land in the way that the trespasser used the land.
All of that having been said, it must be accepted that Macquarie's case in relation to the Hospital Site in particular presents some novel features insofar as no similar case has been able to be found, despite the extraordinary legal resources the parties devoted to these proceedings. In a case presenting novel features I take as my touchstone Allsop P's invocation in Bunnings (at [174]) of the "rules of compensatory damages sensibly and flexibly applied". That approach does not exclude a sensitivity on the part of the Court to the need to avoid undercompensation or overcompensation within the context of the principled application of the user principle.
It is not necessary for the Court to consider Issue 3 separately. The matters raised in it have been dealt with by the analysis of Issue 2 or overtaken by the parties' ultimate agreement that the residual land value methodology was to be used.

[18]

The Car Park - Overview

Macquarie's primary submission was that for the Car Park Site mesne profits should be calculated by: 1. Applying the market or "going rate" for 600 staff spaces at 100% occupancy (which Macquarie submitted the experts agreed meant an assumed turnover of 1.45 visits per space per day); and 2. Applying the agreed visitor market rate (being $14.06 as the average going rate per visit) for 426 visitor car spaces at 100% occupancy, which it submitted was a turnover of 3.77 visits per day; 3. Deducting in favour of the Health District all expenses incurred and the contracted rent.
Macquarie submitted that if the Court accepted that submission then, with the exception of Issue 8 concerning the turnover rate, none of the other issues raised in the proceedings concerning the Car Park Site would need to be considered.
The view that I have adopted as to the application of the user principle means that I have accepted Macquarie's submission that, in relation to the Car Park Site, mesne profits are to be calculated without reference to the numerous hypothetical counterfactuals raised by the Health District. The Health District had the benefit of all 1,026 car spaces for the entire period of the trespass. Applying cases such as Bunnings and Inverugie, I am therefore satisfied that the calculation is to be made by reference to 100% occupancy of the 1,026 car spaces that were available in the car park during the period of the trespass. I also agree that there must be a deduction in favour of the Health District in relation to expenses incurred and the rent Macquarie was contracted to pay.
However, I do not accept the balance of Macquarie's submission in its totality. In my view, the proper application of the user principle on the facts of this case in relation to the Car Park Site requires: 1. The calculation being made by reference to occupation of all 1,026 car spaces; 2. The calculation being made by reference to staff occupancy only; 3. The determination of the market or going rate for staff parking; 4. The application of a turnover rate in relation to staff parking; and 5. The deduction of contracted rent and other expenses.
The issues in relation to the car park therefore conveniently fall under the following headings: 1. The facts. 2. Should damages be awarded by reference to the "entire" car park or the 1,026 spaces? 3. Should damages reflect a mix of users and, if so, in what numbers? 4. What is the appropriate rate for staff parking? 5. What is the appropriate turnover rate for staff parking? 6. What expenses are to be taken into account in favour of the Health District? 7. Further steps.

[19]

The facts

In the early 1990s Liverpool Hospital had been providing its staff with free parking. A multi-storey car park was built and placed under the control of a commercial operator. Fees were proposed to be charged to staff. An industrial dispute broke out which was the subject of a decision by Conciliation Commissioner French in the Industrial Relations Commission of NSW. By orders made on 25 October 1994, the Commissioner approved employees of Liverpool Hospital being charged $2.14 per day. After a successful appeal by the Nurses Association and further discussions, a rate of $2.14 (plus annual CPI adjustments) appears to have been agreed for Liverpool Hospital staff. In the proceedings before me that rate was referred to as the "Liverpool Rate".
The Car Park Site and the Private Hospital Site are two separate lots in the one deposited plan. Macquarie (with MHC as guarantor) and the Health District entered into the Transaction Documents on 2 December 1996: 1. A Construction Deed under which Macquarie was required to commence, carry out and complete specified works in accordance with an agreed timetable. The works were: 1. excavate the Car Park Site and the Hospital Site; 2. construct the Car Park and the private hospital; and 3. fit out the private hospital. 1. The Car Park Lease under which the Health District leased the Car Park Site to itself and Macquarie as tenants in common for a term of 103 years commencing on 1 December 1996. Under the Car Park Lease, Macquarie was described as the Managing Tenant and was required to pay to the Health District a specified rent on 14 February 1999 and specified outgoings, proportionately with the Health District where the particular outgoing was a service (as defined) enjoyed by both Macquarie and the Health District. 2. A Car Park Sub-Lease under which the Health District let its interest in the Car Park Site as a tenant in common to Macquarie for a term of 28 years commencing on 1 December 1996. Under the Car Park Sub-Lease, Macquarie was required to pay an annual rent of $720,000 to the Health District. 3. A Hospital Lease from the Health District to Macquarie of the Hospital Site for a term of 103 years commencing on 1 December 1996. 4. A Car Park Management Agreement between the Health District, Macquarie and MHC (as guarantor), under which Macquarie agreed to manage and operate the car park. The Car Park Management Agreement plays no part in the present proceedings because it did not come into effect until the date of termination of the Car Park Sub-Lease in 2024. 5. A Co-Ownership Deed between the Health District, Macquarie and MHC (as guarantor) to govern the rights and obligations of Macquarie and the Health District as co-owners of the car park. The Co-Ownership Deed also plays no part in the current proceedings because, in practical terms, it did not come into effect until the expiry of the Car Park Sub-Lease in 2024.
Importantly for the purposes of this damages enquiry, the Transaction Documents were completely silent in two significant respects: 1. The Health District had no power to determine what Macquarie charged anyone to park in the car park; and 2. There was no operative contractual specification as to who could park in the car park and, in particular, stipulating any particular mix between staff of RPAH (or the future private hospital) and visitors. (I have said "operative" because the contractual reservation of 600 spaces for the Health District in Clause 2.4 of the Co-Ownership Deed did not have effect during the term of the Car Park Sub-Lease).
In February 1997 two separate development applications were lodged on behalf of Macquarie with South Sydney Council. The first was to build what was described as a new five storey commercial car park with 1225 car spaces. The second was for Macquarie's proposal to build a private hospital (Stage 1 of the Private Hospital) with an adjoining medical centre and consulting rooms (Stage 2 of the Private Hospital).
In approving Macquarie's development applications, South Sydney Council imposed certain conditions which were unsatisfactory to Macquarie. Macquarie appealed to the Land and Environment Court, where the matter was heard by a highly experienced assessor, Dr John Roseth, who also gave evidence in the proceedings before me.
On 19 June 1997 the Land and Environment Court approved Macquarie's development application for the car park subject to the conditions of consent set out in Annexure A to Dr Roseth's judgment (the "Car Park Approval"): Pace Property Management Services Pty Limited v South Sydney Council (Land and Environment Court (NSW), Dr J Roseth, 19 June 1997, unrep).
The conditions upon which approval was given for the building of the private hospital were also determined in the same judgment.
The only relevant condition of the Car Park Approval for present purposes was the opening words of condition 23 that "the fee structure of the new car park should discourage long stay parking". The Car Park Approval did not specify the number of vehicles or the mix of users, but did require a minimum of 32 spaces to be designated for disabled parking.
Further disputes were resolved by the Land and Environment Court of NSW by a judgment of Dr Roseth on 24 December 1997. In that judgment the Car Park Approval was amended in two relevant respects.
First, condition 21 (which dealt with staff parking displaced during the construction period) was amended to become: "(a) Three hundred and fifty (350) parking spaces displaced during the construction of the parking station shall be accommodated at the Royal Alexandra Childrens' Hospital Site. (b) As soon as parking can be used on the development site within the new parking station, it shall be provided for displaced staff on a progressive basis. (c) All reasonable steps shall be taken during the period that the said 350 staff parking spaces are displaced from the station site to encourage off street parking at the Royal Alexandra Childrens' Hospital and to discourage on-street parking by hospital employees."
The concern about displaced employees had arisen because the Car Park Site had been being used for parking 600 staff cars. Dr Roseth's judgment of June 1997 noted (on p 2) that "It was agreed by the parties that 600 of the spaces in the proposed parking station will replace existing parking spaces on the site …". This was consistent with Macquarie's original development application for 1,225 car spaces in the car park. That document stated "Half (600) of the spaces in the structured car park will be allocated to displaced RPA staff with the remainder available to Prince Alfred Private Hospital staff, patients and visitors."
The second relevant amendment to the Car Park Approval was to identify a stage two of the car park which was not to be completed until the construction of the second stage of the private hospital, the medical centre and the consulting rooms had commenced.
On 14 May 1998 the RPAH Branch of the NSW Nurses Association ("NSWNA") passed this resolution: "This Branch refuses to accept any increase in car parking fees for any space on the RPAH campus at the present time. When the private hospital car park is complete the Branch will consider proposals for parking fees for that facility at that time."
In late 1998 the NSWNA accepted that staff parking at Canterbury Hospital should be $21.60 per fortnight adjusted for CPI and $3.00 per shift for casual staff (see the letter referred to in paragraph [254] below).
On 25 January 1999 the Health District's solicitor (Mr Dimitri) wrote a file note of a conversation with Mr Wallace. The Court accepts the file note accurately records what Mr Wallace told Mr Dimitri. Mr Wallace is recorded as saying that he had met with "Tom's [Dr Wenkart's] son" on 22 January 1999 and that agreement had been reached that staff parking in the car park would be charged at $21.60 per fortnight and $3.00 per day part time and that he (Mr Wallace) would chase up getting that in writing from Macquarie. There is nothing more in the evidence as to whether he chased it up and there is no evidence of anything from Macquarie, other than the reference in Macquarie's December 1999 letter set out in paragraph [210], below that "in earlier correspondence with CSAHS it was agreed that the initial car park rate would be the equivalent of $2.10 per day per car". The Court infers that the "earlier correspondence" was what came of the meeting Mr Wallace told Mr Dimitri about.
On 19 February 1999 Mr Wallace wrote to the State Secretary of another health sector union (emphasis added): "The owner of the carpark only reluctantly agreed the rate of $21.60 after considerable negotiation. The Area Health Service cannot direct the owner in regard to his pricing of parking within his carpark. We have, however, during negotiations, explained that we do not believe that all staff will be willing to pay $21.60 per fortnight and will continue, as now, to use the grade parking provided and to park within the local streets. To date our arguments have not dissuaded Macquarie from proposing to charge the rate of $21.60 to all staff."
Macquarie completed the major part of construction of stage one of the car park by about May 1999. A certificate of practical completion was issued on 15 June 1999. The completed stage one of the car park contained, and was marked out for, 1,026 car spaces. In subsequent correspondence the car park was referred to as the "new private hospital car park" or the "new Church St Car Park".
In late August 1999 a notice which gave no indication of its author was circulated throughout RPAH saying that the "[New] Car park is now open for staff only between 9.00am and 5.00pm. You need to show your ID card at entrance Grose Street. [No liability taken.]" (The words in square brackets were in handwriting on the copy of the notice that was in evidence).
When it opened the car park in late August 1999, Macquarie did not initially charge staff for admission. Dr Wenkart accepted in evidence that this could be described as a loss leader.
The opening of the car park was not without controversy. A memorandum dated 27 September 1999 from the General Manager of RPAH said: "An unofficial notice has been circulated throughout the Hospital advising that the Macquarie Hospital Private Car Park is available for use by staff. However, we have been advised by South Sydney Council that the completion of works required to achieve certification and approval have not been carried out by Macquarie Private Hospital. As a consequence, South Sydney Council has advised Macquarie Health Corporation that the site cannot be used for parking until such works are completed. Please advise all your staff of this."
Minutes of the Health District's Board for its meeting held on 6 October 1999 record the Board being informed "Macquarie was operating the incomplete Private Hospital car park but was yet to receive certification from South Sydney City Council".
On 7 October 1999 the NSWNA and other unions associated with RPAH issued a "Joint Union Statement" informing their members that, at the time, Macquarie did not have approval to operate the Car Park Site as a car park. The notice included statements that "As representatives of the joint unions, we advise you not to park in the private hospital car park at this time. Macquarie Health Corporation advises that if your [sic] are considering utilising the private hospital car park, you do so at your own risk". Despite this advice RPAH staff did patronise the car park, which Macquarie continued to operate notwithstanding its lack of certification.
On 2 December 1999 a letter was sent from Macquarie signed by Scott Wenkart by facsimile to "The Payroll and Transport Offices" at RPAH. The copy of the letter in evidence indicates that it was seen by Dr Horvath on 30 December 1999. Because it is important for some of the arguments that were put to the Court on the enquiry, it is necessary to reproduce this letter in full (emphases added): "Dear Sir/Madam NEW CHURCH STREET CAR PARK The new Church Street Car Park has now been operating for a period of over two months. This is a period in excess of any concessional/free staff park period that Macquarie proposed to CSAHS at any time. It is noted that CSAHS failed to take up this option as a solution to the Link Road access problem at that time. It is noted that CSAHS are still deducting car parking from staff wages and salaries for employees who are using the new Church Street Car Park. Expressed in the alternative, CSAHS are charging car parking for a service not used by the staff using the New Church Street Car Park. In earlier correspondence with CSAHS it was agreed that the initial car park rate would be the equivalent of $2.10 per day per car. Given our understanding of the staff car parking deductions being made by CSAHS from staff wages and salaries, this rate is not being achieved even at this time. Consequently the new Church Street Car Park is being provided to displaced CSAHS staff at a subsidy. To date in excess of 5,000 displaced RPA staff cars have used the Car Park and payment will be sought in due course from CSAHS. CSAHS are now requested (on behalf of the staff customers of the New Church Street Car Park) to conclude an arrangement with Macquarie (as the car park operator) whereby the deductions of $2.10 CSAHS taken from staff wages and salaries are remitted fortnightly (in advance equal to $21.60 per car) on account for their staff using the car park. In order the staff using the car park under this payment system can be properly controlled, a listing of these eligible prepaid employees (including their motor vehicle details) is also required. Your favourable response to these practical matters is sought by 30 December 1999. Your failure to respond will necessitate us considering our options in respect to operating the car park during the new year. Your assistance in this matter is requested."
Macquarie continued to operate the car park without charging RPAH staff until the end of 1999. From 4 January 2000 up to 17 March 2000 (the date the Health District took possession of the Car Park Site), Macquarie operated a voucher system with a daily charge of $3.00 per visit, or the option of purchasing 10 entry tickets for $25 or 20 entry tickets for $40. A caravan was set up near the entrance to the car park with an attendant to sell and collect tickets.
An RPAH memorandum of 17 March 2000 entitled "Car Park Management Proposed System of Operation" written by RPAH's Area Transport Manager, Mr Bob Mavin (who gave evidence on the enquiry), and the Area Security manager, Mr Stephen Page recorded: "Car Parking Charges The MHC daily charge is $3.00 per car with reductions for pre-paid vouchers. Whereas the Hospital Rate is $3.00 per week, a variance of around $12.00 per car per week. There are three options: I. Maintain the current Hospital charge and carry the $12.00 per car per week deficit. This option would allow for an average 960 car entries per day before approaching the $750k (gross) income barrier. Current car park usage is estimated at 200 car entries per day. Transport forecasts are a maximum of 450 entries when the Harold Park arrangement closes. II. Take the opportunity to review car parking charges e.g. Canterbury rate is $11 per week, while Concord is $2.50. III. Maintain MHC charges. This case would not be difficult to argue given the circumstances. Whatever the case, pre-sold vouchers should be honoured."
On 28 March 2000 Windeyer J dismissed Macquarie's application for possession of the Car Park Site. In doing so, he noted this undertaking from the Health District: 1. It will not sell or lease the Car Park Site or the Hospital Site; 2. Expeditiously to proceed to completion of the car park with a view to obtaining council permission for its operation; 3. To record in a separate account gross revenue from the operation of the car park and expenses of the process to obtain council approval for operation of the car park and of maintenance and operation of the car park.
MHC wrote to Mr Wallace on 5 April 2000, including: "… I note that as a result of orders made in the Supreme Court last week that [the Health District] currently has control of the completion of the car park. The reason why no interim certificate of occupancy has been forthcoming from South Sydney Council is that Council's position as advised in meetings with them (some of which you were present), is because they stated that they were also bound by the Land and Environment Court terms of approval… As you may be aware, we have proceedings to be heard in the Land and Environment Court on 4 and 5 May 2000 to vary the DA conditions to permit at least 600 cars to use the car park. It is also reasonably expected that this number can be increased to 900 odd cars due as a result of recent developments in the immediate area; i.e. in respect to Dunblane St…."
The issue from the Council's point of view was that under condition 2 of the Car Park Approval operation of the car park was conditional on, among other things, the substantial commencement of the public hospital. There was some doubt at the time about whether that had occurred. The Car Park Approval was therefore further amended by consent orders made in the Land and Environment Court on 16 June 2000. The nature of the amendments is not relevant to the present exercise beyond observing that they removed references and conditions that were dependent upon the commencement of the building of the private hospital and referred to an interim occupation certificate to be issued.
On 23 June 2000 South Sydney Council, on the Health District's application, issued the interim occupation certificate for the car park. The building details described in the certificate were: "Part of building being 600 spaces as indicated on plans submitted to Council on 21 June 2000. Level 5, and 14 spaces on level 3 not to be used. Only 42 spaces on level 1 to be used."
The certificate also contained this condition: "2. That the applicant is advised that all conditions will be reviewed should the nature of the use be varied from the current staff car parking to say, public or commercial parking. A similar review will occur should the number of spaces be varied. Specific attention should be given to, but not limited to, conditions 4 (number of disabled spaces), 24 (separate application for commercial car park), 27 and 28 (traffic management)."
Condition 24 provided that "a separate application shall be submitted to the RTA for the licensing of the commercial car park under the provisions of Section 68 Part F(1) of the Local Government Act, 1993 and all requirements of that section shall be complied with". Neither party referred the Court to any evidence that such an application was ever made and the Court draws the inference that it was not done.
The Health District began operating the car park immediately after it obtained the interim occupation certificate on 23 June 2000. Staff were charged $12.38 per week (a week being five days - RPAH documents at the time refer to the rate as $12.38 per week or $2.47 per day).
For completeness, the Land and Environment Court further amended the Car Park Approval in a way not presently relevant on 4 March 2002.
RPAH's parking policy document as at September 2002 discloses that the Health District was charging $643.76 per annum to park in the car park for staff (i.e. maintaining the weekly rate of $12.38). This rate was maintained up to and including 5 November 2006. From 6 November 2006 until, the Court infers, the morning of 2 November 2015, the Health District charged staff $12.88 per week ($2.58 per day). From that time it also introduced a rate of $6.87 per week for part-time parking and $8.32 per week for after-hours parking.
Notwithstanding the terms of the interim occupation certificate, all of the 1,026 car spaces in the car park were made available by the Health District from 23 June 2000 until the morning of 2 November 2015 for staff and Visiting Medical Officers ("VMOs") of RPAH only (or, in certain circumstances, staff members of Concord Hospital with whom there was a reciprocal parking arrangement). Staff and VMOs were granted general access to the car park without having specific car spaces allocated to them. For the majority of RPAH staff members, payment for parking was made by staff members on a fortnightly basis, through payroll deductions. A few doctors paid annually in advance for parking in the car park. The Health District never operated the car park for visitor or other public parking and never took any steps to make such operation lawful (see paragraphs [216] and [217] above).
In July 2012 NSW Health circulated a consultation draft of a "Hospital Car Parking Fees for Staff Policy" (the "Policy"). Its introduction noted "Currently there are wide variations and inconsistencies in car parking fees on public health system sites for both public and staff parking". In a table of current staff parking rates at various hospitals, staff parking at RPAH was recorded as "$12.88 per week (based on 2010 survey)".
The Policy was promulgated on 20 September 2013. It was expressed to be mandatory for hospital campuses "planning to undergo or undergoing significant car park expansion works" in designated areas (and did not include RPAH) but maintained current fees and practices for campuses not the subject of car parking development. The rate was $21 per week as at 1 July 2013 and was to be adjusted annually in accordance with the CPI from 1 July 2014. The Policy also expressly excluded those campuses with existing commercial "public private partnership" contracts: Royal North Shore, Liverpool, Sydney Hospital and Sydney Eye Hospital, Prince of Wales campus, St George and Canterbury Hospitals.

[21]

Issue 4 - Should damages reflect a mix of users and, if so, in what numbers?

The positions of each of the parties had difficulties which, in my view, can only be reconciled by applying the user principle in the way I consider it operates in this case.
As is set out in paragraph [183] above, Macquarie submitted that damages should be calculated by reference to 600 staff users and 426 visitors. In its submissions Macquarie advanced its adoption of 600 staff users as generous towards the Health District because the lower parking rate for staff would reduce the damages for which the Health District was liable. That apparently disadvantageous concession sought to de-emphasise what was nothing less than a factual necessity for Macquarie. There can be no doubt that, quite apart from the presence or absence of legal compulsion, at all material times Macquarie was going to make 600 places available for RPAH staff in the car park (see paragraph [198] above). The real issue for Macquarie was to persuade the Court that it followed as of course that any calculation should be on the basis that the balance would be for visitors. The difficulty for Macquarie is that, in fact, during the entire period of the trespass the Car Park Site was only ever used for staff and the Transaction Documents were silent on the mix.
The Health District approached the question from the other direction. Its primary submission was that Bunnings and Inverugie should not be applied in the way I consider I am bound to do. In the alternative, it was submitted that if the Court were to adopt the approach it has, any calculation should be limited to 600 staff spaces because that is all that was lawfully permitted under the interim occupation certificate issued on 23 June 2000. The difficulty for the Health District is that, in fact, during the entire period of the trespass the car park was operated to its full capacity of 1,026 spaces with no evidence of complaint by South Sydney Council or its successors. The evidence, including of the waiting list maintained by the Health District for staff wanting regular parking in the car park, was clear that the demand for places in the car park always exceeded the number of places the car park could supply.
As I have explained in paragraph [178] above, in my respectful opinion, the user principle impacts upon the positions advanced by each party. Its correct application requires mesne profits to be calculated by reference to the actual use - 1,026 spaces being used only for staff. There is much practical wisdom underlying the user principle's emphasis on compensation for the actual use. The alternative would involve increasingly hypothetical scenarios such as whether the interim occupation certificate would ever have been enforced, and whether it would have been amended to allow for all 1,026 spaces to be occupied by staff or to permit commercial use by visitors. Each side would posit hypothetical alternatives designed to improve their own position or adversely impact the other's.
In relation to Macquarie, it is entitled to recover whether it could or would have let out the Car Park Site at all. In this case that includes whether or not it could or would have ever agreed to lease out the entire car park solely for staff parking. But that is how the car park was used. Macquarie is entitled to recover a going rate or market price for that wrongful use.
On the other hand, the user principle means that the Health District cannot assert that damages should be calculated by reference to a speculative advantage - in this case, the legal position of the car park only having an interim occupation certificate for 600 staff cars. That is tantamount to setting up an alternative, hypothetical universe and ignoring what in fact occurred. There is no evidence that the relevant Council ever sought to restrain the use of the entire car park. The Health District used the entire Car Park Site solely for staff parking. That is the use for which the user principle requires the Health District to compensate Macquarie.

[22]

Issues 8 and 21 - What is the appropriate rate for staff parking? - Summary

Macquarie submitted that the appropriate assumption to adopt with respect to staff parking is its expert Mr Christopher Milou's rate commencing in 2000 at $15.28 per week ($3.06 per day based on a five-day working week (2000)) increased annually by the CPI. This yielded a figure of $35.72 per week at 30 June 2014. It submitted that in determining the fair or appropriate market rate, the focus must be solely on "issues of supply and demand" on the assumption that the car park is operated by an independent commercial operator who charges full market rent "without owing any allegiance to, or fear of, NSW Health, the defendant of [sic] its unions".
While in oral submissions Macquarie conceded that community, union or political matters would play a "limited role, perhaps not necessarily no role", it submitted that in ascertaining market rental, the question is "essentially one of the laws of supply and demand": T5051:16-20. Macquarie emphasised that Mr Milou's rate before tax is less than the public transport comparator ("PTC") (T5060:11-16) and that even though some staff may live close by such that the Milou rate would be more expensive for them, the "high level of unmet demand" means "you're left with those who are prepared to pay, you're left with those who may be paying more than $28 per week [on public transport], and that is your core 600": T5060:4-9.
The Health District's comparable (but not its preferred) submission based on the evidence of its expert Mr Alan O'Sullivan was $21.00 per week (as at 30 June 2014) and other (lower) rates for the period before then. Alternatively, it submitted that the appropriate assumption is that staff would not be charged above the Liverpool Rate because of the importance a prospective tenant would have attached to maintaining co-operative relationships with key stakeholders such as staff, unions and public hospital management. As at 30 June 2014 the Liverpool Rate was $20.40 per week.
For the reasons which follow the Court finds the market rate for staff parking on the Car Park Site should be the rate which Macquarie was offering at the date of commencement of the trespass (17 March 2000), being $3.00 per day or $15.00 per week, escalated annually by CPI.

[23]

What is the appropriate rate for staff parking? - The question

The parties had significantly different views about the question raised by this issue. Those views reflected their different approaches to valuation questions in the case generally.
Macquarie submitted (Combined Closing Submissions ("CCS") at p 375 [4]) that "the fair "price" which must be paid by the defendant for its use of the plaintiff's car spaces allocated for the defendant's staff is traditionally the "market rate" which would have been reasonably paid by the defendant and accepted by the plaintiff for the use of those spaces over the period of the trespass" (citations omitted). Macquarie went on to submit that "It should be recognised immediately that the notion of a "market rate" for parking for staff is quintessentially an economic concept. It is an exercise in valuing the property that has been used. It must focus primarily upon the issues of supply and demand which provides content to the market value of the spaces in question".
In subsequent submissions (CCS p 579 [101]) which responded to the Health District, Macquarie submitted that the user principle as derived from cases such as Inverugie and Bunnings meant that "the relevant question to be determined is not how much did the defendant actually charge, or how much would the plaintiff have charged, staff during the period of trespass but rather what is a reasonable or fair market rate for staff. … The defendant has sought to focus on the wrong question, namely how much would the plaintiff have charged for parking, when the correct question for determining a fair market rate for staff … is "how much would an independent commercial operator of no particular identity have charged RPA staff to park at the Car Park?" ".
In its primary case, the Health District sought to contend that there was an agreement between the parties that Macquarie would charge the Liverpool Rate for staff. It further argued that condition 23 of the Development Consent would not provide a basis on which the car park operator would be required to charge higher fees for staff parking. The Court's reasons for rejecting these and other arguments are set out in paragraphs [243] to [251] below.
The Health District's next line of argument, which engaged with the position put by Macquarie, depended upon its submission that the correct approach to the valuation exercise required assuming how an investor or potential assignee of, in this case, the Car Park Lease would have approached the question. This led the Health District to submit that the Court should adopt the Liverpool Rate for reasons which included (CCS 522-525): "Firstly, the critical question is what assessment a reasonable valuer/investor would make in relation to staff pricing, for the purpose of forecasting cash flows (and thereby quantifying the market rental it was willing to pay). Secondly, it is important to take account of the likelihood that (apart from the High Risk Tolerance Investors), the most likely investors in the Car Park are Private Hospital operators… Thirdly, it is necessary to take account of the investment and risk profile of Private Hospital operators … Fourthly, due diligence would have disclosed the following matters [including matters such as a very strong resistance on the part of the Nurses Union to any increase in parking fees beyond the Liverpool rate, and an intention to take industrial action should any such increase be attempted] … Fourthly [sic], consistent with their risk and investment profile, Private Hospital operators would have priced staff parking in their forecasts on the basis which was consistent with securing their longer term interests of their overall operations. Central to their long term interests is the maintenance of co-operative relationships with the key stakeholders in operation of a co-located Private Hospital: staff, unions, public hospital management. In light of the foreseeable response from staff, unions and hospital management to increases in staff prices beyond the Liverpool rate, a prudent valuer/potential lessee would not have seriously contemplated raising prices above the Liverpool rate (and would certainly not have priced their offer for a lease of [the car parks] on the assumption that they could) …"
I do not accept the Health District's approach of postulating an investor undertaking a valuation exercise or a potential lessee as a means to determine the market rate. That approach does not reflect the task that is required to be undertaken in this case in applying the user principle. Starting with attempting to characterise the qualities of the hypothetical investor or lessee, the Health District's approach invited the Court into regions of speculation well beyond, in my respectful opinion, what the authorities require to produce a fair outcome in a case of this kind.
Turning to Macquarie's formulation of the question, I readily accept that it does not involve determining how much Macquarie would have charged staff during the period of the trespass rather than what would have been a market rate. I also accept that, in accordance with authorities such as Inverugie and Bunnings, the task is to determine the market rate. However, in doing so I do not accept, to the extent that it may be of any significance, Macquarie's suggestion that the market rate is what "would have been reasonably paid by the defendant and accepted by the plaintiff for the use of those spaces over the period of the trespass" (see paragraph [239] above) if that expression is intended to mean more than what I set out in paragraphs [249] to [251] below as how a market rate is determined.
The reason for my caution arises from the fact that one of the authorities cited by Macquarie is Field Common Limited v Elmbridge Borough Council (2008) All ER (D) 141; [2008] EWHC 2079 (Ch) ("Field Common"). In Field Common, Warren J applied what he called the "hypothetical negotiation basis", of which his Lordship said (at [56]) "The law in this area is developing". His Lordship accepted (at [77]) that the hypothetical negotiation approach was not necessarily adopted in all cases. The hypothetical negotiation approach postulates a negotiation between the actual parties. His Lordship said (at [78]) (emphasis included) : "… it is designed to establish the value of the wrongful use to the defendant and not some objective figure as between hypothetical persons negotiating for a hypothetical licence: after all, even if damages are to be seen as compensation for loss of an opportunity to negotiate, that negotiation would be one between the actual parties, albeit that they are to be treated as parties willing to deal with each other with a view to reaching a reasonable result."
In the course of their detailed submissions, each of Macquarie and the Health District (but more so Macquarie), seemed at times to be straying, perhaps unwittingly, into inviting the Court to considering what might have been agreed between them. In my view, any such tendency must be eschewed for at least two reasons.
First, I have determined that I am bound to engage in the market rate inquiry espoused in Bunnings applying Inverugie. As Allsop P observed in Bunnings (at [185]), "The market or standard rate is to be chosen because it best reflects what the converter or detainer would have to pay and what the owner should obtain for his property wrongfully retained". Neither Inverugie nor Bunnings applied the hypothetical negotiation basis. Warren J acknowledged as much in Field Common (at [76]) in relation to Inverugie: "… [Inverugie] is not a case where the hypothetical negotiation basis was applied. If it had been, one might think that it would have been obvious that the defendants would never have agreed to pay as a licence fee the amount which the Privy Council considered to be appropriate as damages; the Defendants would surely have negotiated a fee based on prospective occupancy rates and allowing for the expenses of running the apartments."
Second, assuming for the sake of the argument that the hypothetical negotiation basis is available to an Australian judge when assessing mesne profits for trespass, it is clearly only one applicable method and, in my view, would not be applicable to provide a fair result in the present case. That is because, as both parties acknowledged, in relation to the car park the measure of damages turns upon what staff users of the car park would have paid. On no view could that have ever been the product of a negotiation between Macquarie and the Health District whereby the parties were to be assumed to be reasonably negotiating a price for a benefit which had in fact been received by the Health District. Macquarie was entitled to charge what it wanted. The intrusion of the question of the market rate that would have been paid by third party users of the car park to the dispossessed party means that a hypothetical negotiation between the trespasser and the dispossessed party is not an apt paradigm to bring about a fair result.
With the qualification set out in paragraphs [244] to [248] above, I therefore accept Macquarie's submission that the Court's task is to calculate damages by reference to the "market rate" for staff parking. I do not understand that exercise to be any different conceptually to that undertaken by a court in determining "market value". As to the latter, in MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451, Spiegelman CJ (with whom Mason P and Hodgson JA agreed) described that task as follows (which I respectfully adopt) (emphasis added): "55 A test of a "market value", whether in a statutory or contractual context, usually invokes the test long established and frequently applied in Spencer v The Commonwealth of Australia [1907] HCA 82; (1907) 5 CLR 418 esp at 432 and 440-441 of a willing but not anxious purchaser and vendor, bargaining with each other. This approach was most recently expressed in a joint judgment of three judges of the High Court in Marks v GIO Australia Holdings Ltd [1998] HCA 69, (1998) 196 CLR 494 at 514: " ... The value ... is to be identified according to what price freely contracting, fully informed parties would have offered and accepted for it." 56 It is convenient to refer to the Spencer's case formulation as the exchange value test (Spencer supra at 431.5 per Griffith CJ, as did Gleeson CJ in Boland v Yates Property Corporation Pty Ltd [1999] HCA 64, (1999) 74 ALJR 209 at [79].) 57 Where the focus of the valuation process is on a "market value", even in a context, as so often occurs, where there is no or little trading history in the relevant property, the approach will usually be quite different to that which arises where a "fair value" is required to be determined. The range of relevant circumstances to be taken into account is not as wide and regard is not had to the particular history of the commercial or personal relationships between the prospective vendor and purchaser of the property to be valued."
In the facts of this case and having regard to the passage just quoted, in my opinion the question which the Court must answer is "what was the market rate for staff parking in the car park between 17 March 2000 and 2 November 2015?". In posing the question in this way it is necessary to explain why I have not included the word "commercial". This was a characteristic of the car park which Macquarie emphasised in its submissions, including in its formulation in its submission that the question of market rate involved asking "how much would an independent commercial operator of no particular identity have charged RPA staff to park at the car park?". Macquarie repeatedly emphasised its status as a "commercial" operator, which was prepared to charge "what the market would bear" because it was unconstrained by any contractual or other special limitation on what it could charge staff and was driven to maximise profits.
I have excluded "commercial" from my formulation of the question because, in my opinion, it does not add anything given the facts of this case and is a potential distraction. There is no suggestion that Macquarie would or was required to charge users of the car park a charitable or nominal rate. "Commercial" is a somewhat protean term. In my view it adds nothing to this case because, in relation to staff, whether the car park operator was Macquarie or anyone else, it is a given in these proceedings that staff were to be charged less than visitors. When compared to a market rate for visitors, staff parking rates were "concessional". In the final result, even Mr Milou (and Macquarie itself) came to describe the rate which Mr Milou proposed for staff parking as "concessional". For the purposes of the exercise in relation to staff parking rates, "commercial" understood as anything other than meaning "not charitable" or "not nominal" does not add anything to the inquiry. In particular, it is not a licence in and of itself to make what is otherwise found to be the market rate in relation to staff parking a higher figure because the car park was being operated by a "commercial" operator.

[24]

What is the appropriate rate for staff parking? - Additional facts

The Court accepts the Health District's evidence that was tendered through Ms Choy (General Manager, Business Strategy, Health Infrastructure) of the weekly rate for staff parking in NSW public hospitals in 2013. This was then discounted by average CPI to 2000 using Mr Milou's approach. However, in relation to those hospitals whose car parks were under the control of the International Parking Group ("IPG"), the Court accepts Mr O'Sullivan's figures of the actual rate in 2000-2001 as more accurate, given his previous involvement as an executive of IPG (see paragraph [257] below). NSW Public Hospital Staff Prices as of February 2013^ Hospital Weekly Rate 2013 2000 Equivalent* [IPG rate] Sydney Eye (CBD) 33.00 22.51 [$11.40] Liverpool 19.80 13.51 [$13.95] Royal North Shore 16.60 11.32 St George 17.59 12.00 [$12.35] Prince of Wales (Randwick) 17.59 12.00 [$12.35] Royal Hospital for Women (Rand) 17.59 12.00 Sydney Childrens (Rand) 17.59 12.00 Canterbury 17.60 12.01 [$12.40] Wollongong 13.00 8.87 RPA 12.88 8.79 Gosford 13.05 8.90 Bankstown 11.60 7.91 Nepean 11.35 7.75 Childrens Westmead 11.33 7.73 Fairfield 8.65 5.90 Concord 8.00 5.46 Sutherland 10.00 6.82 Blacktown 2.67 1.82 Westmead 2.67 1.82 ^ Summary of table prepared by Elsie Choy, referred to at [11] of her Affidavit dated 21 March 2013 and comprising Annexure "EC-2" of that Affidavit: 12P, INQ-B-2317-INQ-B-2319

Calculated using the formula [2000 = 2013 (1 - 2.9%)^13]; where ^ means "to the power of" and 2.9% is the average CPI across the 2000-2013 period (CM First Report p 37)

[26]

What is the appropriate rate for staff parking? - The expert evidence

Both Mr Milou for Macquarie and Mr O'Sullivan for the Health District were diligent and competent in the discharge of their duties as experts. They clearly took their responsibility seriously and they were both impressive witnesses. Their professional backgrounds were different, as were their approaches to the task at hand.
Mr Milou is an Associate Director - Valuation with Colliers International. He holds a Bachelor of Property Economics and specialises in the valuation of "going concern" properties such as car parks. He is a registered valuer and Associate of the Australian Property Institute. Between 2009 and 2012 he had conducted annual valuations of a portfolio of nine hospital car parks including Randwick, Liverpool, St George, Canterbury and Sydney Eye Hospitals. He was the co-author of the Australian CBD Car Park White Paper dated Autumn 2012.
Mr O'Sullivan has enjoyed an extensive corporate career in infrastructure projects. He holds a Bachelor of Economics (Hons - First Class) from the Australian National University, a postgraduate major in commercial law and a Diploma of Financial Markets. He described himself as an investment banker and infrastructure funds manager. He has provided both advisory services and taken executive positions in major infrastructure investments. His experience in relation to hospital car parks was primarily through his involvement in the creation and management (between 2002 and 2009) of the IPG, which owned a portfolio of nine hospital car parks in NSW and Queensland. These are the same car parks Mr Milou valued annually between 2009 and 2012.
Mr Milou was instructed to assess the value to Macquarie of lost profits from the assumed operation of the car park during the period of the trespass in various scenarios, and to assess the total market rental value of the site in various scenarios during the period of the trespass. It is no criticism of Mr Milou to observe that he was not specifically asked to determine the market rate for staff parking in the car park. However, it was necessary for him to do so (or something like it) as part of his larger tasks in calculating the likely revenue of the car park.
In his first report dated 13 June 2013, Mr Milou considered the position for the 2012-2013 financial year. He eschewed other hospital car parks as comparable because "the staff rates in the car parks with which I have had experience are rates which were negotiated at the time the head leases were entered into and are therefore not reflective of market rates". His fundamental assumption was "that a commercial operator of the car park would seek to maximise the level of income that they were able to achieve whilst applying an appropriate discount to staff where demand for the allocated car spaces is maximised". In coming to his view as to an appropriate staff rate he took into account: 1. The rates charged for early bird parking within the Sydney CBD, but accepted that a lower figure was appropriate for RPAH staff who would not have the same disposable income as CBD employees; 2. The rates paid by commercial tenancies pay for individual car spaces in the South Sydney, City fringe and Parramatta areas; and 3. The cost of public transport including "My Train", "My Multi" and "My Bus Travel".
He concluded: "Taking these matters into account, for the purposes of my assessment I am of the opinion that a week day rate for staff of $8.00 (inclusive of GST) per day is reasonable. This reflects an approximate 60% discount to the adopted maximum casual rate per day for the subject property. For weekends I have adopted a rate of $5.00 (inclusive of GST) per day (reflecting a discount on the staff week day rate of approximately 37%). On a seven (7) day weekly basis this reflects a total of $50.00 inclusive of GST. Assuming an employee works a five (5) day week, their weekly cost would be an average of $35.71 per week plus GST."
When Mr Milou's seven day figure of $50.00 is factored back by CPI to 1999-2000, the figure becomes $21.39. That is a seven day figure. Assuming, like Mr Milou, an employee works a five day week, the weekly cost proposed by Mr Milou was $15.27 per week or $3.06 per day. This was the figure Macquarie submitted the Court should accept as the market rate for staff parking in the car park in 2000.
Mr O'Sullivan was asked to determine the value of the opportunity lost by Macquarie in being wrongfully kept out of possession, compared with the opportunity Macquarie now had. He was also asked to comment on Mr Milou's assumptions and to undertake his own version of the lost profit and market rental calculations that Mr Milou had been asked to perform. Again, it is no criticism of Mr O'Sullivan to observe that he was not specifically asked to determine the market rate for staff parking in the car park. However, it was necessary for him to do so (or something like it) as part of his larger tasks.
Mr O'Sullivan's first report for the Health District dated 18 November 2013, acknowledged that staff parking in hospital car parks was generally subsidised by the hospital and CPI indexed. He noted current staff prices across Sydney, with the current staff price (as at 2012) at RPAH being approximately $12.88 per week. Mr O'Sullivan produced staff pricing data at various sites which he described as comparable: Hospital Price ($ per week) Childrens' Hospital Westmead $10.61 Westmead Hospital $2.67 Blacktown $2.67 Auburn $11.05 Nepean $11.35 RPAH $12.88 Sutherland $7.38

[27]

Mr O'Sullivan then drew attention to the draft Policy (see paragraphs [223] to [224] above) proposing in July 2012 for staff car parking to be set at a standard level in hospital campuses as at July 2012 of $21.00 per week. That figure was said to have been determined by adopting an amount equivalent to 80% of the weekly fare of a "My Train" ticket at the lowest price point. The draft Policy accepted that the parking fees would be adjusted annually in line with inflation and could be deducted from an employee's pre-tax earnings.
Finally, Mr O'Sullivan drew attention to the NSW hospital car parks operated by IPG. He noted that the current average IPG staff price in NSW was $18.87 per week indexed annually by the CPI. The equivalent IPG NSW staff price in 2000 was $12.88 per week ($2.58 per day in 2000). That is the figure which Mr O'Sullivan adopted for his calculations.
Shortly after Mr O'Sullivan's first report, Mr Milou issued a supplementary report dated 10 December 2013. In that report he was asked to assume that Stage 1 of the car park had been completed and was open for use from 1999 with 1,026 car spaces and that those car spaces were only to be used for staff parking. Interestingly, in that report Mr Milou adopted a slightly lower rate for staff parking. For example, in this scenario, for the 2012-2013 year, Mr Milou posited a week day rate for staff of $6.80 per day as opposed to his weekday rate for staff of $8.00 when staff parking was limited to 600.
In his report, Mr Milou explained this step: "My adopted rates have regard to the fact that the car park in its entirety is being used for staff parking and as such I have adopted a staff rate which is approximately 15% less (i.e. $1.20 less per day on the weekday rate and $0.75 per day on the weekend rate) than the rate adopted in the 600 staff space scenario, given the increased number of spaces allocated for staff parking under this scenario. In considering the applicable discount, I am of the view that a 10%-15% discount is appropriate given that there are limited alternative options for staff parking in the precinct at present, in one of the largest hospitals in the NSW State with over 4,000 staff. For the purpose of this assessment I have taken a conservative approach by in fact applying an approximate 15% discount. The reason for applying a discount is that in theory, increasing the number of car spaces allocated to staff (supply) should mean that there is less demand per allocated space and as such there may be an impact on the price that is able to be achieved, although I highlight again that under this scenario there is more demand than available supply for staff parking."
In this scenario, Mr Milou's average weekly cost for an employee working five days per week would be $30.36 per week in 2012-2013, which when scaled back for CPI to 1999-2000 gives a daily rate of $2.60 for staff.
By the time of their joint report and respective "final" reports, all dated 27 June 2014, Messrs Milou and O'Sullivan agreed to differ in their respective views as to the market rate for staff parking. That position continued during their concurrent evidence. They also agreed "that determining a definitive joint position is outside the scope of their expertise".
By the time of his final report, Mr O'Sullivan reported having formed the opinion that it will be difficult in practice for Macquarie to charge more than the New South Wales policy rate of $21.00 per week (2013 $). The Joint Report goes on to note that "as to RPAH staff prices, no independent evidence had been provided to support either proposition - NSW Health prices (Mr O'Sullivan) or discounted public rates (Mr Milou)".

[28]

What is the appropriate rate for staff parking? - Resolution

It is useful to go back to a foundational example. Where a tenant refuses to deliver up possession to the landlord at the end of a lease, mesne profits are generally calculated by reference to the rent that was payable under the lease. This assumes that the rent was the product of an arm's length negotiation between two parties that reflects the Spencer test.
Although slightly more factually complicated, in my view the same approach informed the outcomes in Inverugie and Bunnings. In Inverugie, the rate the Court accepted as appropriate was the rate obtained by tour operators. In Bunnings, the Court of Appeal adopted the Wesfarmers rate that was actually on offer at most of the relevant time because it was refusal to enter into that transaction that constituted the conversion or detinue (see paragraph [171] above). Putting it simply, on 17 March 2000 Macquarie was offering every available space in the car park to staff at the rate of $3.00 per day. The staff could have filled all the spaces on that day for that rate. There is no suggestion that was a "loss leader" or "honeymoon" rate. In my view, it is the best evidence of the market rate for staff parking in the car park as at 17 March 2000. For the purposes of Macquarie's mesne profits claim that amount should be increased annually by reference to the CPI.
In paragraphs [274] to [286] I set out the other matters which I have considered in reaching this conclusion.
Whatever else may be said about Scott Wenkart's letter of 19 December 1999 (see paragraph [210] above), I take it at its word that $2.10 per day had been regarded by someone at Macquarie with authority as an "initial car park rate" for staff. I infer that "initial" means it was intended to be an introductory rate that would be increased once staff had become habituated to the convenience of the car park in a situation where demand exceeded supply. If Macquarie regarded $2.10 per day as an initial rate, $3.00 per day is a 43% increase which in and of itself suggests a somewhat more permanent and commercial rate. There is nothing in the evidence that gives reason to think Macquarie was acting uncommercially in offering that rate.
I treat Messrs Milou's and O'Sullivan's figures as a cross-check. $3.00 is very close to Mr Milou's figure. While higher than Mr O'Sullivan's IPG average rate of $2.58 per day, it does not seem to me to be unreasonably so insofar as rates charged by other hospitals in 2000 are fair comparisons (see paragraphs [252] to [253] above). It appears to me that $15.00 is reasonable for a large new car park operated by an operator unconstrained by any special arrangements. It is the third highest rate, coming after the Sydney Eye Hospital and St Vincent's. Like St Vincent's, it is in a city fringe location, however, the higher rate for St Vincent's is explicable by at least two matters. First, the car park at St Vincent's was underground and connected to the hospital by a lift. Second, public transport to St Vincent's was scarcer, being confined to bus, whereas RPAH was reasonably close to rail connections at Central as well as major bus routes.
There is contemporaneous evidence that those closest to the issue in the Health District did not think $3.00 was unreasonable. In a memorandum of 17 March 2000 (see paragraph [212] above), Messrs Mavin and Page said that the option of maintaining Macquarie's $3.00 staff rate "would not be difficult to argue". In a memorandum of 9 April 2001, Mr Mavin suggested an increase in the Health District's staff parking price from $2.48 per day and wrote that "I do not believe that $3.00 per day is unreasonable".
Assuming for the sake of the argument that in 2000 there was a perceived "market rate" for staff parking in the world of at least some Sydney public hospitals, it was the Liverpool Rate. In 2000 it was $2.70 per day. I do not think the market rate for staff parking at the car park could be less than that amount. Macquarie was an operator outside the system in which the Liverpool Rate operated. An 11% higher rate than the Liverpool Rate is not, in my view, so great as to suggest $3.00 was not the market rate for the car park.
Macquarie was correct to concede that "community, political or union" matters would have some role in determining the market rate. Such matters can be features of a particular market for the purposes of determining a market rate. I accept that the "market" would have taken into account the opposition of the NSWNA to increases in parking fees (and to anything being charged at all). For reasons which I develop further in paragraphs [292] to [323], I am satisfied that, insofar as a market rate would be lowered by the risk of industrial action, a rate 11% higher than the Liverpool Rate would have elicited (if anything) no more than ritual statements of objection rather than anything more substantive, especially where the need for staff parking at RPAH was so great. Significantly for present purposes, in 1998 the NSWNA had accepted that the parking for casual staff at Canterbury Hospital should be $3.00 per shift (linked to the CPI) (see paragraph [254] above). Given the rarity of strike action over parking prices, especially at RPAH, I consider the prospect of industrial action over the rate I have selected to be negligible. Putting it another way, that consideration would not warrant reducing what I am satisfied by reference to all other matters is the market rate.
The Health District's own charge from 2000 of $2.47 per day was below even the Liverpool Rate. On any view, it was below the market rate and became increasingly so for every year it was not increased by the CPI.
Increasing the amount by CPI is, in my view, both an appropriate method of compensation but also reflects the reality of hospital car park operations, including how the Liverpool Rate was calculated. As I have noted in paragraph [263] above, Mr O'Sullivan accepted that CPI increases were normal for hospital car parks. Mr Milou's calculations also accepted CPI increases were appropriate. In a memorandum of 29 May 2001 from Mr Mavin to Mr Wallace, Mr Mavin proposed a small increase in RPAH's parking fees for the car park. That proposal was ultimately not accepted. However, in the course of his memorandum Mr Mavin said "If these new charges were to apply all hospitals would be on the same rate and any future increase would be reviewed annually based on the Sydney CPI as Canterbury currently do." The CPI adjustment should be calculated to come into effect on 1 July in each year (see, for example, the situation at Sydney Hospital set out in paragraph [254] above).
I do not accept Mr Milou's suggestion that the rate for total occupation by staff would be lower than the rate for mixed occupation with 600 spaces only for staff. I consider it to be more logical that if Macquarie was bargaining away the more lucrative visitor spaces it would have sought to charge more for staff. Following that line of reasoning, I have considered whether the compensation principle would require an increase in the rate to reflect a notional bargain that Macquarie would have asked for more than the market rate for staff parking given total occupation by staff meant it had foregone the possibility of more lucrative visitor rates as to some of the places. However, I have not done so for two reasons.
First, to do so would be to stray into the hypothetical negotiation method, which I am satisfied is not the correct approach (see paragraphs [245] to [248] above).
Second, to do so would not be consistent with the view I have taken of the user principle and its application to the question of the mix of users (see paragraphs [228] to [233] above). What is to be compensated is use only by staff and hence the market rate for staff must apply. The user principle "cuts both ways" in its application to what in fact happened where the use was confined to staff parking. Neither side can posit alternative hypotheticals to improve their own position. The Hospital District must compensate Macquarie for what occurred: that is, in effect, its 100% occupation of the 1,026 places by its staff 24 hours a day. It cannot say it should pay less because staff were not there 100% of the time in all the spaces and would never have been. But Macquarie must also only be compensated for what occurred: it cannot say that had it done a deal which in fact it would never have done (in this case giving the Health District complete use of the car park for hospital staff for 15 years) it would only have done so for a rate better than the market rate for staff parking. This is precisely the kind of difference in outcome between the user principle and the hypothetical negotiation approach referred to by Warren J in Field Common.
I do not accept Mr O'Sullivan's retrospective use of the Policy for two reasons. First, it considerably postdates the date at which the Court must determine the market rate. Second, the Policy expressly recognises and excludes commercial car parks.
Finally, I have not overlooked Macquarie's submission that it was a commercial organisation that was determined to "charge what the market would bear". That submission was based on general commercial behaviour and Dr Wenkart's own evidence (limited under the Evidence Act 1995 (NSW) (the "EA") to his own intention) that in setting the $3.00 "The intention was to determine the market demand and the opportunity to increase market rates for car parking as and when it was conceivable to the highest possible rates then applicable with due understanding of staff having a discount"(T2987:29-32). I do not take those matters into account for the reasons set out in the next paragraph.
In June 2000 Dr Wenkart was a bankrupt, so the Health District submitted his views were irrelevant. That may be technically correct, but it would be unrealistic to conclude that Dr Wenkart was not still influential in Macquarie even if not in a formal position of authority. It may be assumed that those controlling Macquarie had a subjective desire to increase that rate over time as a commercial organisation determined to "charge what the market will bear", but I do not consider that relevant to the objective task of determining a market rate. What a market will bear is not without more, to my mind, a market rate because someone determined to do that has introduced an element of anxiety that does not accord with the Spencer test. Even if that is wrong, there is nothing in the evidence, including Dr Wenkart's, that suggests the $3.00 was discounted or concessional to what would otherwise have been a market rate for staff parking.

[31]

Issue 19 - Legal restrictions on pricing in the Development Consent

Macquarie submitted that condition 23 of the Development Consent (which provides that "the fee structure of the new car park should discourage long stay parking") prohibited adoption of a rate that would "encourage" staff to use the Car Park. It emphasised the description of the car park as a "commercial car park" in the preamble to the Consent and submitted that the letter from its architects to Council which stated that "staff parking will be at a reduced rate" was not expressly or impliedly incorporated into the consent and therefore regard cannot be had to the letter: Allandale Blue Metal Pty Ltd v Roads and Maritime Services (2013) 195 LGERA 182; [2013] NSWCA 103 at [41]-[57]. Macquarie further submitted that there is no requirement under the Transaction Documents that a concessional rate be charged and submitted that this was supported by the fact that the car park would not be viable with concessional rates.
The Health District submitted that unviability merely supported the inference that the deal struck by Macquarie may not have been commercially favourable. It further submitted that there was a "strong likelihood" that a reasonable prospective lessee would construe condition 23 as imposing a restriction on charging staff above the Liverpool Rate. In support of this proposition, it submitted that the draft Development Consent envisioned a "two-pronged approach" whereby public parkers would be charged at the market rate for similar hospitals and staff parking discounted in line with comparable hospital car parks. It emphasised the remarks of Dr Roseth in his judgment to the effect that "Hospital workers work in shifts and come and go at times when public transport is either infrequent or non-existent" and "probably deserve special consideration" and submitted that it is "implausible" that the Consent would require the setting aside of spaces for staff use yet mandate a fee structure to discourage staff from using of those spaces. It further submitted that its position is supported by the abovementioned references in a letter from Macquarie's architects to South Sydney Council about concessional staff parking.
It is unnecessary for me to determine whether reference can be had to Macquarie's architect's letter to South Sydney Council because the construction of the Development Consent can be determined within its four corners. As at 17 March 2000 the Consent included condition 21 (see paragraph 197 above) requiring displaced staff to be accommodated in the car park as that became possible. Conditions 21 and 23 must be read together. I accept the Health District's submission that it makes no sense for the Consent to require parking to be made available for displaced staff and then require rates to be set to discourage them from parking there. In my view an obligation to set prices to "discourage long stay parking" can only be intended to relate to those who had a choice in how long they might park in the car park. That is not the staff. On its proper construction condition 23 is limited to users other than staff. Therefore it has nothing to say about a market rate for staff parking.

[32]

Issue 8 - Union response

In support of its submission that the Liverpool Rate was the market rate, a great deal of attention was devoted to what was said by the Health District to be the likelihood of industrial action if Macquarie charged staff anything above the Liverpool Rate. I do not think that is an argument I can take into account because it is another example of a speculative advantage which the Health District is not entitled to call in aid to reduce its liability to Macquarie. However, even if I could take it into account, it would not make any difference to the view which I have reached.
It is convenient to turn first to the submissions of the Health District. The Health District summarised its submissions as follows: "(a) Parking prices are a matter of significant sensitivity for staff; (b) The nurses are heavily unionized, and other unions represent other categories of staff in the RPA campus; (c) The unions had an agreement with RPAH management in relation to parking pricing, consistent with the Liverpool decision; (d) The "Liverpool" decision was the "line in the sand" for the Unions; (e) The Unions would threaten to take immediate industrial action, if prices were raised above the Liverpool Rate; (f) The threats of industrial action were extremely credible, in light of the track record of industrial action concerning parking conditions; (g) It was highly likely that pricing above the Liverpool Rate would trigger immediate industrial action, and that such action might spill over into other hospitals in which the operator was involved"
On this basis, the Health District submitted that it is "almost inconceivable" that a prospective tenant would forecast cash flows on the assumption of staff pricing exceeding the Liverpool Rate.
In support of proposition (a), the Health District relied on the evidence of Ms Linda Griffiths and Ms Jennifer Haines, both of whom held senior positions in the NSWNA for many years. In particular, between 1995 and 1998 Ms Griffiths had been the NSWNA organiser responsible for liaising with the RPAH Branch of the NSWNA. Ms Haines was employed at various times as a registered nurse at RPAH up to 2006. From 1982 to 1987 she was the General Secretary of the NSWNA. She was a delegate for the RPAH Branch to the NSWNA and was branch secretary from 1994. Ms Haines drafted the Joint Union Statement of 7 October 1999 (see paragraph [209] above).
Ms Griffiths' and Ms Haines' evidence was to the effect that there was high concern with respect to staff pricing, including the potential for "conditions in the public sector to flow into the private sector (and vice versa)". In reply, Macquarie submitted that the evidence of Ms Griffiths and Ms Haines was "self-serving" and "overstate the actual level of concern, in comparison to other issues … (such as pay and working conditions)". Macquarie also sought to challenge the admissibility of Ms Griffiths' evidence. The parties' submissions with respect to the credibility of these witnesses and the admissibility of Ms Griffiths' evidence are addressed separately below.
With respect to proposition (b), the Health District relied on the evidence of Ms Haines to the effect that the nurses are "strongly unionised", NSWNA membership figures, Mr O'Sullivan's summary of union representation of other RPA staff groups, and Dr Wenkart's "acknowledgement" that around 50% of Macquarie facility staff were unionised in 2011. Macquarie submitted that there is a "lack of union numbers … at private hospitals".
The parties' submissions with respect to the Liverpool Rate (propositions (c), (d), (e) and (g)) are addressed below.
In support of proposition (f), the Health District provided a chronology of "extensive industrial action" with respect to car parking issues in the public hospital system, as well as occasions in which the threat of industrial action was "sufficient" or outcomes were otherwise "secured" through negotiations. It also provided a chronology of "industrial action (threatened or undertaken) against medical facilities associated with [Dr] Wenkart".
In this regard, Macquarie submitted that it is significant that there was no evidence of industrial action or strikes at RPAH in 1998-2000 over parking even though the situation was "atrocious". It further submitted that there are two significant cases of "heavily unionised" hospitals charging above the Liverpool Rate without union activity - Sydney Hospital and St Vincent's Private Hospital. This aspect is dealt with below under the heading "Liverpool Rate". Macquarie also submitted that the Health District's chronologies reveal that "industrial action, either actual or threatened, is extremely rare and unlikely to occur with respect to parking issues, which likely can be resolved by negotiation". With respect to this last submission, the Health District contended that Macquarie has taken an "unduly narrow view of industrial disputation".
Macquarie further submitted that all the evidence as to hypothetical action involved nurses who make up less than 40% of total RPAH staff and over whom doctors have priority car park allocation. In reply, the Health District submitted that the NSWNA would consult and seek support from other unions. In response, Macquarie emphasised the "significant levels of unmet demand for parking" and Ms Haines' evidence that "doctors could look after themselves, like they always have". Macquarie also submitted that there was "no evidence that the Nurses Union would have concerned itself with private arrangements beyond the 600 spaces allocated to RPAH staff".
At several points in its submission, Macquarie alleged that the evidence of Ms Griffiths and Ms Haines should be rejected as biased and self-serving. Macquarie made similar allegations with respect to the evidence of Mr Wallace and Dr Horvath in relation to the Health District's likely response in hypothetical scenarios and further submitted that the CA found that the Health District breached its obligation of utmost good faith "through" these witnesses.
In reply, the Health District submitted that Mr Wallace and Ms Griffiths denied in cross-examination that they were biased, and that Ms Haines was not cross-examined on this. It further submitted that there is a "world of difference" between supporting "a further private hospital, and not disclosing this to a contracting party" (in breach of the obligation of utmost good faith), and giving "deliberately partisan or false evidence on oath".
In relation to Ms Griffiths' evidence, on 18 August 2014 I drew the parties' attention to the High Court's then recent decision in Honeysett v The Queen (2014) 253 CLR 122; [2014] HCA 29 ("Honeysett") and made the following remarks: "If anyone is of the view that anything the High Court has said would have an impact on earlier rulings that I've made about expert evidence, then you will have to take whatever course you think appropriate. If anyone really thinks it makes a difference, my preference, which I'm happy to be talked out of, is that we get through hearing this expert evidence and its status can then be the subject of further submissions, particularly, Mr Dubler, if you want to renew objections to any or all of it (T1686.19-25)."
Macquarie seeks to re-visit the admissibility of the opinion evidence of Ms Griffiths. The Health District submitted that it was contemplated that this matter would be addressed after hearing the expert evidence, not in closing submissions.
Macquarie submitted that Ms Griffiths' evidence is inadmissible because the likely behaviour of a "broad and heterogeneous group of people" such as nurses in NSW is not specialised "knowledge" - that is, a "body of known facts" or "body of ideas inferred from such facts or accepted as truths on good grounds": Honeysett at [23]. It submitted that there is "insufficient recognition that nurses have a distinct form of behaviour about them": T5070.15-16.
In the alternative, Macquarie submitted that it has not been demonstrated that Ms Griffiths possesses such knowledge because her evidence is "limited and general in terms" and based in a large part (from 1998) on hearsay communications with other union organisers rather than direct conversations with nurses. It further submitted that any knowledge possessed by Ms Griffiths is "far removed" from the hypothetical scenarios raised in this case because, for example, she has not been involved in industrial action as a result of car parking issues nor has experience with nurses employed by private hospitals or Macquarie group hospitals.
The Health District submitted that nurses are a group that share common features - namely, they are wage workers, covered by award, members of unions and other professional bodies, work in the hospital sector and perform essential services, and work shift work. It submitted that the relevant "body of known facts" is Ms Griffiths' "dealings and discussions, or experience, over an extended period of time, with both nurses and organisers in relation to both car parking and their attitude to industrial action".
It further submitted that it is unnecessary and unrealistic to expect Ms Griffiths to identify individual nurses with whom she had conversations or the dates or the direct speech of those conversations: Adler v ASIC [2003] NSWCA 131 at [632] (per Giles JA). The Health District also contested the submission that Ms Griffiths' evidence is "too removed" on the basis that, for example, Ms Griffiths has experience with communications from nurses and hospital management regarding car parking and presumably has dealt with nurses who previously worked in the private sector or hold jobs in both sectors.
The relevance of all of the foregoing for my purposes is whether the risk of industrial action if the Liverpool Rate were exceeded was sufficient to reduce the market rate I have identified down to the Liverpool Rate. For the reasons which follow I am not satisfied that the risk of industrial action was sufficient to have that result.
I do not propose to revisit my rulings on evidence in the light of Honeysett because I do not think a different result would follow. However, even if I am wrong about that and the objected evidence is excluded, I would still be of the view that the risk of an adverse industrial response to $3.00 per day in June 2000 (as opposed to the Liverpool rate of $2.70 per day) would not compel the conclusion for which the Health District contends. Even taking Ms Griffiths' and Ms Haines' evidence into account, I am unable to reach a state of actual satisfaction of there being any sensible prospect that any significant industrial response would have ensued beyond letters of complaint and requests for negotiation. Insofar as it was asserted industrial action in the nature of strikes would occur, I consider that evidence to be an honest account of their opinion but coloured by years of industrial advocacy and their view that Dr Wenkart was particularly adversarial in his approach to industrial relations. I discount their evidence to take account of that assessment of their evidence.
It is necessary to start with what actually happened in 1999 to 2000.
Despite there being ample evidence of very significant issues with parking at RPAH, Ms Haines could not recall one instance when nurses actually went on strike over car parking issues at RPAH.
Although the Joint Union Statement of 7 October 1999 (see paragraph 209 above) stated "no arrangements have been made between Macquarie Health Corporation and CSAHS/RPAH Management and your unions about the orderly charging of fees nor the amount of the fee to be charged", there is no reference to the Liverpool Rate. If it was so important, that is a document in which I would have expected that kind of line in the sand to be drawn.
Despite the Joint Union Statement, staff used the car park both while it was free and once the voucher system was introduced in January 2000. There is no evidence that anyone complained the cost of the vouchers was too high or that attention was drawn to the Liverpool Rate.
On 9 December 1999 there was a meeting of the RPAH branch of the NSWNA. The minutes record: "AN UPDATE ON THE PRIVATE CAR PARK…Since this Branch Meeting new signs about the charging of fees for parking in the Private Car Park have appeared around RPAH. These signs have nothing to do with RPAH Public Hospital Management and the fees listed in the signs have not been negotiated with RPAH health unions. No approach by Macquarie Health Corporation was made to the health unions before these signs appeared."
The Court infers the signs advertised the rates which Macquarie charged from 4 January 2000. In my view, it is significant for present purposes that while the minutes focus on Macquarie's lack of consultation with the NSWNA, there is no adverse reaction to the proposed rates, no threat of action of any kind and no reference to the Liverpool Rate.
On 6 July 2000 Ms Haines wrote to Mr Wallace about RPAH's proposed staff rates. It must be acknowledged that these were below the Liverpool Rate, so it is not surprising that rate is not mentioned. The letter expresses concern that RPAH honour vouchers bought by staff from Macquarie (but does not suggest the price for those vouchers was too high). However, it does go on to deal with security arrangements in the car park "as the employees who are using the private hospital car park are paying the higher fee for your commitment to undercover secure parking". To my mind that demonstrates an openness on the NSWNA's part to higher fees if they saw value such as security being provided. All I infer from this is the possibility that confronted with a rate above the Liverpool Rate, particularly not one significantly higher, the NSWNA and other unions would have been open to considering what value they were being given in return.
After years of parking off site and otherwise with insufficient space, in my view, the likelihood is that demand would have overcome any industrial concerns about the Liverpool Rate being slightly exceeded.
Turning in particular to Ms Griffiths' evidence, and assuming its admissibility, it is of more limited effect than the Health District sought to make of it. In particular, many of its more serious consequences including strike action are premised on being able to hurt Macquarie's interests by calling in aid action by the staff of the private hospital. That hypothetical is no part of the present exercise. Unsurprisingly, her evidence was that any action would depend on Dr Wenkart's response to an initial complaint about the fee increase. Non-response or an unsatisfactory response "would have warranted an urgent and strong response". Options she identified included nurses refusing to use the car park, the NSWNA arranging alternative car parking sites at acceptable rates, or requests being made for alternative parking to be built at RPAH.
Ms Haines' evidence was relevantly to similar effect. She emphasised that the NSWNA would have looked to the Health District to solve the problem.
Quite apart from the conclusion I have reached about Ms Griffiths' and Ms Haines' evidence about the likelihood of strike action (see paragraph [311] above), that evidence is irrelevant because the Court is not considering any scenario where the private hospital was built. It was in the context of their evidence assuming the private hospital had been built and viewing Dr Wenkart as a private hospital operator rather than simply as a car park operator that there may have been some basis for the Health District's criticism of the lack of objectivity in their evidence. The Court does not need to take that part of their evidence into account.
For the foregoing reasons I am not satisfied that the market rate I have identified should be reduced to the Liverpool Rate having regard to the likely union response. To the extent a positive finding is required, on the basis of all the evidence (and whether or not I take into account evidence to which objection was taken), I am satisfied that the $3.00 per day rate would have excited letters of complaint and perhaps some "sabre rattling" from the NSWNA and others with a request for negotiation. However, in the absence of the private hospital, nothing more would have happened because the Health District would have made it clear that it had no legal rights to compel Macquarie to charge a particular rate to staff.

[33]

Issue 8 - The Liverpool Rate

The Health District relied on the evidence of Mr O'Sullivan that the Liverpool Rate decision was a "long standing precedent". It relied on Mr Wallace's evidence that there was an agreement between the Health District and unions not to charge beyond the Liverpool Rate and submitted that references to "$21.60 per fortnight" and the "union agreed rate" in correspondence in 1998 and 1999 are references to the Liverpool Rate. It relied on the evidence of Ms Haines that the NSWNA was "particularly vigilant in guarding the Liverpool‑agreed rate", and the evidence of Ms Griffiths that it was "highly likely" that they would have engaged in or voted for industrial action if there was any increase was above the Liverpool Rate.
The Health District submitted that it is significant that St Vincent's Hospital and Sydney Hospital are the only examples of hospitals charging more than the Liverpool Rate. It submitted that while these examples might "cause prospective tenants to wonder about the prospect of setting sustainable prices about the 'Liverpool rate'", the examples would not support the inference that a prospective tenant would model cash flow forecasts above the Liverpool Rate. It relied on Mr O'Sullivan's evidence that: 1. St Vincent's is not comparable because it is not part of the public health system (so there is not necessarily "knock-on effects"); 2. Its underground car park has superior amenity and access/proximity and safety issues are not a concern, and therefore there is some acceptance by unions that it enjoys special status; and 3. It costs "at least 50% more" to build an underground car park such that it represents a capital cost based recovery approach.
It was also submitted that Sydney Hospital is also not comparable because it falls within the City of Sydney so is subject to a levy tax, it is located in a CBD location with limited cheap parking, and it is an "outlier".
In relation to the levy tax, it submitted that raising charges "arbitrarily" rather than as a result of a tax is likely to be "unpalatable" to staff.
By contrast, Macquarie submitted that the Liverpool Rate was never endorsed by NSW Health as having any relevance beyond Liverpool Hospital and was not the policy of the NSWNA (which was free parking for nurses). It submitted that the abovementioned references to the "agreed rate" referred to an agreement between the Labor Council of NSW and South East Sydney Area Hospital Service dated August 1996 that applied to Canterbury Hospital. It also submitted that an inference should be drawn that Ms Haines was not in a position to give evidence as to hypothetical strike action because she did not give expert evidence on this matter: Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 ("Ferrcom"). In reply to this last submission, the Health District submitted that this matter was dealt with in Ms Haines' affidavit and therefore the principle in Ferrcom does not apply.
Macquarie further submitted that St Vincent's Hospital is a good comparator because it is a private and public co-located hospital; the car park caters to staff and public; and it is in a city fringe location that is not well served by the train system, has a limited supply of parking, and security issues in the evening. Macquarie contested the evidence of Mr O'Sullivan on the basis that both car parks are not part of the public hospital system; there may be a similar desire to recoup capital costs; the allegation that St Vincent's is "exceptional" is simply ipse dixit of Ms Haines; and there is no real or convincing evidence that the amenity of the St Vincent's car park is significantly superior. It also submitted that Sydney Hospital is a good comparator rather than an "outlier" because both hospitals have a constrained supply of parking and because the levy is irrelevant as the real question is what price staff will be prepared to pay.
Because of the view I have taken about the likelihood of industrial action at the $3.00 per day rate (see paragraph [323] above), it is unnecessary for the Court to come to a definitive view on the parties' arguments about the Liverpool Rate. Macquarie was not bound by it, whether or not the Health District considered that it (the Health District) was bound by it (legally or otherwise). However, it seems to me that latter proposition is questionable because the Health District bargained away its right to control what Macquarie charged in return for the annual rental of $720,000. If the Liverpool Rate had the status for which the Health District now contends - with, on its case, very serious industrial consequences if the rate was exceeded - then it might be expected that the Transaction Documents would have said something about it. The fact they did not undermines the Health District's case on this point. Furthermore, hospitals such as St Vincent's and Sydney Eye Hospital charged more than the Liverpool Rate. The existence of the Liverpool Rate is relevant to the question of the market rate for staff parking in the car park but is not determinative.

[35]

Issue 8 - Scott Wenkart Agreement

Macquarie submitted that whether or not an agreement was reached between the parties as to the rate for staff parking is irrelevant because the question is not what it would have charged but what is a reasonable or fair market rate. The Health District submitted that there was an agreement between the parties as to the rate for staff parking and that as such it would be "unjust" for Macquarie to recover mesne profits at a higher rate.
In support of the existence of an agreement on or about 22 January 1999, the Health District relied on the evidence of Mr Wallace to the effect that there was an agreement (even though he did not have a "strong recollection" of the detail of the relevant meetings and conversations) and that he would not have written letters to the unions stating there was an arrangement if it were not so. It further relied on correspondence signed by Scott Wenkart on 23 December 1999 that refers to an agreement on staff parking prices (see paragraph [210] above) and the evidence of Christine Wenkart and David Wenkart to the effect that Scott Wenkart would have "assisted" or was "involved" in operation of the Car Park Site. The Health District submitted that this evidence indicated that the parties either had agreed on all the terms and intended to be bound immediately but proposed to have the terms restated in a fuller or more precise form (Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72 at 360), or were content to be bound immediately by the terms on which they had agreed whilst expecting to make a further contract in substitution for the first containing, by consent, additional terms (Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628).
The Health District submitted that Scott Wenkart had either actual or ostensible authority to bind Macquarie and relied on an invoice dated 27 March 2000 addressed to Scott Wenkart as evidence of authority to act on behalf of Macquarie in important topics such as car parking.
In the alternative, the Health District submitted that it was Macquarie's intention to charge a rate roughly equivalent to the Liverpool Rate. It submitted that this intention is "manifest" in Macquarie's architects' letter to the Council, the 28 December 1999 correspondence signed by Scott Wenkart, the rate that Macquarie in fact charged, and Macquarie's financial modelling.
Macquarie submitted that the letter signed by Scott Wenkart referred to an introductory offering in light of the unfinished works and opposition by the Health District and Council to the opening of the car park. It relied on the evidence of Scott Wenkart to the effect that there was no agreement. Macquarie also relied on the reference in the file note by Mr Dimitri (see paragraph [202] above) to Mr Wallace waiting for confirmation in writing as indicative of the absence of a binding agreement. Macquarie emphasised Mr Wallace's inability to recall details of discussions or any agreement and submitted that there is inconsistency between the evidence of Mr Wallace and the staff committee meeting minutes of 8 February 1999 which stated that rates were being "negotiated". It further submitted that the Health District cannot rely on Masters v Cameron without identifying any terms of the alleged agreement or content of the communications said to give rise to the agreement. With respect to financial modelling, Macquarie submitted that the modelling contained a "rider" to the effect that there was no compulsion to use other hospitals as a guide. Finally, Macquarie submitted the Health District's conduct up to the date of eviction - namely, actively seeking to prevent Macquarie obtaining an occupation certificate or otherwise lawfully opening the car park - is inconsistent with regarding itself as bound by any agreement with respect to staff rates.
Macquarie further submitted that Scott Wenkart did not have authority to bind Macquarie as evidence by his age, lack of involvement in the management of Macquarie, and his administrative role.
In reply, the Health District submitted that with respect to the file note, awaiting written confirmation is not inconsistent with a binding agreement having been formed. It further submitted that with respect to Masters v Cameron, it did not fail to identify any terms of the agreement - rather, a term was that the rate would be $21.60.
As with so much else in this case, each party has protested too much. The Court is not persuaded that there was a legally binding agreement between the Health District and Macquarie about staff parking in the car park. The Health District never ventured what the consideration for such an agreement might be. In the absence of expressed consideration a deed would have been required and no one suggested such a document had ever been prepared or was in contemplation. Mr Wallace's letter of February 1999 (see paragraph [203] above) made it clear he knew he could not control what Macquarie charged. Given the fraught relations between the parties, if the Health District even thought it had a legally binding agreement with Macquarie on staff parking rates I have no doubt it would have made that allegation in early 2000 when the car park opened with the $3.00 rate. On the other hand, Macquarie's denials of any kind of agreement were also completely unrealistic in the face of the evidence, such as it was.
In my view, it is reasonably clear what occurred by reference to the contemporaneous record. I also accept Mr Wallace as a careful witness of truth. Mr Wallace knew Macquarie could charge what it liked. As a matter of good industrial relations Mr Wallace knew he had to try to negotiate - and be seen to be trying to negotiate - a rate with Macquarie that would not upset staff. The question of whether the agreement was legally binding was not the issue. I am satisfied from the documents referred to in paragraphs [202], [203] and [210] above that Scott Wenkart on behalf of Macquarie did tell Mr Wallace in January 1999 that Macquarie would be charging $21.60 per fortnight for staff and $3.00 per shift for casual staff. Whether he (or the missing correspondence) said it was the "initial" charge does not matter. It would have been obvious to both parties that Macquarie could have increased the rates, probably even without notice.
In my judgment what ultimately matters is what Macquarie was charging at the commencement of the trespass. It was charging a basic rate to staff of $3.00 per day. It was entitled to do so. No one contended at the time that it could not. There is nothing in the evidence to support a conclusion that Macquarie was legally bound to charge less than that.

[37]

Issue 20 - What expenses are to be taken into account in favour of the Health District?

Macquarie submitted that, applying the user principle, the Health District's actual operating costs should be deducted from the going rate of the car park spaces. It submitted that such costs are set out in the affidavit of Ms Deborah Flood (the Health District's Director of Capital Assets) and further documents produced by the Health District. The Health District pressed its earlier submissions to the effect that Inverugie should not be applied. It submitted that the Court should accept Mr O'Sullivan's evidence that Ms Flood's evidence should not be adopted because it is not clear to what some entries refer, there are inconsistencies, and some entries are not relevant to a staff only car park. It submitted that items such as power and security that are "campus broad" were not included in the car park ledger: T5205.13-15. In reply, Macquarie submitted that evidence as to operating expenses "was entirely within the defendant's camp" and that it cannot use "gaps" in the evidence to its advantage.
Alternatively, Macquarie submitted if the Court awards damages based on the market rent in the hands of Macquarie or another operator, the assumed operating costs should be deducted. There is "broad agreement" between the experts with respect to the appropriate assumption as to operator's fee (5% of revenue) and general operating costs. The parties agree that the midpoint of the experts' estimates for general operating costs ($545,000 per annum excluding GST) should be adopted or the remaining differences should be resolved in the reconciliation process. The Health District did not press Mr O'Sullivan's modelling with respect to this issue on the basis that the modelling was in any event "favourable" to Macquarie.
The Court accepts Macquarie's submission that the user principle means that the Health District should be entitled to deduct the expenses it actually incurred in operating the car park and the rent that would have been payable to it annually by Macquarie.
I have noted in paragraph [213] above that very early in the litigation, the Health District undertook to record its expenses of maintaining and operating the car park. It tendered the evidence of Ms Flood and some supplementary material (referred to in paragraph [243] above) to prove those expenses. The Court accepts them as such and finds they should be deducted from whatever the Health District owes Macquarie in respect of the car park.

[40]

The Private Hospital - Overview

As indicated above, the parties are in agreement that the correct method of calculating mesne profits in respect of the Hospital Site is the residual land value approach. The claim for mesne profits is put on the basis that Macquarie has lost the letting value of the Hospital Site with the benefit of the Hospital Lease, understood in the sense of a market rental per annum: T5038.46, 5048.10. Where the parties differ is in respect of the appropriate assumptions and input variables to be used by the various experts in that calculation: T5031.1.
As has already been noted in paragraph [84] above, the unusual feature of the present case is that the Court is required to assess mesne profits taking into account something that did not exist at the time of the trespass. Macquarie's rights and obligations were set out in the Construction Deed (being to construct and fit out the private hospital) and the Hospital Lease which gave Macquarie the Hospital Site for a term of 103 years commencing on 1 December 1996. As at 17 March 2000, Macquarie had undertaken some preliminary works on the Hospital Site but, for example, had not even let a contract for the construction of the private hospital.
It is against this background that the parties ultimately agreed that the residual land value approach was the best method to determine Macquarie's loss (if any). What was to be determined was a notional annual rental for the Hospital Site with both the benefit and the burden of having to build and operate the private hospital for each year the Hospital District was wrongfully in possession. This was how Macquarie would be compensated in accordance with the authorities relating to mesne profits for the loss of just over 15 years of exclusive possession under a 103 year lease.
As has also already been noted (see paragraphs [173] to [174] above), a consequence of the view I have taken of the user principle is that many of the negative scenarios proposed by the Health District are not required to be considered by the Court. However, the approach agreed by the parties left open a number of fundamental questions relating to both the costs of building, fitting out and maintaining the private hospital as well as its likely revenue. Only when the Court has answered those questions (to the extent that the parties have not been able to agree on answers) can the experts apply the agreed methodology.
The Court has therefore approached its task by - where relevant - asking itself the question whether, in relation to any particular integer, the Court is able to make, on the balance of probabilities, a finding that reflects the situation that is likely to have occurred if the private hospital had been built by someone (not necessarily Macquarie). However, it is not a scientific exercise where precision is possible in every particular. As a Canadian judge observed when determining mesne profits, "this is an assessment rather than a calculation": Initiate School of the Canadian Rocky Mountains Ltd. v. Wolfenden Ventures Ltd., 2013 BCSC 257 at [46] per PJ Rogers J.
Because as at 17 March 2000 there were no detailed plans for the private hospital, the parties accepted that the starting point must be what would the private hospital that Macquarie have built looked like? For the purposes of these proceedings that question was answered by the terms of the grant of leave to Macquarie to amend its case on damages consequent upon the Second Amendment Application. The relevant parts of the Court's orders granting that leave on 26 September 2014 are: "3. Subject to order 5, grant leave to the plaintiff to file and serve on or before 30 September 2014 a third further amended points of claim re damages inquiry and an amended reply to defendant's points of response to second further amended points of claim re damages inquiry in the form annexed to the plaintiff's notice of motion filed 21 August 2014. … 5. Order that the grant of leave in order 3 is on the following conditions: … (3) The plaintiff's amended case is based on and limited to the factual assumptions described in Ex A26P and in the report of Mr Coleman and Mr Lonergan dated 1 September 2014 paragraphs 25-50 (except in so far as to take into account any changed construction costs arising from the quantity surveyors' agreement on trade prices recorded in the conclave report dated 18 June 2014 in Ex 58P tab 5 and any changed assumptions arising from the expert evidence of Ms Maprock and Mr Harris). (4) The plaintiff will not seek to propound any variation to the factual assumptions described in (3) or rely upon any evidence that is based on or assumes or gives an opinion in respect of a variation to the factual assumptions described in (3), subject to any evidence in reply that may arise out of conclave reports or responding to any new factual or hypothetical assumptions put forward by the defendant."
The factual assumptions referred to in the Court's order set out in Exhibit A26P and in the report of Mr Coleman and Mr Lonergan dated 1 September 2014 at paragraphs 25-50 are relevantly identical. I will set them out as they appear in Exhibit A26P, being a letter to one of Macquarie's experts: "A. ASSUMPTIONS REGARDING THE HYPOTHETCIAL PRIVATE HOSPITAL You are asked to proceed on the basis of the accuracy of the enclosed documents and to make the following assumptions when preparing your report: 1. On 25 February 1997, two separate development applications were lodged by Macquarie with South Sydney Council: (a) By its Development Application (DA 097-00153), Macquarie proposed to build a new 5 storey car park with 1225 car spaces; (b) By its Development Application (DA 097-00154), Macquarie proposed to build a private hospital with a medical centre. 2. On 19 June 1997, the Land and Environment court: (a) approved Macquarie's Development Application (DA 097-00153) for a car park subject to the conditions of consent in Annexure A to the judgment of the Land and Environment Court. (b) approved Macquarie's Development Application (DA 097-00154) for a private hospital and medical centre subject to the conditions of consent in Annexure B to the judgment of the Land and Environment Court (Blue 19:8142-8150) ("Private Hospital Approval"). 3. The development consent for the private hospital envisaged that the hospital, and an adjoining 9 storey medical centre, would be built and fitted-out in two stages. 4. Stage 1 of the private hospital involved construction of a hospital building in accordance with the plans the subject of the Private Hospital Approval [for stage 1 plans - see Blue 17:7073-7079], with the following features: (a) The hospital is in the shape of "K" facing Carillon Avenue, with the car park behind the hospital and facing Church Street, at the corner of Gross Street. (b) The building has six levels. (c) Level 1 of the hospital accommodates the main entry, a 24 hour medical centre, day surgery, physical therapy, a fitness centre, diagnostics area and loading/store areas. (d) Level 2 of the hospital accommodates 12 operating theatres, 2 endoscopic rooms, 2 cardiac catheritization labs, recovery bay with 28 beds, ICU with 10 beds and 1 isolation Bed, CCU with 10 beds, Pre-OP Recovery with 20 Beds, pathology, pharmacy and kitchens. It is (sic) also has a main retail area/cafeteria with access to an outdoor eating area and kitchens. Further retail space is located on the third level. (e) Level 3 of the hospital accommodates support facilities, including change rooms, clinical areas, training facilities, offices, oncology day unit and medical records and specialist consulting suites. (f) Levels 4 and 5 of the hospital contain 102 ward beds respectively, totalling 204 ward beds. (g) Level 6 is plant room. (h) In summary, stage 1 of the private hospital comprised: (i) 204 general beds (being 180 general ward beds, 8 high dependency beds and 16 obstetric beds including labour wards); (ii) 16 intensive care/coronary care beds initially, with the capacity to increase to 21 beds - for the purposes of your report you should assume 16 beds; (iii) 12 operating theatres; (iv) 50 beds in recovery/pre operative areas; (v) 2 cardiac catheterization labs; and (vi) 2 endoscopic rooms. 5. Stage 2 of the approved development [per the plans for combined stages 1 and 2 at Blue 17:7057-7072] comprised: (a) the installation of a hydrotherapy pool on level 1 [Blue 17:7057]; (b) conversion of the plant room on level 6 to ward beds [Blue 7062] and construction of a new level 7 with ward beds [17 Blue 7063], taking the total number of beds within the private hospital to 394; (c) construction of a plant room on level 8 [Blue 17:7064]; and (d) construction of an adjoining 9 story medical centre with consulting rooms - the site of which is noted in the plans at Blue 17:7057 as "future medical centre"."
It was common ground that the Court was to undertake its task by reference only to the assumption that Stage 1 of the private hospital (as described in the preceding paragraph) was built. For the balance of these reasons, that hypothetical Prince Alfred Private Hospital is referred to as "PAPH".

[42]

Issue 26 - The Experts

Macquarie's quantity surveying expert was Mr John Meredith. Macquarie also adduced evidence from Mr John Barker, but there were some fundamental difficulties with his evidence. It was largely superseded by that of Mr Meredith and Macquarie gave no real weight to Mr Barker's evidence in the course of final submissions.
Mr Meredith has been involved in the property and construction industry for over 45 years. He holds a Bachelor of Building from the University of New South Wales and is a member of the relevant professional associations. From 1987 to 2010 (when he retired), Mr Meredith was the chief estimator of Rider Levett Bucknall (formerly known as Rider Hunt). He has since continued as a consultant to that firm. In the course of his time as chief estimator his work covered all aspects of building and construction and involved advising on construction costs of major projects for developers, contractors and financiers. Some of the significant projects in which he has been involved include the Sydney Olympic Games venues, the Sydney Opera House, the State Library of NSW as well as numerous hospitals and other CBD commercial buildings.
The Health District's quantity surveying expert was Mr Ian Jackson. He was also a highly experience quantity surveyor, having begun his career more than 35 years ago in the United Kingdom. He emigrated to Australia in 1987 to join Davis Langdon, of which firm he was made a director in 1991. He resigned from the firm in 2011 to establish his own consulting practice.
Mr Jackson holds a Masters in Project Management from the University of New South Wales and is a member of relevant professional associations. His curriculum vitae listed a sector specialisation of "Health, aged care, public-private partnerships, research and sport facilities". He had been involved in giving advice on 28 hospital projects.
Both experts were well qualified and had relevant experience to undertake the tasks that had been set for them. In terms of preferring the views of one over the other, their respective qualifications and experience do not provide a relevant point of discrimination.

[43]

Issue 26 - Summary

The key areas of dispute between the parties with respect to the cost of construction of PAPH after March 2000 (before the cost of FFE) are addressed below under the following subheadings: fit out costs, form of construction contract, and construction period.
Relying on Mr Meredith's analysis, Macquarie submitted that the appropriate assumption is a cost of $61,250,000, and that this figure can be calculated as follows: 1. Assume net construction costs for Stage 1 of $48,000,000 (June 2001 prices), which figure had been agreed by Messrs Meredith and Jackson, 2. Subtract $1,737,000 for work already done, 3. Subtract $2,850,000 for fit out to "shell only" areas of the hospital, 4. Add $6,289,000 for preliminaries, 5. Add $3,914,033 for contingencies, 6. Add 5% builder's allowance, 7. Add $6,171,125 for design fees and subtract $2,000,000 for fees already incurred, 8. Add $994,492 for costs escalations.
The Health District submitted that the Court should instead accept the evidence of Mr Jackson that the overall cost of construction would have been $75,800,000 (June 2001 prices) and therefore the balance of construction costs would have been $71,800,000 (subtracting $2,000,000 for design fees already incurred and $2,043,677 representing the grossed up value of work done prior to 2001).
In reply, Macquarie submitted that the correct approach is to start at the agreed $48,000,000 figure, rather than at Mr Jackson's figure of $75,800,000. It submitted that if the Health District's approach is adopted, the $2,000,000 design fees should be grossed up and the reference to $2,043,677 is an error because, accepting that $1,737,000 was the appropriate value, that is the incorrect grossed up value.
For the reasons which follow, the Court has accepted the approach taken by Mr Meredith, with the exception that there should be no subtraction for the "shell only" fit out areas of PAPH. Mr Meredith's calculations will need to be re-done with that amendment.

[45]

Issue 26 - Form of construction contract

The parties' dispute with respect to the form of construction contract related to the appropriate estimates for preliminaries, contingencies and design fees. They argued this part of the case on the basis that the Court should find what kind of contract Macquarie would have used rather than an objective inquiry about a hypothetical reasonable operator in the position of Macquarie. The Court will approach the matter in the way it was argued.
Macquarie submitted that the contract being considered was a Design Development and Construct contract ("DD&C") or Design and Construct ("D&C") contract, there being no relevant difference. In support of this proposition it relied on the evidence of Mr Meredith to the effect that the inclusion of the name of Baulderstone Hornibrook ("BH") on drawings submitted to South Sydney Council indicated BH had been involved in the design process. It also relied on additional correspondence suggesting that the contract being considered was "in substance" a D&C contract.
By contrast, the Health District submitted that the appropriate assumption was a fixed price full tender construction or lump sum contract. It submitted that this assumption is supported by Dr Wenkart's original affidavit that referred to a "complete set of documents to allow a full tender" and the evidence of Mr Phillip McHugh (formerly of BH) to the effect that inclusion of BH's name on the drawings merely indicated BH had helped with the application for approval. It further relied on the evidence of Mr Jackson that a DD&C contract was unusual at the relevant point in time unless it was a gross maximum price contract, which would inflate builders' prices.
In reply, Macquarie submitted that the Action List of 24 June 1999 exhibited to Dr Wenkart's first affidavit refers to "full tender process for a total fixed fee D and C", which it submitted demonstrated that there is no inconsistency between having a complete set of documents to allow a full tender and having a DD&C or D&C contract.

[47]

Issue 26 - The type of construction contract

A fundamental factual question in relation to this issue was what type of construction contract would have been used in connection with the construction of PAPH. A number of Mr Jackson's outcomes depended upon his assumption that it would have been a lump sum contract. Mr Meredith's report was based on the assumption which he had made that Macquarie would have used a DD&C or D&C contract. There was no dispute between the experts that, for present purposes, there was no material difference between these two latter types of contracts. I shall refer to a D&C Contract, because, in any event, that appears more accurately to reflect the evidence.
The choice of a lump sum contract or a D&C Contract had an impact upon both price and project responsibility. A lump sum contract involved a builder being presented with a completed design and being required to build what it was told to build. A D&C Contract involved, as the name suggests, the builder having a substantial role in the design as well as the manner of construction of PAPH and being contractually required to deliver to Macquarie a hospital which met the specifications that had been provided. There did not appear to be any dispute about Mr Meredith's evidence that a D&C Contract minimised the contractor's risk on coordination of the project and the owner's risks on the design, development and construction.
For the reasons which follow, I am satisfied on the balance of probabilities that, while at various times different sorts of contracts were contemplated by Macquarie, a D&C Contract would ultimately have been used.
There are two particularly telling pieces of evidence.
First, the contemporaneous evidence closest in time to the commencement of the trespass is an "action control list" arising from a Macquarie board meeting on 24 June 1999 which records in relation to the "MIAHC/PAPH Building Tender": "All related documents/contracts/plans/specifications/Consultant inputs/Bill of quantities etc etc are to be suitably packaged to finalise all items to the full degree of completion and to allow full tender process for a total fixed fee D&C."
Second, the Court heard evidence from Mr Phillip McHugh, who in the late 1990s was the Manager Health Services at BH, a well-known and substantial construction firm. He described his job (T2614:5-6) as being "to try and secure the opportunity for Baulderstone to tender on design and construction projects, primarily in the hospital environment". Mr McHugh had worked closely with Macquarie in the hope of securing for BH the contract to build the private hospital. He was an independent witness with no reason to tell anything other than the truth and I am satisfied that he did so.
In answer to a question from me, Mr McHugh said (T2705.35-40): "Q. Did you have a view yourself as to Macquarie's level of expertise in doing such a project as it was displayed to you in working with these people? A. Yes. Yes. Yes, I thought they were not really up to the task in terms of the things which I would have expected them to be doing at any point in time, and also a lack of clarify in decision making as to what it was that they wanted to do and, and getting about doing the process, …"
Mr McHugh's assessment accords with the general impression I formed from the totality of the evidence. Without any disrespect to those involved, it is clear that the development of the private hospital was a very large project being run by what was a relatively small organisation. Whatever happened, it was clear that Macquarie needed significant external expert assistance in putting the project together. I regard that as a second, powerful reason supporting the conclusion that a D&C Contract would have been used, precisely because under such an arrangement Macquarie would have availed itself of the skill and experience of a substantial company such as BH not only in relation to construction but also as to design.
There is no doubt that BH had been providing advice and assistance to Macquarie. So much is reflected in their inclusion in the title block on some of the drawings in the DA application. I do not accept Macquarie's submissions that BH's name in the title block means anything more than that. However, it is clear from Mr McHugh's evidence and the documentary record that BH eventually was looking for reimbursement or preferred tenderer status by way of recompense for what had been, up till then, extensive free advice it had been giving to Macquarie.
There also can be no doubt, again based on Mr McHugh's evidence, that at various times Macquarie was considering different contractual options. Mr McHugh summarised the position in his evidence (T2616.20-35): "A. Baulderstone put forward a, a series of draft documents which would describe the ongoing way that we might be involved with the project. There were a number of versions of that document, and through discussion between ourselves and Macquarie personnel, the nature of our future involvement changed. At some points we were being considered to be part of the carpark's construction and other times not. The basis of the contract at sometimes would have been on a virtually a cost plus basis to the maximum amount, usually called a guaranteed maximum price. At other times it was suggested it would be a fixed lump sum contract. At some points in time we put forward an estimate of what our fees were to that point in time and suggested that if we were chosen to go ahead with the project we would just incorporate those - or had the choice to incorporate those fees in our tender price, or as an alternative, if Macquarie failed to go ahead with us, or the project within a period of time, they would reimburse us that amount. None of those agreements ever came to completion. They were negotiated and discussed but not finalised."
Mr McHugh later also gave this evidence (T2656.24-36): "Q. Do you recall at this point, that is in August 1998, the approach to building contract documentation that was on the table? A. There was - yes between Macquarie and ourselves around about mid 98 a pre-agreement that Baulderstone had drafted and submitted to Macquarie which attempted to set out the terms under which we might enter into a contract. There were a number of versions of that which initially flowed from the letter you put to me earlier about a guaranteed maximum price and in each of these different versions of the documents in 98 there were different arrangements suggested but there was finally no agreement on it. My last recollection was that John Barton met with me in late 98 and suggested that it was going to be a fixed lump sum price invited from us. My recollection was he said it would be invited from others but nothing ever happened, we never received the documents to proceed with the pricing."
BH's involvement in the project ceased in around September 1998. However, some of the drafts referred to by Mr McHugh in the answer set out in paragraph [386] above were in evidence. Importantly for present purposes, those drafts referred to a D&C Contract, which was defined to mean "a contract between MIHC and BHPL for the completion of design and construction of the Private Health Facility".
Other contemporaneous, documentary evidence supports the likelihood that a D&C Contract would have been used. Three examples will suffice.
First, there was a draft D&C Contract prepared during 1998 between Macquarie and BH on Dunhill Madden Butler stationery. Macquarie's consultant, Mr John Barton, had recommended that Macquarie use a construction partner in that firm to prepare any contract for the construction of the private hospital.
Second, on 6 April 1998 Mr McHugh wrote to Macquarie enclosing the draft agreement referred to in paragraph [386] above and described it as an agreement which "sets out the process for negotiation of the D&C Contract price and the principles to be included in it, including the sharing of savings".
Third, on 14 April 1999 Mr Barton (using MIHC letterhead and describing himself as "Project Director") wrote to another consultant saying "Macquarie International Health Clinic is proposing to proceed to tender for the remaining design, documentation and construction of Prince Alfred Private Hospital".
The Health District sought to rely on what it described as Dr Wenkart's inconsistent evidence on this topic. It submitted that Dr Wenkart's reference to "a complete set of documents to allow full tender" in an early affidavit (7 December 2012) should be accepted as meaning a lump sum contract. Subsequently, this exchange occurred in cross-examination (T4321.40-44): "Q. And "full building contract" meant a traditional lump sum fixed price contract? A. It would have been what we negotiated during that period with regard to the, the preferred builder, Baulderstone, but it may well have been what you said."
However, the following re-examination of Dr Wenkart is also relevant (T4382.24-T4383.7): "DUBLER Q. Perhaps if I deal with it this way, you recall you were asked a question in the hypothetical world that you would have entered into, my friend called it, a traditional builder's contract for a lump sum fixed price. Do you recall that? A. Yes. Q. You were also shown documents that showed D and C and do you know that there's also contracts whereby the principal does all of the design, the builder does none of the design, so I just want to ask you what did you mean or understood to be meant within the concept of a traditional contract in terms of what you say you would've issued? A. My understanding was that a traditional D and C, not a traditional lump sum contract which would require the consultant detailing to be complete and therefore the builder just followed the technical drawings than added value. Q. Could you just clarify again in case it's not clear, when you meant traditional, what did you mean in terms of DC or full design by the owner? A. By the owner or by the builder? Q. By the owner. So DC‑‑ A. The owner, owner entering a D and C recognises that there's flexibility in the design that would come out from working with the builder. The traditional approach would've been that all documentation would've been thoroughly completed with the architects and consultants and therefore the actual builder just follows those drawings. HIS HONOUR Q. When you say traditional, you mean the traditional lump sum contract? A. Yes. DUBLER Q. Which form of contract do you say you would've issued? A. A D and C."
I am not satisfied that Dr Wenkart's evidence displays the inconsistency for which the Health District contended. However, ultimately nothing turns on this. The conclusion to which I have come on this question is based on the contemporaneous, documentary record and Mr McHugh's evidence. Dr Wenkart's ultimate clarificatory answer in re-examination fortifies me in the conclusion which I have reached but is not, in and of itself, decisive for my reasoning.

[50]

Issue 26 - A reduction in fit out for shell only areas?

Macquarie submitted that $2,850,000 should be deducted from the net trade construction costs on the assumption that these spaces would be fitted out by tenants or others: 1. Fitness centre (level 1); 2. Diagnostics (level 1); 3. Retail/food (level 2); 4. Seminar/training (level 3); and 5. Consulting suites (level 3).
This approach appears to have been based, at least in part, on Dr Wenkart's evidence that each of those spaces (with the exception of the seminar and training room - which Macquarie would fit out later as required) would have been built as "shell only" areas, with fit out to be undertaken by and at the expense of the relevant tenants according to their requirements.
The Health District resisted this deduction for several reasons including that Dr Wenkart's evidence was unreliable and, in any event, was not evidence of what another operator would have done. It also submitted that it was contrary to the grant of leave which expressly referred to assumptions about Stage 1 of PAPH (see paragraph [354] above).
The Court will not take into account the deduction proposed by Macquarie for three reasons.
First, I accept the Health District's submission that the hypothesis of tenants paying for the fit out of those locations is beyond the grant of leave (see paragraph [354] above). The grant of leave requires the case to be conducted by reference to PAPH as described in the documents referred to in the grant being built. The features referred to in paragraph [398] above are features that must be included in the construction (and therefore added to the construction costs) of PAPH.
Second, even if the proposition is within the grant of leave, I do not accept it as appropriate in this case. In my view, fairness requires that hypothesising about PAPH (by either side) should, as far as possible, be minimised. The present task is to determine a value for the building of PAPH in the form agreed by the parties. The cost of providing those facilities is, prima facie, a cost of the construction of PAPH and should be taken into account by the Court accordingly. The hypothesis that those areas would have been tenanted out with the fit out at the tenants' expense raises as many questions as it answers. The Court declines to go down that path.
Third, for the reasons set out in paragraph [410] below, what Macquarie would have done about the fit out of those sections is inconsistent with the objective approach the Court must take.

[52]

Issue 26 - Construction period

The remaining integers to determine the total construction costs are for allowances to be made for the builder's preliminaries and for escalation. Messrs Meredith and Jackson were in agreement that those matters depended upon the construction period.
Mr Jackson had prepared his reports based on a construction period of 129 weeks. Mr Meredith used a construction period of 85 weeks. This difference between them was a matter of assumptions and instructions. This is demonstrated by the fact that these experts also agreed: 1. An overall construction period of 95 weeks was achievable; 2. A construction period of 85 weeks from completion of the early works was achievable; and 3. Mr Meredith's estimates for the 95 weeks and 85 weeks periods for preliminaries costs were reasonable.
Mr Jackson's estimate was based on an assumption of a construction period of 129 weeks - being two and a half years stemming from an assumed construction start date of 1 July 2001 and the admission of first patients on 1 July 2004 (three years) less a period of 26 weeks for commissioning, FFE installation, training and similar matters. The Health District submitted that Mr Jackson's estimate was preferable because a construction period of 129 weeks was consistent with Macquarie's evidence of a 40%/30%/30% three year expenditure plan "as set out in the unchallenged evidence of Mr Sloane".
The difficulty for the Health District is that the evidence of Mr Sloane upon which it relies (paragraph 35 of his affidavit of 16 December 2013) clearly states "I have been asked to assume that MIHC would have proceeded with a three year construction programme for the private hospital with some fit out to occur after the opening of the hospital". On the basis of that assumption Mr Sloane purports to give an expert opinion as to the allocation of costs over the three years. It is not evidence of how long Macquarie would, in fact, have taken to build the hospital or even how long it intended to take.
The resolution of this issue requires the Court to be clear about the task in which it is engaged. That task is the determination of an annual market rental value of Macquarie's rights under the Hospital Lease. Two legal consequences flow from that. First, as is set out in paragraph [249] above, the concept of market value takes the matter into an objective realm where the peculiarities of individual participants are not taken into account. In other words, it is not part of the analysis for the Court to determine on some kind of "but for" basis how long it would have taken Macquarie to build PAPH. The question is really the objective one of considering how long it would reasonably have taken to build PAPH. Even if this approach is wrong, I would still have answered the subjective question of how long would Macquarie have taken with "a reasonable time".
Alternatively, the Court bases its approach to this question on the user principle and, in particular, the inability of the trespasser to raise a potentially favourable, alternative hypothetical scenario. In the present case the independent experts have agreed that the time frames postulated by Mr Meredith were achievable. In my view, it would be contrary to the user principle for the Health District now to seek to set up a less advantageous hypothesis for the construction period for PAPH in the face of the experts concluding that the shorter period was achievable.
In addition to these answers based on legal principle, it seems to me to be a matter of commercial common sense that any party would have wanted to complete PAPH as economically and expeditiously as possible. The experts agreed (and the Court adopts) their conclusion that PAPH could have been completed within 85 weeks on the basis that the earlier works were done and credit has been allowed in the calculation for the costs of the works which had actually been completed.
In reaching this conclusion the Court rejects the Health District's submission that the adoption of Mr Meredith's timing is outside the grant of Macquarie's leave. The documents referred to in the grant of leave (see paragraph 354 above), being the factual assumptions described in Ex A26P and in the report of Mr Coleman and Mr Lonergan dated 1 September 2014 paragraphs 25-50, are confined to what was to be built. They are silent on the question of how long it would take.

[58]

Issue 27 - Margin (or EBIT or EBITDA)

Macquarie submitted that there is no need to determine both EBIT and EBITDA and that an EBITDA of 18.5% is "broadly equivalent" to an EBIT of 14-15%. The Health District reserved its position on this preliminary question. In the hearing before Nicholas J, Mr Anderson had agreed an EBIT of 15%. Before me he modified this position slightly to an EBITDA rate of 17% (which yields an EBIT of marginally lower than 15%). Mr Palassis propounded an EBITDA of 13% (which yields an EBIT of less than 11%) on the assumption that head office costs were to be included.
Macquarie submitted that its position with respect to EBIT/EBITDA was derived based on the previous "bottom-up" feasibility work and personal experience of Mr Anderson and Mr Cadell as well as reference to group accounts. It submitted that the figure is in particular based on Mr Anderson's knowledge of comparable hospitals such as St George Private Hospital, Prince of Wales Private Hospital and Strathfield Private Hospital. It submitted that these hospitals are good comparators because: 1. St George and Prince of Wales are large Sydney metropolitan for-profit private hospitals, co-located with public teaching hospitals, opened in the mid/late 1990s, had similar complexity/case mix, and St George had a similar non-patient revenue profile; and 2. Strathfield Private represented a significant proportion of the case mix that would likely flow to PAPH.
It submitted that adjustment is required with respect to the results of St George and Prince of Wales in the relevant years because of the "Smedley factor" i.e. the "disastrous" tenure of a Mr Smedley as CEO. It further submitted that "cross-checks" undertaken by its accounting expert, Mr Tony Coleman, with St George and North Shore Private Hospitals demonstrate that Mr Anderson's margin is "conservative" because on his inputs, these hospitals "would have been considered commercially viable but marginal".
Macquarie submitted that Mr Anderson's evidence should be preferred because Mr Palassis used "national averages of the margins derived from all types of health facilities" without considering the unique features of this case and failed to consider the "upswing" in the industry after 2004. It also submitted that Mr Palassis arbitrarily assumed EBITDA would be reduced 0.5% on account of Macquarie being the operator when it is incorrect to take account of the operator in assessing mesne profits or trespass damages.
The Health District submitted that Mr Anderson's figure should be rejected because, in the absence of a proper demand study, clinician profile and case mix, his selection of comparator hospitals cannot be justified. It also emphasised that St George Private Hospital data was not audited so may be incomplete. It further submitted that Mr Anderson incorrectly made adjustments for higher EBITDA achieved in later years and that in practice projections would be sourced in "actuals and history". It submitted that Mr Anderson's figure also fails to include "head office" costs (centrally-administered service costs) which would reduce his EBITDA by 2%, and that adjustment for the "Smedley factor" is not justified because Strathfield Private was acquired by Mayne in 2000, yet maintained a high EBITDA in 2000-2002 despite this "factor". The Health District also emphasised that Mr Anderson was criticised in the earlier hearing of this matter with respect to variations in his EBIT margins between different reviews.
The Health District submitted that Mr Palassis' figure of an EBITDA of 13% (an EBIT of less than 11%) should be accepted. It described Mr Palassis' methodology as follows: "Mr Palassis said the most objectively-justified proxy was to map the actual EBITDA for a broad group of private hospitals (which included Mr Anderson's selected comparables), focusing on the relevant period 2000-2002 but also including subsequent years, exclude outliers and within the remaining range use judgment to choose the appropriate narrow band and most likely point in that band."
It submitted that Mr Palassis' methodology was, contrary to Mr Anderson's criticism, not an "averaging" exercise and that inclusion of not-for-profit hospitals is not necessarily inappropriate because some not-for-profit results are better than for-profit results.
In reply, Macquarie submitted that it is relevant to consider higher EBITDA in later years for the purposes of assessing market rental and, in any event, Mr Cadell's use of an EBIT of 15% in 1997 shows that the figure is not based on hindsight. Macquarie further submitted that a significant proportion of "head office" costs would be fixed and so not increase with the addition of a new hospital to the existing suite of hospitals, meaning group level margins may be expected to be 2% lower than a stand-alone facility. It also emphasised that the need to make "adjustments" to compare hospitals for the purposes of testing inputs does not mean a hospital is not "comparable": Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409 at 434.

[59]

Issue 27 - Hospital revenue - Resolution

The experts reached some measure of agreement: "Revenue Per Bed Day Assumption 1. The following outlines the current position of the parties in 2004 terms inclusive of other revenue items is and is as per the 17 November 2014 conclave: a. Mr Anderson's rate is $969 per bed day described as a total revenue rate per overnight bed day; and b. Mr Palassis's rate is $925 per bed day described as a revenue rate per bed day. 2. Mr Anderson has derived total revenue by: a. Deriving a revenue rate per overnight bed day that includes a gross-up for day only activity not represented by overnight bed days. b. Multiplying this by the number of overnight bed days. Mr Anderson has been instructed that the number of overnight beds in the hospital are 220 and has applied this in the revenue derivation. 3. Mr Palassis has derived total revenue by: a. Deriving a revenue rate per bed day that is a weighted average across overnight and day only activity. b. Multiplying this by the total number of bed days. Mr Palassis has been instructed that the number of total beds in the hospital are 220 and has applied this in the revenue derivation. 4. Mr Anderson's approach is based on the instruction that day only activity is to be provided from an infrastructure over and above the 220 bed volume. 5. Mr Palassis's approach is based on the instruction that 220 beds provides the total bed capacity for overnight and day only activity. 6. The parties have conducted the following theoretical example in order to explain the variance in the approaches adopted and the reasoning described above: a. Mr Anderson's total revenue per day is calculated in 2004 terms as: i. Rate per overnight bed x Number of Overnight Beds x Occupancy ii. $969 x 220 x 85% iii. $181,203 per day b. Mr Palassis's total per day is calculated in 2004 terms as: i. Rate per bed x Number of Beds x Occupancy ii. $925 x 220 x 85% iii. $172,975 per day c. The variance between the parties is 4.8%. d. However, Mr Anderson believes that the total number of beds (including day only) is greater than 220. If this was assumed to be another 10 beds and applied to Mr Palassis's approach, Mr Palassis's total revenue would be: i. Rate per bed x Number of Beds (including Mr Anderson's view that day beds should be added) x Occupancy ii. $925 x (220 + 10) x 85% iii. $180,838 per day e. The variance between the parties is in this scenario is immaterial at 0.2%. However, in order for this to hold, the parties require agreement on the number of beds available within facility for overnight and day only activity. Such agreement is not reached. 7. The above is not to be interpreted as providing agreement regarding bed numbers or occupancy assumptions, but for example purposes only."
Given the measure of agreement reached between the experts, it seems to me that only two matters remain for the Court's resolution: the question of day beds and the appropriate margin. On both of these matters the Court accepts the approach and revenue figures (subject to paragraph [447] below) advanced by Mr Anderson generally for the reasons given by Macquarie. The Court therefore finds that the calculation should be performed upon the assumption that there would be 10 day beds reflecting day surgery (effectively 230 beds) and that an EBIT of 15% should be adopted. While I have generally accepted Macquarie's submissions on these points, it is appropriate that I set out some matters that were particularly decisive in reaching the conclusions that have just been expressed.
In relation to the question of day beds, there are two reasons why I have accepted that an additional allowance equivalent to 10 day beds should be added. Mr Anderson has done this by grossing up his revenue rate per overnight bed stay to include day-only activity. First, the PAPH design (see paragraph [355] above) expressly refers to level 1 of the private hospital accommodating day surgery. Some allowance must therefore be made for it. Second, I regard it as notorious to the point of being susceptible to judicial notice that co-located private hospitals in Sydney undertake day surgery.
In relation to the question of EBIT, the Court prefers the 15% figure for two principal reasons. First, it is the figure adopted by the Health District's own witness, Mr Cadell, in the hearing before Nicholas J. Second, where the Court must choose between Messrs Anderson and Palassis, the Court prefers the evidence of Mr Anderson on the basis that he has greater relevant, "hands-on" experience in relation to private for-profit hospitals such as the proposed private hospital. These reasons are further explained in the following paragraphs.
In the original liability proceedings before Nicholas J two issues that were ventilated at length were whether or not Macquarie's private hospital project was, at the time of the commencement of the trespass, economically viable and the state of the Health District's knowledge of, and support for, a private hospital to be built by Sydney University (referred to as the Sydney University Private Hospital). Ultimately, it was not necessary for Nicholas J to make decisions about either issue (see paragraphs [601] and [631] of his judgment).
In relation to the question of economic viability, Macquarie contended before Nicholas J that the private hospital project had become economically unviable. This contention was part of what was called Macquarie's "change of use" argument. As part of contradicting this case, the Health District relied heavily on the expert evidence of Mr Cadell, head of group operations and CEO of Health Care Australia ("HCA"). He gave evidence regarding bed day rates, margin and capital expenditure.
Mr Cadell gave evidence of his calculations to demonstrate his opinion that Macquarie's project was, at the relevant time, economically viable. In doing so, he adopted an EBIT figure of 15%. Mr Cadell knew the Private Hospital Site well. HCA had tendered (unsuccessfully) for the Private Hospital Site in 1999. Moreover, he and his company had undertaken a full feasibility study into the Sydney University Private Hospital, which I accept was a materially comparable hospital to Macquarie's and was intended to be built only a few hundred metres from the Private Hospital Site. For the purposes of that feasibility study Mr Cadell had also adopted a 15% EBIT.
Mr Cadell's evidence was before Nicholas J and, therefore, before me. Unfortunately, by the time of the hearing over which I presided, Mr Cadell had died. He was terminally ill during the proceedings before Nicholas J. Mr Cadell's illness was one of the reasons advanced by the Health District in an attempt to disavow his evidence. The Health District suggested that Mr Cadell's adoption of the 15% EBIT figure is less reliable because he had arrived at it in circumstances where he was unwell and the preparation of his evidence had been rushed. The facts do not bear out that criticism, the relevant evidence having been given in an affidavit prepared early in the proceedings, well before it would appear Mr Cadell was affected by his illness.
The Court is satisfied that Mr Cadell was one of the most experienced managers of private hospitals in Australia at the time he prepared his evidence. His adoption of the 15% EBIT figure both for the purposes of his analysis of the economic viability of the private hospital and in his actual feasibility assessment of the Sydney University Private Hospital are, to my mind, compelling evidence of the reliability of that figure both as a matter of contemporaneity and expertise. The Court adopts it accordingly.
Macquarie's expert on this question before me, Mr Anderson, also accepted Mr Cadell's EBIT figure of 15%. I regard his acceptance of that figure as fortifying the conclusion I have reached. As a matter of comparative expertise, I prefer the evidence of Mr Anderson over that of the Health District's expert, Mr Michael Palassis, on this question. In reaching this conclusion I have not overlooked Mr Anderson's slight modification in the hearing before me to an EBITDA of 17%. However the parties accepted the Court could find either an EBIT or EBITDA (see further paragraph [448] below) and I prefer the EBIT figure arrived at by Mr Cadell.
Mr Anderson is a chartered accountant with many years' experience in health sector finance for clients including health care providers, suppliers, insurers. Government and investment banks. For eight years (from 1994 to 2002) he provided health care consulting and business services at the firm known at the time as Price Waterhouse Coopers ("PWC"). He was also responsible for originating business within the health care sector for the institutional banking arm of CBA. In his role as institutional health director at CBA he was involved in transactions which involved the purchase and sale of assets such as Prince of Wales Private and St George Private Hospitals. In that capacity he had access to various performance reports concerning those institutions and had immediate experience of their performance. Importantly for present purposes, while at PWC (then Coopers & Lybrand) Mr Anderson was involved in preparing two feasibility studies of the private hospital for Macquarie in 1996 and in 1997.
Mr Palassis is highly qualified in corporate finance. He has been the commercial and financial adviser to the states of New South Wales and Western Australia in relation to integrated private/public partnerships for particular hospitals. While he has been a financial and commercial adviser in relation to a number of hospital projects and redevelopments, none of those projects appear to be "for-profit" private hospitals such as PAPH. While Mr Palassis is highly qualified in his field and, like Mr Anderson, undertook his role as an expert witness seriously and diligently, I was left with the impression that Mr Anderson had been much closer than Mr Palassis to the actual running of enterprises like PAPH. For example, Mr Anderson had worked with Mayne Health when it operated Prince of Wales Hospital and St George Private Hospital.
On the basis of their comparative experience, I prefer Mr Anderson's original figure of 15%. Furthermore, I consider it to be significant that in the feasibility study for Macquarie's private hospital, undertaken by Mr Anderson while at PWC, 15% EBIT is described as the industry average for hospitals with 120 beds and above.
There is one further consequence in adopting Mr Anderson's approach and figures. Mr Anderson's revenue rate was calculated on the basis of there being only one catheterisation laboratory whereas the hypothetical PAPH calls for two catheterisation laboratories. The Court is of the view that to be consistent with the grant of leave, both revenues and expenses need to be calculated on the basis of two catheterisation laboratories. Macquarie submitted that if the Court reached that conclusion, procedural fairness would require Mr Anderson be given the opportunity to recalculate his figures to reflect the PAPH model of two such laboratories. The Court accepts that submission and Mr Anderson should apply his methodology to take up the extra catheterisation laboratory to produce a revised revenue rate to be applied in the final damages calculations.
Finally, the accounting experts also considered the question of EBITDA. There appeared to be no dispute that the figure for amortisation in this case was zero, so that the only matter for consideration was depreciation. I understood the effect of the evidence to be that it was sufficient for the Court to find a figure for EBIT and that the experts would be able to determine the appropriate EBITDA figure based on the Court's finding of the EBIT and other factual conclusions made elsewhere in these reasons. Accordingly, the Court finds that for the purposes of calculating Macquarie's damages, net revenue for the private hospital should be derived by using an EBIT margin figure of 15%.

[62]

Issue 28 - Costs

Macquarie relied on Mr Anderson's case mix in support of the proposition that one catheterisation laboratory would have generated sufficient bed occupancy. It submitted that with respect to operating lights, theatre and ICU pendants, and birthing beds, Ms Maprock's assumptions should be preferred because Mr Harris relied on Australian Health Facility Guidelines ("AHFG") that were not published until 2004. It also submitted that Mr Harris' assumptions with respect to theatre pendants and telescopes were based on comparisons with the Alfred Centre in Melbourne which had "unnecessarily extravagant levels of equipment" and was not an appropriate comparator in relation to time (its expenditure being in 2006) and nature (the Alfred Centre being a smaller public facility with a generous budget that would tend to spend all available money in case it is not available in the future). It further submitted that Mr Harris "played the role of advocate" in relation to operating tables as he relied on the cost of an operating table not available in Australia until 2006 and unreasonably refused to accept Ms Maprock's assumption based on an operating table available in 2003 that was then "state of the art".
Macquarie also submitted that Mr Harris' evidence with respect to St George Private Hospital should not be accepted because his recollections of the total FFE were "unsupported and unsubstantiated" and could not be supported by the Capital Cost Register or June 2006 Proposal (which record approximately $7,640,000 for FFE in 1995-1996 plus non-medical FFE and a biomedical equipment replacement value of approximately $12,200,000 in 2006, which Mr Staker stated included the "bulk" of medical FFE). It submitted that St George Private Hospital is not a good comparator because its very high standard facilities are inconsistent with Dr Wenkart's evidence that the Hospital's case mix would be "high procedural and low complexity".
The Health District submitted that the appropriate assumption is two catheterisation laboratories. It further submitted that although the AHFG were not published until 2004, the content was based on common practice. It submitted that Macquarie's assertions with respect to the Alfred Centre's budget are not substantiated. In relation to St George Private Hospital, the Health District submitted that Mr Harris' analysis was bottom-up rather than based on his recollections of St George FFE procurement. It submitted that PAPH is required by the Construction Deed to be of a comparable standard to St George Private Hospital ("five star") and that this would be necessary to attract doctors. It submitted that the incomplete St George Capital Cost Register indicates a FFE value of $19,800,000 (1995-1996 figures) and that the June 2006 Proposal does not indicate its level of completeness.
The Health District further submitted that Ms Maprock's evidence was based on the wrong period (1997-2000, when, assuming construction commencing on 1 July 2001, one would expect entry into contracts for FFE in 2001 at the earliest) and that Ms Maprock's approach was flawed as she worked towards Dr Wenkart's instructions. It further submitted that Ms Maprock's approach to equipment requirements based on average procedures is inappropriate as visiting clinicians pack procedures into a list and require more instruments because sterilisation procedures do not work quickly enough.
In reply, Macquarie submitted that Ms Maprock's analysis was independent of Dr Wenkart and that procurement "in the real world" involves working within the parameters of a budget. It also submitted that it has not been able to reconcile the St George Capital Cost Register with the Health District's figure of $19,800,000.

[64]

Issue 28 - FFE - Resolution

For the reasons which follow, the Court has concluded that the correct assumption to make as to the costs of FFE for the initial construction period of PAPH is $19,000,000 (in 2003 dollars). Six preliminary points need to be made.
First, as I have already observed, the present task of determining a lease value is an objective one which should not take account of the peculiarities of any particular lessee, including Macquarie. This has the consequence that I have ignored the effect on the expert evidence in this area, in particular Ms Maprock's evidence, of the various instructions given by Dr Wenkart as to what he would have done. While perhaps understandable, those instructions were directed to what he made clear was a desire to spend no more than $10,000,000-$15,000,000 on FFE and, where possible, even less. This involved a high quality finish to what might be termed "front of house" areas seen by patients and their families while achieving efficiencies in terms of surgical equipment and the like. I have approached the matter by reference to the contractual requirements, the specifications of PAPH and a willing but not anxious developer fulfilling those specifications in a reasonable manner.
Second, the approach just referred to means that the Court's decision must be in relation to the specified PAPH (see paragraph [355] above). In particular, this involves 12 operating theatres, two endoscopic rooms and two cardiac catheterisation laboratories. At various times the experts postulated fewer operating theatres and only one catheterisation laboratory. It was not always easy to follow which particular combination they were considering at any particular time. As a result of the Court's grant of leave, the case was directed to the hypothetical PAPH.
Third, I do not propose to allow for any discount in the purchase price of FFE. I have adopted this approach for two reasons. First, while it might be accepted that bulk purchases of medical equipment would attract some sort of discount, the degree of the discount would reflect the particular circumstances of the purchaser. I do not think the present exercise, or the evidence, permits a general conclusion about the degree of discount that a hypothetical builder of PAPH would achieve. Second, both Messrs Harris and Staker agreed that figures for FFE in an exercise such as they had undertaken already took into account discounts and were, in effect, average prices. I accept Mr Staker's evidence that "prices used for FFE estimating are usually average prices over a range of projects and therefore gives a realistic estimate assuming that many items will be discounted and others will run over budget".
Fourth, I do not think any allowance should be made for ramping up or staging. By the time of its closing submissions, Macquarie accepted Dr Horvath's evidence that demand was so great that PAPH would likely be full from the first day. For this reason Macquarie indicated that it did not put forward any staging of the wards and was content to adopt the staging proposed by Mr Staker - namely, everything being available initially with the exception of the addition of a catheterisation laboratory in year three.
Again, such a staging is a peculiarity of a particular lessee and, therefore, not part of the present exercise. In my view, that exercise calls for the entire hypothetical hospital to be up and running from its first day of operation. While not relevant, given the objective nature of the task being undertaken, I am nevertheless fortified in this approach because I have no doubt from the evidence of both sides that there was a very large, pent up demand for the services of the private hospital and that it would have reached capacity relatively quickly (and well before three years).
Fifth, the relevant legal obligation on anyone building the private hospital is under clause 4.5 of the Construction Deed to the effect that the private hospital should "have facilities and finishes of a similar standard to St George Private Hospital and the Sydney Adventist Hospital". Mr Harris sought, in part, to justify his higher FFE figure because it accorded with what he said was his recollection of the total FFE cost for St George Private Hospital. Unfortunately, the evidence was silent as to the costs in relation to Sydney Adventist Hospital and sketchy in relation to the FFE cost of St George Private Hospital.
The first document was what came to be known as the Capital Cost Register. Its record of the first two years of the operation of St George Private Hospital (1995 and 1996) does not support Mr Harris' recollection of a total cost for FFE of $24,000,000-$25,000,000. However, Mr Harris asserted that the register was not complete. The second document was the June 2006 Proposal being a "proposal for provision of comprehensive biomedical services" to St George Private Hospital which suggested a biomedical equipment replacement value for that hospital which was again materially less than the figure recalled by Mr Harris.
The state of the evidence such as it is in relation to St George Private Hospital permits only two conclusions. First, with no disrespect intended, Mr Harris' recollection of total FFE of $24,000,000-$25,000,000 is clearly open to question. That being said, I have no doubt that it represents his current, genuine recollection. Second, the evidence is so sparse and at such a high level that it does not permit me to reach a state of actual satisfaction as to what was the initial cost of FFE at St George Private Hospital. In particular, I am not satisfied that the evidence gives a complete picture.
Sixth, all of the experts accepted that it was appropriate to use the AHPG as a guideline, notwithstanding they were not published until 2004. This was because they reflected what was being done as best practice in the years leading up to its publication. Therefore I do not accept any of the submissions that reliance on the AHPG disclosed a deficiency in any expert's methodology.
It is necessary to adopt a broad brush approach in relation to this question. A great deal of the evidence went into close detail about the choice of one particular item of equipment over another and their comparative cost. I do not consider it to be either necessary or efficient for the purposes of this enquiry to resolve each and every such difference. I have come to the conclusion that an appropriate answer rests somewhere between the figures posed by the various experts.
All three experts were well qualified. I have taken into account Mr Staker's views because I do not accept the criticism made by the Health District about Macquarie's reliance on Mr Staker. His evidence was introduced to cover an area (life cycle replacement) that Ms Maprock was unable to deal with due to illness. The Health District had every opportunity to, and did in fact, engage with Mr Staker's evidence. However, I was left with the strong impression that the experts were, at least subliminally, strongly influenced by the party in whose interest they had been called.
I am satisfied that Ms Maprock's figure is likely to be too low. Her evidence was clearly coloured by both her reliance on Dr Wenkart's instructions and her mindset that as a procurer of FFE she, quite properly, had an obligation to get the best deal for her client. These attitudes were clearly crystallised by the time of the conclave between her and Mr Harris that took place on 11 December 2014 and was the subject of a report dated 12 March 2015. Ms Maprock's responses included: "I disagree with Mr Harris' assessment regarding the inaccuracies in the responses report as ultimately Dr. Wenkart would have been the client. As far as any of my clients today or in the past; there would have been robust discussions regarding the facilities Group 2 and 3 requirements but ultimately as the FF&E Consultant I would take the final direction from the client. Therefore for this reason I have no cause to doubt the information provided to us by Dr Wenkart was the intention for this facility at that time."
She later said: "A FF&E consultant is employed to provide value for money for their client. This includes providing a likely %discount to the client as the unit prices quoted are general y [sic] list price and not a negotiated value for money procurement cost."
Mr Staker did not agree with all of the positions that Ms Maprock had adopted. For that reason his figure was higher than hers ($15.5 million versus $13.2 million), but still considerably less than Mr Harris' figure ($21.8 million). However, Mr Staker's figure was not one at which he had arrived independently because the circumstances in which he had been brought into the matter meant that he had commenced with what I am satisfied is Ms Maprock's low base. Mr Staker acknowledged "that Mr Harris has far more experience in scheduling and providing budget estimates for new hospitals and hospital redevelopments" and that he (Mr Staker) "was engaged primarily to comment on life cycle replacement and as such has not made any comments on quantities or pricing used by Mr Harris for all items, other than those in dispute between Mr Harris and Ms Maprock. Hospitech [Mr Staker's company] is a specialist in life cycle technology management".
On the other hand, I am also satisfied that Mr Harris' figure is likely to be too high. His choices were clearly influenced by his view that the private hospital was to be a "five star" facility having regard to the requirement to be comparable to St George Private Hospital and his recollection of a figure of $24,000,000-$25,000,000 in relation to that project.
Two examples of Mr Harris' mindset will suffice. First, when he was cross-examined in relation to both the Capital Cost Register and the June 2006 Proposal he was not prepared to concede, even to the smallest degree, that his recollection of the St George Private Hospital FFE costs may have been incorrect. Second, Mr Harris nominated an operating table (a Maquet table) nearly twice the cost of that proposed by Ms Maprock, which he accepted was not in fact available until 2006 when the experts were focusing on 2003. While accepting that to be the case, Mr Harris went on to say (in the report of the conclave of 11 December 2014) that he believed "that a facility budgeting for a high standard Operating Suite would have included a cost approx. to this figure for this particular product or similar alternative". Matters such as this left me the clear impression that Mr Harris had pitched his estimates at the very highest end of the market.
After their initial reports had been filed, Mr Harris undertook an analysis of the differences between his report and Ms Maprock's in a document dated 2 October 2014. This demonstrated that the largest area of difference (some $5,600,000) related to theatre equipment. Of this Mr Harris wrote that there were "significant differences in the Theatre/Operating Rooms department between the 2 reports where the Harris report exceeds the Maprock report by a total of $4.5 Mil. It is my opinion that it would be a reasonable expectation that this amount should be added to the Maprock total to be considered realistic."
It is clear that the main difference between them was in relation to theatre and operating room equipment. Doing the best I can and making a reduction of a third in Mr Harris' proposed addition (to make a discount for what I consider to be a tendency to quote at the "high end"), this would involve adding $3,000,000 to what was then Ms Maprock's undiscounted figure of $15,300,000. It needs to be recalled that Ms Maprock's report at that time did not include a kitchen. Even as to that they were eventually a long way apart (Mr Harris at $1,360,000 and Ms Maprock at $605,000). To allow for the kitchen I would add $700,000 to arrive at a figure of $19,000,000 for the FFE. In adopting this approach I think a higher figure for theatre equipment (but not as high as Mr Harris') is necessary to reflect what I accept to be the case - namely, that PAPH had to be of a high standard and was intended to attract the best practitioners. Such practitioners would demand and be given high quality equipment, irrespective of (but consistent with) the obligation under the Construction Deed (see paragraph [468] above).
As the experts were all assuming installation at 2003 and 2004, to the extent it is important, I find the figure of $19,000,000 in 2003 dollars.

[65]

Issue 29 - Hospital lease discount rate

It is convenient to turn first to the Health District's submissions to explain the purpose of a discount rate. The discount rate is a rate that is calculated having regard to the risk-free rate (i.e. the rate that would be achieved by investing in government securities) and beta (volatility of the project compared to the Australian market). That represents the discount that an investor would want (on top of the projected rate of return on capital invested) in order to justify investing in the project rather than a lower-risk project. The parties agreed that the correct approach was the weighted average cost of capital method. The real disagreement was over the beta.
Macquarie relied on the evidence of Mr Anthony Coleman and submitted that an after-tax discount rate of 8.94% (12.77% pre-tax) should be applied in assessing the value of the Hospital Lease as at 17 March 2000. It submitted that the rate should be after-tax not pre-tax because a pre-tax discount rate will not capture the deferral of tax in early years.
It submitted that Mr Coleman selected a beta of 0.9 (including a margin of 0.5% per annum pre-tax for the risk of the specific project) based on the healthcare industry average (0.79) and developer/contractor industry average (1.12) on the basis that the project risk would lie between the two due to favourable factors. For example, the introduction of lifetime health cover; the success of the co-located hospitals model; Building Approval and Development Approval having been granted; the completion of significant groundworks; and the large number of surgeons at RPAH with private business at Strathfield Private that would want to relocate their business to PAPH.
Macquarie submitted that Mr Coleman's rate is supported by the Health District's own witness, Mr Palassis, whose pre-tax rate was 12.5% and Mr O'Sullivan's pre-tax rate of 12.1-13.2%. It submitted that the Health District's expert, Mr Cully Gower, was "clearly the odd man out" in adopting a beta of 1.7 and small company risk premium of 5% to arrive at a discount rate of 18%-19.42% pre-tax. It submitted that it is "impossible" to accept a beta higher than the property development industry in light of the factors in favour of PAPH and that Mr Gower relied on Ramsay Healthcare ("Ramsay") data when Ramsay was at the relevant time "atypical".
The Health District submitted that assessment of the discount rate is assisted by experience in hospital feasibility studies for which Mr Palassis is better equipped than Mr Coleman. It submitted that Mr Palassis' rate was 13.5% pre-tax (not 12.5%) or 9.5% after-tax after adjusting his assumptions with respect to corporate tax and debt/equity ratio and that Mr Palassis applied a beta of about 1.2. It submitted that this rate did not build in risk factors specific to the hospital design identified by Mr Palassis such as possible inefficient design. The Health District submitted that these risks (including lack of demand study, case mix and operating cost information) were appropriately taken into account by Mr Gower through his small company risk premium.
The Health District submitted that Mr Coleman did not explain how the beta could be less than 1.0 (the "market average for established businesses with broad risk-spreading portfolios") and submitted that Mr Coleman's risk premium of 0.5% was too small. It further submitted that Mr O'Sullivan's rate was the rate he applied to his car park valuation reports and that Mr O'Sullivan deferred to Mr Palassis with respect to the private hospital in light of Mr Palassis' experience.
In reply, Macquarie submitted that a beta of 1.0 is a "significantly risky venture" and that 1.0 represents the average risk for listed companies that includes many start-ups so it is false to assume a start-up must have a beta of more than 1.0. It further submitted that the Health District has failed to lead evidence with respect to risk factors specific to the private hospital design.

[66]

Issue 29 - Discount rate - Resolution

The Court has determined that the appropriate discount rate to apply as at 17 March 2000 is Mr Coleman's after-tax rate of 8.94%. Both Messrs Gower and Coleman agreed that it was more technically correct for the purposes of calculating the net present value of the Hospital Lease to adopt an after-tax discount rate.
Perhaps somewhat unusually, the Court had evidence from four different witnesses on the question of discount rate. Mr Coleman gave evidence on the question for Macquarie. For the Health District, Messrs Gower, Palassis and O'Sullivan all expressed views, directly or indirectly, on the question.
Macquarie sought to call in aid what it perceived to be the agreement with its position from some of the Health District's witnesses. This was done by drawing attention to the discount rates (I shall use only the after-tax figures) proposed by each witness: 1. Mr Coleman - 8.94%; 2. Mr O'Sullivan - either 8.23% or 8.93%; 3. Mr Palassis - 8.75%; 4. Mr Gower - 12.60%-13.60%.
On the basis of this comparison Macquarie submitted that Mr Gower was the "odd man out" on the question and that his discount rate was too high.
Macquarie's reference to Mr O'Sullivan's and Palassis' work was not, in my view, as straightforward as Macquarie would have wished. Mr O'Sullivan's evidence was primarily directed to the car park. However, in one of his reports he modelled a number of scenarios including acquisition of the leasehold interest in both the car park and the hospital in one line. His primary focus was still the car park, but in the course of that analysis he had to also consider the position in relation to the hospital. There was an argument as to whether, having read Mr Gower's and Palassis' reports, Mr O'Sullivan had changed his mind in relation to the discount rate, but even then the change, in terms, which he proposed was still focused on determining a discount rate for the car park. I do not propose to place any particular store on Mr O'Sullivan's views on discount rate in relation to the hospital because it was clear to me that he was not a principal protagonist in relation to that debate and, quite properly, said in his joint report with Mr Coleman of 25 May 2015 (at paragraph 206), "AOS (Mr O'Sullivan) does not wish to enter into a discussion as to what equity beta (or discount rate) may be appropriate for [PAPH]", although he does go on to suggest that it was "possible" that Mr Coleman had underestimated the discount rate applicable to the private hospital.
Similarly, difficulties attend using Mr Palassis' figures for the purpose of direct comparison. Mr Palassis arrived at his discount figure by what, with no disrespect intended, might be described as a less mathematical approach than that adopted by Messrs Coleman and Gower. There can be no doubt that Mr Palassis is highly qualified in producing financial feasibility studies for hospital developments. He approached his task with the benefit of that market experience and arrived at a figure with which he said he felt "comfortable" which, on its face, was reasonably close to Mr Coleman's. However, it then transpired that Mr Palassis had not used the same gearing and cost of debt figures as Mr Coleman and his (Mr Palassis') methodology led to different figures if those were used. Furthermore, Mr Palassis said he had not taken into account some of the extra risk factors which had informed Mr Gower's more pessimistic assessment on the question of risk. Each party sought to demonstrate how, depending on what assumptions were made, Mr Palassis' figure did or did not support Mr Coleman's.
With no disrespect intended to either Mr O'Sullivan or Mr Palassis, the real joinder of issue between the experts on the question of discount rate was between Mr Coleman and Mr Gower.
The essential difference between Messrs Coleman and Gower was fully explored during extensive concurrent evidence. All four experts approached their task objectively and diligently. Mr Gower helpfully encapsulated the key issues in a passage which merits reproduction in full (T4409:42-T4411:9): "WITNESS GOWER: Yes your Honour. The essential difference between Mr Coleman and myself, we have used the same weighted average cost of capital methodology and we have both calculated the discount rates on a post-tax basis, so we're similar to that extent. We are also similar in the debt equity ratios that we have used and the cost of debt. The difference relates to the perception of risk. Mr Coleman has used beta which is the risk factor of .9; I have used a beta of 1.7. In understanding betas one represents the risk profile of the market as a whole, so if you were to invest in portfolio of assets, in listed assets, that would behave like the market, the risk profile of that portfolio would be one. If you were to invest in a single share or a single asset the question would be, is that asset more risky or less risky than the market as a whole. By adopting a risk profile, a beta of less than one, what you're effectively saying is that this Prince Alfred Private Hospital project is less risky than the market as a whole. So that's the first point I would make. When I looked at the 1.7 I looked at some companies within the medical sector and I observed a range of betas which were quote for those. The two most comparable ones were Primary Health Care and Ramsay, neither of them are directly comparable but both of them are emerging businesses or rapidly growing businesses in the health care sector. Primary Health Care not so much in hospitals but more in medical centres, pathology and that sort of area. Ramsay of course is directly comparable. Ramsay at that time had the benefit of two very significant income streams relating to veterans' hospitals and it also had some collocated hospitals which it was struggling to establish. So I looked at those two, the betas that were observed of those two, and decided that, and it's a judgmental question, I decided that the beta relating to this single project with a single income stream should be at least higher than that and so I settled on a beta of 1.7 on that basis. In addition to that I looked at Prince Alfred Private Hospital project at the time at which we were valuing it, and at that time it had no income, it had no hospital. It was a prospective venture which may or may not succeed and also we were comparing the - the comparators that we were looking at were listed business enterprises and classically we're looking at comparing private unlisted entities against listed entities. There is a liquidity premium that listed entities usually trade at and so I needed to make an allowance for that because the Prince Alfred Private Hospital is not listed and investors or an acquirer of that enterprise is putting their capital up front and they cannot get it out easily, and that in addition to the point that this was essentially a start-up enterprise which hadn't yet proved itself, I felt that there should be an additional risk premium that should be applied. In my view it was 5% and I applied that percentage, and that's your Honour I think in a nutshell is the difference as I understand it. I have looked specifically at the Prince Alfred Private Hospital project and the rates of return which I believe are applicable to that project, not to a portfolio of hospital projects, or anything else. HIS HONOUR: What do you say to the proposition, taking a step back, we're talking about a private hospital that was going to be built next to one of the largest public hospitals in Sydney, the prospect of - and it might be put to you that you have taken an excessively pessimistic view of the risk given just a sense that it would be very hard for a hospital in that situation not to succeed? WITNESS GOWER: Your Honour there may be some that have that view. If one reads the financial statements of Ramsay Health Care at that time, they were involved in developing and establishing the Royal North Shore Private Hospital and the Flinders Hospital in South Australia. Both of those hospitals had early difficulties. The Royal North Shore, their accounts reflect that there was a write-off against those two hospitals. They - I don't know how much the write-off was against each of those hospitals, but they subsequently disposed of the Flinders Hospital at a loss. They also declined to proceed with the Princess Alexandra Private Hospital. Each of those hospitals were collocated. If one looks at the profit and loss statements of Ramsay it's quite clear that during those early stages the rates, the margins they were getting and the emergence of profits out of those projects was slow. Subsequently the Royal North Shore Private Hospital has become extremely successful, but in that early stage, those first few years it was certainly by no means a failsafe project."
In his response to Mr Gower, Mr Coleman expanded upon, with some further verification, his original report where he had explained how he had reached his beta of 0.9. This was set out in his report (co-authored with Mr Wayne Lonergan) of 1 September 2014, where the process of reasoning was explained as follows in Appendix F: "28. Beta is a measure of the expected volatility of an investment relative to the market as a whole. The CAPM assumes that beta is the only reason expected returns on an asset differ from the expected return on the market as a whole. A beta greater than one suggests that an investment's returns are expected to be more volatile and risk than average (and accordingly a higher return is required), whereas a beta less than one suggests that future returns will be less volatile and risky. 29. Similar to market risk premiums, expected equity betas are not observable. Historical betas are usually estimated and used as a reference to determine the appropriate forward-looking betas. In addition, factors such as betas of comparable companies and relevant sector and a qualitative assessment of the systematic risks of the subject business. The determination of the appropriate beta to apply, therefore, is ultimately a matter of judgment. 30. Accordingly, in determining the appropriate equity beta for Macquarie Health and the hospital and car park development project, we have considered the equity beta estimates for comparable companies that develop, own and operate private hospitals in Australia. As there is a limited sample of companies that do this, we have also had regard to Australian companies that have a proportion of operations that develop, own and operate private hospitals in Australia. Assessing equity betas for the hospital development ownership and operation 31. In order to assess the appropriate equity beta for developer and operator of private hospitals in Australia, we have had regard to the equity betas of companies listed on the Australian Securities Exchange (ASX) that develop, own and operate private hospitals (as at March 2000 and now): Market cap AGSM/SIRCA(1) Bloomberg(2) A$m Beta R-squared(3) Beta R-squared(3) Companies Mayne Nickless 1,212 0.74 0.11 0.57 0.07 Primary Health Care 474 1.51 0.19 1.11 0.11 Ramsay Health Care 90 1.63 0.34 1.47 0.34 Healthscope 19 0.65 0.04 0.76 0.05

[69]

It should be noted that as the equity beta is a function of both business risk and financial risk (being the level of financial leverage or gearing), the above equity betas are levered betas and theoretically would need to be adjusted to reflect the different levels of gearing. However, this adjustment is subject to considerable estimation error. For example, gearing ratios are normally calculated at a point in time and therefore may not reflect the target or optimal capital structures of comparable companies in the long run. Further, the practice of adjusting the equity betas for the difference in financial leverage also gives a misleading impression that the process provides precise comparable beta estimates. 33. In addition, we note that: (a) estimates of beta for individual companies, particularly those with low market capitalisation (small-cap stocks), can be subject to measurement error. For example, if good company news coincided by change with high market returns, then the share's measured beta may appear artificially higher than if the news coincides with low market returns. (b) notwithstanding the difficulty in accurately measuring betas for individual companies, greater accuracy can be achieved by looking at an average of betas for similar individual companies because measurement errors associated with individual share betas tend to cancel each other out through the averaging process. 34. We also note in this context that we have been instructed to assume that the purchaser of the RPA Private Hospital project Hospital Lease would have the benefit of the Development Approval and Building Approval for the project already being in place and the benefit of site works having been completed, so that the project would have been materially de-risked compared to a typical development project which did not have such approvals in place and preliminary site works completed. 35. On balance, taking all of these factors into account, we have adopted an equity beta in the range of 0.9 in calculating the present value fo the cash flows."
During the course of the concurrent evidence, Mr Coleman responded to Mr Gower's observations (and others) (T4419:4-T4420:26): "WITNESS COLEMAN: Sorry, could I just make a couple of observations on some of the observations that have been made here? First of all, a relatively easy thing, I, I agree with Mr Gower about regearing and gearing of beta so I don't really think it's a, an issue that's going to drive the end answer here, if I can put it that way. I just note in passing that a number of the sample companies in that, particularly Ramsay, was, had reasonable levels of gearing and, therefore, the, from a comparable basis, you know, there probably really wasn't an issue, because what you're really trying to do when you go through the exercise is, if you've got a company that's got no gearing and you're trying to compare it with one that's got gearing, then obviously you have an issue to address. But if the company you're taking the observation from already has gearing at roughly the same level as what you're looking for, then obviously the adjustment isn't really going to get you anywhere. The second point I'd make about biotechnology, obviously there's the other end of the biotechnology market which is the high venture risk end and that will obviously drive the beta up, not down, so that will be tending to counterbalance what we'll loosely call the CSL effect. And I think Mr Gower made a comment which was something along the lines of the buyer wouldn't necessarily have regard to the risks inherent in the project of what he's buying; I wouldn't agree with that. Clearly, the buyer would be doing that, and I think I tried to cover that in my other comments but I just thought I should address that briefly. There is probably one other thing I'd just like to add around the consideration of the risk profile of this particular project which doesn't really seem to have come out at this stage. There were two other things going on in the general marketplace for hospitals at that time which I think are worth reflecting on. And I say this in the context of having used what I'll call a classic analysis of betas which are, effectively, a retrospective looking measure - they look back at what's happened to the share price in the past - and, therefore, there is an argument that says, "Well, in, in the overall view you take of this, should you be at least looking at what's going on in the industry now and what future risks might be inherent in the way the industry is changing?" And there was actually something going on that was pretty important at the time in that industry. In 1999 the Federal government basically legislated to change the way in which health insurance funds were able to operate and charge for the insurance they provide to their clients, the upshot of which was that, by 30 June 2000, the private membership of private health insurance funds was climbing again dramatically after many years of decline. There is no doubt that private health - sorry, private hospital operators saw that as an important factor in the market at that time, and you only have to look at the annual returns - annual reports of Ramsay and Healthscope and Mayne Nickless. Their chairmen's reports and their CEOs' reports for the year ended 30 June 2000 all refer to it. In fact, it's the first thing in the chairman's report of Ramsay as a positive factor affecting the way their business is going to development because, obviously, as there are more people who are privately insured, there are more people who can afford to come and use private hospitals. So I see that as a factor in the industry at large which was, if anything, beginning to reduce the risks in the industry. Specifically to this project, I think my risk assessment anyway was that, well, we already have a BA and a DA in place so a lot of the normal development risks obviously aren't there. Yes, construction risk clearly still is an issue that is part of the risk profile. On the demand risk issue, this hospital was an unusual one in the sense it was well known in the market at the time, and it's actually referred to in Mr Caddell's evidence in this matter back in 2007, that there were a very large number of surgeons who operated at Royal Prince Alfred Public Hospital who had much of their private business located at Strathfield Private Hospital, some then 20 or 30 minutes' drive away. And, therefore, there was a body of doctors and their patients who it was reasonable to expect could have been attracted to the position that, "Here is a brand new hospital built right next to where your public practice is and, therefore, you don't have to travel nearly so much any more to go, shuttle backwards and forwards to Strathfield." So, in a sense, there was the beginnings of a readymade demand already there for that hospital as well, which is unique to this particular one, and, therefore, in my view, the demand risk was lower than it might otherwise have been for an otherwise typical collocated hospital."
I have preferred Mr Coleman's ultimate figure because I have found his approach and reasoning more persuasive than that of Mr Gower. For the reasons set out in Mr Coleman's answer reproduced in paragraph [498] above, I have formed a firm view that Mr Gower's assessment of the commercial risk of PAPH (and therefore increasing the beta) is far too pessimistic.
Three additional specific reasons must be noted.
First, while no approach was without its problems, Mr Coleman's method of situating risk between that of the health care industry and the beta for the developers and contractors industry is to be preferred because it minimises the difficulties of trying to compare specific companies with the private hospital. Consistent with his role as an independent witness, Mr Gower volunteered that as to the specific companies in the health care sector whose betas he had examined - Primary Health Care and Ramsay - neither of them was directly comparable to PAPH. Mr Coleman's approach involved using figures which, necessarily, relied upon a wider sample.
Second, Mr Gower's "small company risk premium" of 5% which he added into his calculations is not consistent with the objective valuation task which the parties have agreed the Court must undertake. In other words, particular characteristics of particular purchasers are not taken into account. Even if I am wrong in that, the addition of the 5% was premised on an excessively pessimistic view of the risk attached to PAPH. In saying that, I have not overlooked that Mr Gower did take into account the fact that PAPH had the necessary building approvals. However, having heard evidence from a number of participants (including Dr Horvath) as to how desperately RPAH needed a co-located private hospital, I am left with the clear impression that Mr Coleman's lower assessment of risk, which informed his beta of 0.9, is more accurate than Mr Gower's.
Finally, I do not accept the Health District's argument that Mr Coleman's approach was flawed because his beta was slightly less than the market rate of 1.0. I accept Macquarie's submission that a beta of 1.0 represents the overall equity market premium risk of 6% above the risk-free rate. PAPH enjoyed advantages (identified by Mr Coleman in his answer as set out in paragraph [498] above and also referred to in paragraph [484] above) which, in my view, are consistent with a beta lower than that for the risk inherent in the market generally. Mr Coleman's opinion relied on matters which in my view justify a result which (to borrow Mr Gower's words - see paragraph [496] above) says "that this Prince Alfred Private Hospital project is less risky than the market as a whole".

[71]

Issue 30 - Capital expenditure

Macquarie submitted that the appropriate assumption with respect to capital expenditure is zero costs for the first five years, 0.5% of construction and planning costs for the next five years and then 1.5% thereafter. It suggested that the appropriate assumption as to escalation is 1.5% per annum compounding.
Macquarie submitted that, in addition to the abovementioned challenges to the credibility of Mr Palassis' evidence, his evidence with respect to capital expenditure should be rejected on the basis that he: 1. Relied upon the "wrong data" - that is, "lifecycle assessments from other projects" which deal with initial selection at the project stage rather than capital expenditure to support the building once built; 2. Failed to explain his reasoning to allow the Court or other experts to know how he derived his lifecycle assumptions or arrived at a specific figure for capital expenditure in each of the years in his model; 3. Adopted life expectancies for building elements that are questioned by Mr Staker. For example, Mr Palassis assumes a 20-25 year life expectancy for the roof when Northern Beaches Hospital adopts 70 years and Mr Palassis "buried" within the description of the roof a number of structural elements that could not possibly have a lifecycle of 20-25 years; 4. Included full replacement costs (which is, on Mr Staker's evidence, "not normal practice") and ultimately adopted a scale of capital expenditure "never seen" before by Mr Anderson in the sector; and 5. Included routine maintenance such as painting.
The Health District submitted that the Court should adopt the replacement costs in Mr Palassis' model over Mr Staker's "rule of thumb" approach and Mr Palassis' escalation rate of 2.7% (sourced from Mr Langdon's report). It submitted that Mr Palassis' figures were "within the range of Healthscope and Ramsay's hospitals" whereas Mr Staker's "were below the range". With respect to escalation, it said that both the cost of labour and materials will increase and therefore submitted that Mr Staker's approach was "understated". It also submitted that capital expenditure would not increase competitiveness but rather maintain revenue by maintaining competitiveness.
In reply to Macquarie's submissions, the Health District submitted that Mr Palassis explained his reasoning by making clear that his modelling was based on the reports of Mr Jackson (quantity surveyor) and on his experience with lifecycle assessments from other projects. It contested Macquarie's reliance on Northern Beaches Hospital project documentation on the ground that design parameters are different from lifecycle estimates. The Health District further submitted that, contrary to the submissions of Macquarie, Mr Palassis' lifecycle assumptions did not necessarily reflect the full replacement costs and Mr Palassis did not accept that his estimates included routine maintenance (at most he conceded that, depending on the classification adopted, a few items of minor value might be classed as maintenance).
In response, Macquarie submitted that Mr Staker's evidence is not a "rule of thumb" but is based on his database that contains data from 350 hospitals and on his experience in engineering and building and asset management for those hospitals. It submitted that its escalation rate of 1.5% is supported by data from other hospitals such as Melbourne Hospital, 18 comparator metropolitan hospitals (2009-2013 period) and hospitals within the Health District (2013-4), which all have figures below 1.5%. With respect to Healthscope accounts, it submitted that Mr Palassis gave evidence that there is no definition of "maintenance capex" in the accounts, Mr Coleman described the material as containing "so much variability" between years that there is not much reliability, and material provided by Mr Staker indicated that the figures contain investment in GP recruitment that would distort the figures.

[72]

Issue 30 - FFE lifecycle

The parties agreed that the appropriate assumption with respect to FFE replacement are the lifecycle periods put forward by Mr Staker. It should be noted that Macquarie submitted that Mr Harris' deference to Mr Staker on this matter is a reflection of Mr Staker's superior expertise and relied in support of this proposition upon Mr Harris' evidence at T4876:4 to the effect that he was "prepared to accept that Tim Staker and Chemtronics have better experience and better knowledge" of replacement cycles than himself. In reply, the Health District submitted that Mr Harris accepted Mr Staker's periods because there was "no material difference" between their figures.
Where the parties differ is as to the appropriate level of escalation.
Macquarie relied on the evidence of Mr Staker that there should be no escalation in the first 20 years and 2.5% per annum compounding thereafter. It submitted that costs have come down and that, in the years prior to 2004, there was also a downward trend in prices. It contested Mr Harris' opinion that new technology is often more expensive on the basis that it was not supported by data and relied on Mr Staker's evidence that cheaper imported products such as "Mindra" products are equally as reliable as other products and that even "exemplar" hospitals such as St George Private use equipment sourced from Asia. It submitted that, in arriving at a fair market rent, it is appropriate to consider the downward trend in prices since 2004. Macquarie further submitted that replacement equipment may lead to greater efficiency and therefore improved revenue. Macquarie submitted that these propositions are supported by Mr Staker's "vast" database.
The Health District submitted that a "reasonable" escalation rate such as 2.5% should be adopted and therefore arrived at a figure of $87,212,708 over 20 years for FFE replacement. It submitted that the question is not what has happened since 2004 but what would a reasonable hospital operator have estimated as a reasonable rate of escalation. It submitted that labour costs rise, new technology is often more expensive and cheaper imported products can come at a cost of shorter life or less service accessibility. Therefore contested Mr Staker's opinion with respect to decreasing prices. It also submitted that Macquarie's assertion that Mr Staker's database was "much more extensive" than that of Mr Harris was not supported by evidence.

[73]

Issue 30 - Depreciation and replacement costs - The experts - Resolution

This issue gave rise to a hotly contested debate about the expertise of the relevant experts. I should record that, sensibly, the parties agreed that no objections would be taken to expert evidence on the basis of expertise, but that each party reserved the right to raise that issue in support of a submission that weight should not be given to particular evidence.
The essential protagonists on this issue were Mr Staker for Macquarie and Mr Palassis for the Health District. What might be referred to as "downstream" contributions to the issue were also made by Messrs Harris, Gower and Coleman. However, the assumptions necessary to calculate Macquarie's loss in relation to this issue require a choice being made between the evidence of Messrs Staker and Palassis.
For the reasons which follow, I have preferred (with one exception) the evidence of Mr Staker as being more persuasive than that of Mr Palassis. That conclusion is primarily derived from my assessment of their respective expertise.
Mr Staker has a Diploma of Engineering in Biomedical Engineering from Flinders University. He has 33 years' experience in asset management both within the public and private sectors and has worked on asset management projects for large public hospital groups in Australia and New Zealand. His current position is National General Manager of Cabrini Technology, comprising of a number of entities including Hospitech Facilities and Asset Management. He has been the FFE consultant to a number of hospital projects around Australia. One of his reports included this description of Hospitech: "Hospitech Facilities and Asset Management (Hospitech) has been in operation since 1978 and was procured by Cabrini Health in 1999, which also owns and operates private hospitals. Hospitech operates alongside Chemtronics Biodmedical Engineering, Chemtronics Direct, In-a-Tick Compliance Testing Services and AWA Technology Services. Combined these operations are collectively known as 'Cabrini Technology' which operates as a not for profit organisation and has a technical staff base of over 400. Hospitech and Chemtronics specialise in health asset management over its lift cycle and have been providing this type of support to a wide customer base (over 350 hospitals) for several decades. This includes public hospitals as well as the majority of private hospitals in Australia. Hospitech has developed a significant knowledge base through a continual review of maintenance costs, reliability and operating costs. This information has been used to continually refine the life expectancy tables in the Hospitech database and the granularity goes to specific model. Hospitech shares some of this information with agencies such as Therapeutic Goods Australia (TGA) and ECRI in the United States to help manufacturers with improving their products."
In addition, Mr Staker gave this answer when asked how the Hospitech database was brought to bear for his analysis of capital expenditure for replacement FFE (T4842:25-4843:4): "WITNESS STAKER: Okay. Yeah, on the CAPEX side of it. So my approach always has been on the, on what happens in the real world rather than the bottom up approach, and I appreciate and I understand the bottom up approach but that's not what happens in reality. So I would love to be pointed to an example of a hospital that does that. In fact, we consult and tell hospitals that they should perhaps look at that approach but in reality, that's not what happens. There is no sufficient funding. It wouldn't be viable to run hospitals if there was replacements based on those sorts of frequencies. But just taking it back a step, we do, as part of the Cabrini Technology Group, one of the businesses, the Hospitech businesses does run facilities management for hospitals, so that's the buildings and the buildings fabrics. And over the years we've run Mater Health Service in Brisbane, we've run all of St John of God hospitals in the eastern seaboard. This is from facilities management as well as the medical technology side of it. Some hospitals in New Zealand. So we are familiar with the technology, we are familiar with doing, actually doing the CAPEXs for replacement equipment every year and basically the money gets allocated on risk and on what's broken. And there's always a pushback to try and patch up, repair, maintain and keep, and keep that going. The money, the CAPEX, what is available is normally reserved for things that are going to, you know, provide either aesthetic enhancement of the hospital or some expansion abilities rather than actually the things that sit behind the walls. And I just look at, you know, you wouldn't in your own house, you wouldn't replace your hot water service at eight years which would probably be the expected life of the current hot water service. You'd replace it when the tank leaks."
In forming my assessment in favour of Mr Staker's evidence, I also regard it as significant that whereas Mr Staker conceded Mr Harris had the superior expertise in relation to the original set up of hospitals, Mr Harris said "I am just prepared to accept that Tim Staker and Chemtronics have better knowledge of [life cycle replacement] than I do" (T4876:2-4).
Turning to Mr Palassis, as I have said earlier (see paragraph [445] above), there is no doubt that he is a highly experienced financial analyst and adviser in the health care sector. His curriculum vitae explains that he specialises in the provision of advice to clients in health care infrastructure projects. The advice is in relation to financial analysis and modelling, business case and feasibility development, structuring and financing of projects, and commercial strategy development. He has been what his curriculum vitae describes as the "financial and commercial adviser" in connection with a number of government and private hospital developments or redevelopments.
Mr Palassis was an impressive and articulate witness. While I have preferred Mr Staker's evidence on this issue, I do not accept Macquarie's submission that Mr Palassis was acting as an advocate. Rather, I understood his adherence to certain positions as reflecting the limits of his instructions and his expertise. I have preferred Mr Staker because, whatever Mr Palassis' technical and theoretical proficiency, I was left with the strong impression that Mr Staker had experience derived from actual involvement in making day-to-day FFE lifecycle replacement decisions. In other words, he had what I understood to be operational experience.
Mr Palassis, on the other hand, does not appear to have had any personal expertise in the lifecycle of hospital buildings or FFE, but was dependent upon information provided to him by other experts for the purposes of performing the financial feasibility studies in which he is clearly expert. His original key role in the proceedings was to provide evidence in support of the Health District's case that the hospital was not viable. Mr Palassis' evidence on that question, no longer relevant, was that he would advise a lender not to lend to the project because its viability had not been sufficiently justified.
Their differing experience left me well satisfied that, on the balance of probabilities, Mr Staker's evidence was more likely to reflect practical reality. Quite apart from their expertise, the Court also accepts a number of criticisms of Mr Palassis' figures made by Macquarie on the basis that they were counterintuitively high, insufficiently explained, or both. Three examples will suffice.
First, when Mr Palassis was challenged to provide documents which were used to generate his assumptions concerning his building capital expenditure and FFE replacement assumptions, his response was that the assumptions were "based on our experience and history with similar life cycle assessments from other projects". I accept Macquarie's criticism of Mr Palassis based on that answer that looking at "life cycle assessments from other projects" was looking in the wrong place. Those appear to have been the design parameters for the selection of the actual elements of, for example, a building at the project stage. However, as Mr Staker pointed out, those are not the same as what is expended on capital expenditure to support a building once built, which necessarily takes into account matters such as ongoing maintenance.
Second, across Mr Palassis' reports there appeared to be a number of high and unsatisfactorily explained figures. For example, one of his reports postulated expenditure of $44,156,000 in year 23. When asked about this he said that the "reasoning is embedded in the report" (T4856:39). With respect to Mr Palassis, the reasoning was, at least to me, not at all apparent. In another report he had a total of $52,000,000 being expended on the building in year 19. On any view, this seemed to be a very high figure for a building less than 20 years old. However, in a later report the year 19 expenditure on the building had become $6,100,000. Mr Palassis was not able to provide any satisfactory explanation for the variation. I was left with the impression that he very much depended on input which other people had given him rather than the application of his own, independent expertise.
Third, Mr Palassis' calculations provide for the full replacement of, for example, the roof at 20-25 years. Mr Staker, whose evidence I accept on this point because of his expertise and because it accords with common sense, suggested that this was not normal practice. It certainly appeared to me to be excessive and no persuasive explanation in support of it was provided. The Court was left in further doubt about this when evidence was tendered of the lifecycle assumption being made in relation to the Northern Beaches Hospital (a project on which Mr Palassis was a consultant) of 70 years for the roof.

[77]

Issue 30 - FFE life cycle replacement escalation - Resolution

There was a significant disagreement between the experts concerning the appropriate inflation figure to apply for growth in the costs of FFE life cycle replacement. Mr Staker's opinion, supported by some data, was that a 0% assumption should be used because prices for much equipment had, in dollar terms, dropped over time. Messrs Palassis, Gower and Harris were of the view that a 2.5% simple interest assumption applied.
Against this background some measure of agreement was reached. Messrs Staker and Harris agreed that: 1. Hospitals tend to replace old equipment with higher functioning equipment, rather than equipment with the same functionality as the old equipment. This is driven by vendors who upgrade equipment. In this instance, the parties agree with Mr Harris' escalation assumption; and 2. Replacing the equipment with equipment with the same level of functionality would cost the same amount (with no escalation). Mr Staker stated that a private hospital would not do this and would actually update in accordance with a like-for-like market positioned product. Mr Harris noted this may not actually be possible as vendors do not retain low level functioning product that has been superseded by new technology.
Mr Staker adhered to his view of 0% escalation, notwithstanding the agreement referred to in the previous paragraph, because, in his view, the decision to implement a newer piece of technology was a project decision made by the hospital rather than a replacement decision. The Court does not accept that distinction for the purposes of the present exercise. However, Mr Staker did provide convincing data that some sorts of equipment were cheaper in dollar terms today than they had been several years ago. That result is unsurprising and accords with common experience in relation to, for example, consumer electronics. Nevertheless, I am not satisfied that Mr Staker's approach or reasoning can be applied to all FFE replacement, as the agreement between Messrs Staker and Harris recorded in paragraph [540] above makes clear.
In my view, the figure propounded on behalf the Health District of 2.5% does not take account of the reality that some equipment becomes less expensive in dollar terms over time. Equally, Mr Staker's figure does not take account of the fact that a hospital will purchase higher functioning equipment which is likely to be more expensive in dollar terms than the equipment which it is replacing. In order to take account of those matters, the Court finds that an escalation of 1% simple interest should be applied for the first 20 years. There was no dispute between the experts that thereafter a value of 2.5% for inflation should be applied.

[78]

Issue 31 - Valuation of market rental of the Hospital Site

It is common ground that the Residual Land Value Approach is the correct approach for calculating market rental in respect of the Hospital Site. In earlier sections of this judgment the Court has determined the appropriate inputs or assumptions where they have not been able to be agreed between the parties. As I understand it, the issues raised by this question and Issue 32 have largely fallen away by reason of the parties' agreement.
The mechanics of the methodology which the Court considers should be applied may be taken from the summary of Mr Palassis: 1. Input the necessary expenditure to complete the balance of the development and the cash outflow (including ground rent) for the duration of the hypothetical term; 2. Assuming an opening of the private hospital on 1 July 2004, input the revenue assumed to be received through the operation of PAPH for the duration of the hypothetical term; 3. Derive a figure being the difference between (1) and (2); 4. Discount that figure by an assumed discount factor to arrive at an annuity or annual rental payment; 5. Denote that annual payment the "reasonable letting value" of the hospital site per annum; and 6. Derive an aggregate figure for market rental by calculating the net present value of the reasonable letting value for the duration of the trespass.
As I understand it - and the parties will be entitled to raise this matter as an outcome of these reasons if I have misunderstood it - there are really only two issues that were debated under this question that remain live for determination by the Court: the period of the lease to be assumed for the purposes of the valuation, and the relevance of North Shore Private Hospital as a comparator.
As to the first of these questions, Macquarie submitted that an analysis based on a term less than the life of the Hospital Lease - a hypothetical sublease for the period of dispossession - "distorts things" because of the high amount of cash outflow in early years of the lease to be enjoyed over the life of the lease. It submitted that what is being valued is the period of the trespass (approximately 15 years) out of a 103 year lease, not a lease of 15 years.
The Health District submitted that the correct hypothetical term is a letting term representing the period of trespass. It submitted that no market rent would be able to be paid as the feasibility result prior to the assessment of market rent provided a "negative investment decision".
In my view, the assessment of mesne profits must be done by reference to the 103 year life of the Hospital Lease. The Court accepts as legally and commercially correct Macquarie's submission that it is to be compensated for 15 years of a 103 year lease and not 15 years of a 15 year lease (or sub-lease). It is unsurprising that the Hospital District's valuation based on a lease for the term of the trespass produced a negative outcome, given that such a lease took in the entire burden of the construction and set up costs of PAPH in the first few years without being able to take into account the amortisation of those costs and the benefit to be derived over a much longer period from that initial investment.
In relation to the second question, the Court received a large amount of confidential evidence about North Shore Private Hospital. The parties were at loggerheads as to how comparable North Shore Private Hospital was with PAPH, what (if any) adjustments could be made to achieve such comparability, and whether or not any comparison was legally relevant at all. Confidential economic information about the operation of North Shore Private Hospital was also used by some of the experts to undertake "check" calculations. The evidence about North Shore Private Hospital was also deployed as part of the Health District's larger argument that PAPH was not economically feasible and would never have been built or opened.
It is unnecessary for the Court to resolve any questions about the utility of the evidence about North Shore Private Hospital. The Court is determining the inputs for the calculation in relation to PAPH. I do not regard myself as having been assisted in any of that task by the information from North Shore Private Hospital. I am not satisfied (whether before or after the various contested adjustments) that the information from that hospital is relevantly comparable or of any assistance in determining those integers which the parties have left to the Court for determination in relation to PAPH.

[92]

Issue 46 - Statutory approval costs - Resolution

I accept, as a matter of first principles in compensatory damages, that if the Court is satisfied on the balance of probabilities that Macquarie will incur a cost in building the private hospital which, first, but for the trespass it would not otherwise have incurred and, second, is not already compensated for in the rental awarded by way of mesne profits, then Macquarie is entitled to specific compensation for that amount. This aspect of Macquarie's claim was, with respect, slightly confusingly expressed insofar as it varied between describing the claim as being for "wasted expenditure" in relation to statutory approvals and future costs it would have to incur in relation to further statutory approvals in 2014. Because the Court concluded (see Macquarie (No 9)) that the Consent for the private hospital has not lapsed, Macquarie accepted that in any event it was not entitled to any further damages in relation to the costs for that Consent and any associated construction certificate. Furthermore, there was no evidence of any other statutory approval that had lapsed by reason of or during the period of the trespass that would require renewal.
The three remaining elements in this part of Macquarie's claim were, as I understood them, really for items which Macquarie will now have to incur in building the private hospital which it would not have incurred if it had built the private hospital at or within a reasonable time after it was dispossessed from the Hospital Site. So understood, these items are not included in the rental awarded by way of mesne profits because that is modelled upon what would have occurred on and from 17 March 2000.
The Court is satisfied on the balance of probabilities that Macquarie will incur these costs because it is going to go on to build the private hospital. That finding is made by reference to two matters. The first is the fact that Macquarie has now taken repossession of both the Car Park Site and the Hospital Site. Second, I accept Dr Wenkart's evidence that, having regained possession, it remained his firm intention, through Macquarie, to build the private hospital.
The first item claimed is for $6,180 for what is said to be a reasonable allowance for inspection fees in relation to construction of the private hospital. This claim is disallowed for two reasons. First, there is no suggestion that these fees were ever paid by Macquarie so that they will have to be paid again. Second, as such, I infer they are a cost that would have been incurred in the ordinary course of the construction of the private hospital and have therefore been taken up in the calculation of mesne profits.
The second and third remaining items can be dealt with together. There was no dispute between the parties that Section J of the Building Code of Australia came into effect on 1 May 2010. Section J related to various measures to reduce greenhouse gases through changes in design. It did not raise an issue in relation to approvals. Rather, compliance with Section J in building the future private hospital would involve an additional building cost. The Court is satisfied that such a cost is not included in the mesne profits rent calculation (because it did not exist at the time that calculation assumes PAPH was being built). There was also evidence that the increase in building costs to comply with Section J would result in additional design and consultants' fees.
Macquarie's evidence in relation to this issue was given by Mr John Barker. Using an escalated capital cost for construction derived from Mr Anderson's figures, Mr Barker assumed a capital cost for building the private hospital of $101,360,000. Using that figure he came to an additional capital cost in relation to Section J costs of $912,000 and additional design and consultants' fees of $136,800.
The Health District's witness in relation to these matters was Mr Ian Jackson. The report of the expert conclave between Messrs Jackson and Barker in relation to these additional costs records that while "Mr Jackson accepts the methodology adopted by Mr Barker in the calculation of these costs, he contends that he is unable to agree or disagree with Mr Barker's figures without a thorough understanding of the Cadell and Anderson capital costs including a comprehensive breakdown of the two amounts...".
The Health District submitted that, if the Court accepted Macquarie's claims for these costs, the Court should adopt Mr Jackson's figure for construction costs of $104,317,000 excluding GST and FFE. However, as I understand the calculation of these costs, using Mr Jackson's figure would increase the amount of the award beyond Mr Barker's amounts (which were based on construction costs of $101,360,000). The Court adopts Macquarie's more conservative figure and finds that Macquarie is entitled to damages in relation to additional Section J costs in the sum of $912,000 and consequential additional consultants' fees of $136,800.

[93]

Issue 46 - Excavation costs - Resolution

What would have to be done, and how much it would cost, to put the Hospital Site back into the condition it was at 17 March 2000 was not in dispute. The Hospital District's argument was legal rather than factual.
Excavations and various other works had been completed on the Hospital Site as at 17 March 2000. The next phase of excavation would have been as part of further construction work for the private hospital. However, the passage of time and the use of the Hospital Site as a car park by the Health District means that the following things will have to be done by Macquarie to restore the site to its condition as at 17 March 2000: 1. Removing the now existing gravel and car parking base; 2. Rutting and stripping the site to the relevant design cut levels; 3. Scarify and place land fill where needed to achieve the necessary design levels; 4. Dewater and clear the excavated storm water retention pits; and 5. Remove vegetation.
As a result of the conclave process between Mr Jackson for the Health District and Mr Meredith for Macquarie, Mr Jackson accepted Mr Meredith's revised figure of $301,990 (excluding GST) as, to quote the report of the conclave, "a fair and reasonable cost for the scope of works described".
The Court is satisfied that the excavation or remediation work covered by this head of damages is not duplicated in the mesne profits rental figure. It is an expense that Macquarie will have to incur which, but for the trespass, it would not have incurred. The various matters which the excavation and remediation work will address were caused by, or are a natural consequence of, the Health District's trespass. Consistent with the compensatory purpose of damages, the Court concludes that Macquarie is entitled to additional damages in the sum of $301,990 in relation to the remediation and excavation work to be incurred on the Hospital Site.
The Hospital District raised three objections to this conclusion.
First, it submitted that the various changes in the condition of the Hospital Site were not physical "damage" to the land. On the contrary, the Hospital District submitted that what it had done to the land by using it as a car park might amount to an improvement from the state it was in at the time the Hospital District took possession. Because it was not damage to the land, so the submission went, a case such as Port Stephens Shire Council, in which Santow JA had observed (at [207]) that physical damage to the land was compensated by reference either to the diminution in value of the land or the reasonable cost or reinstatement, had no application to the present case.
I do not agree with the Health District's submission that matters such as the installation of gravel for the temporary car park are not relevant "damage" for the purposes of this inquiry. However, the characterisation of "damage" is not determinative in this case. More fundamentally, the basic principle of damages in tort is to put a party into the position it would have been in but for the tort. In this case, but for the trespass (and relying on my earlier finding that Macquarie will proceed to build the private hospital, see paragraph [580] above), the need to undertake that excavation and remediation work would not have been incurred by Macquarie if the trespass had not taken place. So understood, it is not the damage to the land that is the focus of the inquiry. Macquarie's loss or damage is the cost it will incur for work that would not otherwise have needed to have been done.
The Health District's second objection was that any cost which Macquarie had to incur to reinstate the Hospital Site when it retook possession was actually the result of Macquarie's failure to commence and complete construction of the private hospital within the timeframe under the Transaction Documents. I do not agree. In this case, the common sense cause of this loss is the Health District's trespass.
Third, and again relying on Santow JA's observation in Port Stephens Shire Council that there was an "overriding requirement that damages be a fair and reasonable compensation to the plaintiff for the injury he has suffered" (at [207]), the Health District submitted that it would not be fair and reasonable for Macquarie to receive damages in relation to the remediation and excavation costs. I disagree. For reasons already given, the Court is satisfied that on the balance of probabilities Macquarie will incur that expenditure as part of the private hospital project and that it is not expenditure which Macquarie would have incurred if the trespass had not happened.

[96]

The Lynn Report - Background

As I have set out elsewhere (see paragraph [41] above), after the openings in 2014, the hearing proper was fixed to recommence on 12 May 2014. On 1 May 2014 I heard an application by the Health District for leave to rely on the Lynn Report. To understand the application which is the subject of these reasons, it is necessary to say something about the application made on 1 May 2014.
On page 5 of the Lynn Report, Ms Lynn set out what she had been asked to do and what she had done (emphasis in original): "I have been asked to provide an opinion on the car parking demand assumptions and car parking demand opinions of Mr Christopher Milou and Mr Alan O'Sullivan, as referred to in, or which underlie, their respective reports. Following a review of these reports I determined that the best way to evaluate the car parking demand assumptions and car parking demand opinions expressed by Mr Milou and Mr O'Sullivan was to test those assumptions by independently carrying out surveys and analysing the current parking demand at the site. I then extrapolated those outcomes to assess the potential net profit that MIHC would have realised from the year 2000 (start of claim) to 2099 being the end of the Head Lease. I applied PTC's standard methodology for estimating parking demand and revenues at hospital sites by reference to the results of surveys and, where this was not possible or available, by reference to work done at other similar hospitals."
At the centre of the Health District's argument in support of its initial application was that the Lynn Report filled a gap in the expertise of each of the experts in relation to the operation of the car park, being Mr O'Sullivan for Macquarie and Mr Milou for the Health District. That gap was said to be that neither of those experts had done, nor was qualified to do, a demand study in relation to the car park. It was put to me that Ms Lynn had done such a study based on data which she had obtained from surveys of the actual operation of the car park.
The results of her surveys and other relevant data were contained in sections 8 and 9 of the Lynn Report. So much was confirmed by this exchange which I had with Mr Burton SC for the Health District (1 May 2014: T19:30-38): "HIS HONOUR: Mr Burton, can I stop you there? Where does she actually answer the question you asked her? Where do I find, yes, no, here is why, or why not? BURTON: She does not give that in one place because the way these demand studies are done leads to the net present value analysis she has done. The conclusion is, in a sense, scattered through the report, but the core material is in sections 8 and 9."
I disposed of the application on that occasion in this way (1 May 2014: T20:22-T21:5) (emphasis added): "HIS HONOUR: … I am presently not disposed to grant leave for Miss Lynn's report to be relied on as a report in the proceedings, that is to say, something that might be formally read and that she is cross‑examined. I think there is considerable force in Mr Dubler's submission that, in a sense, it is all a bit late. I am not criticising your side for the motive in putting it on. I understand that. Mr O'Sullivan and Mr Milou have been engaging on a particular basis, recognising they didn't have a demand study, whatever that happens to be, but they were doing the best they could. I don't think it would be consistent with proper case management at this point to allow that to be disrupted by formally introducing a report such as Miss Lynn's. It seems to me however there is a middle ground and that is that they continue engaging but I would certainly not stop them and I think if any party wanted a direction to this effect I would make it. Nor should they be stopped from taking into account her report as they would take into account any reference work or any other piece of material they thought was relevant."
In reaching that conclusion, I was focusing on material I had been specifically taken to in the Lynn Report in which she had set out the results of her various studies. In fairness to the parties, it is to be acknowledged that my observations in disposing of the application did not confine the use of the Lynn Report as a reference work merely to those parts of the report. The application which is the subject of these reasons centred on whether or not some of those other parts should be admitted into evidence.
On 9 February 2015, the 65th day of the hearing, the Health District applied for a number of parts of the Lynn Report to be admitted into evidence. Commendably, there was agreement between the parties in relation to most parts of the Lynn Report as to what should be admitted and what was not pressed. The three main areas of dispute - the resolution of which is also determinative of the fate of a few other sentences sought to be relied on - were Ms Lynn's curriculum vitae; a short section on pages 57 and 58 expressing an opinion that the car park would only get the excess demand from when other car parking areas around RPA had been utilised; and, most significantly, sections 12.1 (staff pricing) and 12.3 (price elasticity).
The argument was primarily devoted to the two parts of section 12, in which Ms Lynn said (at page 67 of her report) that she had "been asked to consider what price for staff pricing would be set by a commercial operator seeking to maximise profits". In those sections Ms Lynn clearly assumed the role of an expert rather than just the gatherer of data. Her key conclusions were that if Macquarie "increased staff prices to $35 or $50 a week, the consequences would be exactly the opposite of those mentioned above and therefore not sustainable or commercially viable" (Lynn Report, p 71) and "having reviewed Mr. O'Sullivan's price elasticity considerations in Section 10 of his report as referenced above, I concur with his observations and conclusions" (Lynn Report, p 75).
By the time of the Health District's further application, the hearing was well advanced. Mr O'Sullivan and Mr Milou had prepared a number of reports and had participated in conclaves. On many issues they had either come to agreement or had more clearly refined the scope of any disagreements. Insofar as any reliance on the Lynn Report was concerned, Mr Milou had not taken any account of it. However, in his sixth supplementary report dated 3 December 2014, Mr O'Sullivan said in relation to section 12 of the Lynn Report (citations omitted): "I relied on Section 12 in the following respects: ● Based on my general experience in the industry, I consider CL (& her business - Parking & Traffic Consultants) is one fo the leading parking consultants in Australia, including in respect of demand & revenue projections. In that context, CL has produced numerous car parking studies in respect of major hospital car parks, several of which I have had the opportunity to review; ● This includes several reports written for NSW Health Infrastructure in the context of its current hospital car park development program; ● As a result, I have substantial respect for CL's expertise in relevant aspects of hospital car businesses; ● In my Final Report and in the Joint Report, I expressed certain views about RPA staff pricing, which is critical to the assessment of CSCP; ● I consider that the opinions that I formed in relation to staff pricing were significantly reinforced (in my mind) by the opinions and observations of CL in Section 12.1 of her Report. In that respect, Section 12.1 is significantly relevant to my own opinion in relation to price; ● I adopt and acknowledge the reasonableness, of the opinions set out in Section 12.1 of CL's report. ● I consider that Section 12.1 should be accepted by the Court; ● In my First Report & Final Report I expressed certain views as to the relevance of price elasticity in respect of staff pricing in the evaluation of CSCP; ● I consider that the opinions that I formed in relation to staff pricing were reinforced (in my mind) by the opinions and observations of CL in Section 12.3 of her Report. In that respect, Section 12.3 is significantly relevant to my own opinion in relation to price elasticity; ● I adopt and acknowledge the reasonableness, of the opinions set out in Section 12.3 of CL's report. ● I consider that Section 12.3 should also be accepted by the Court."
The passage from Mr O'Sullivan's report which I have just quoted must, however, also be considered in the light of the exchange I had with Mr Stowe of Counsel (for the Health District) during the course of argument (T3586:1-13) (emphasis added): "HIS HONOUR: … Mr Stowe is there anywhere else in Mr O'Sullivan's material where he expressly adopts part of Ms Lynn's report? STOWE: No your Honour. But I would simply make the observation that in that sixth supplementary report he explicitly adopts two particular sections unconditionally. So in my submission there can be no real doubt as to the express adoption by Mr O'Sullivan of particular sections in that report. HIS HONOUR: Is there anywhere in his report where he then expressly exposes in his reasoning, in his chain of reasoning, how he uses her report? STOWE: No your Honour there is not."

[98]

The Lynn Report - Leave

UCPR r 31.28 provides (emphasis added): "31.28 Disclosure of experts' reports and hospital reports (1) Each party must serve experts' reports and hospital reports on each other active party: (a) in accordance with any order of the court, or (b) if no such order is in force, in accordance with any relevant practice note, or (c) if no such order or practice note is in force, not later than 28 days before the date of the hearing at which the report is to be used. (2) An application to the court for an order under subrule (1) (other than an order solely for abridgment or extension of time) may be made without serving notice of motion. (3) Except by leave of the court, or by consent of the parties: (a) an expert's report or hospital report is not admissible unless it has been served in accordance with this rule, and (b) without limiting paragraph (a), an expert's report or hospital report, when tendered under section 63, 64 or 69 of the Evidence Act 1995 , is not admissible unless it has been served in accordance with this rule, and (c) the oral expert evidence in chief of any expert is not admissible unless an expert's report or hospital report served in accordance with this rule contains the substance of the matters sought to be adduced in evidence. (4) Leave is not to be given as referred to in subrule (3) unless the court is satisfied: (a) that there are exceptional circumstances that warrant the granting of leave, or (b) that the report concerned merely updates an earlier version of a report that has been served in accordance with subrule (1)."
Three other aspects of the rules are relevant.
First, UCPR r 31.19 provides: "31.19 Parties to seek directions before calling expert witnesses (1) Any party: (a) intending to adduce expert evidence at trial, or (b) to whom it becomes apparent that he or she, or any other party, may adduce expert evidence at trial, must promptly seek directions from the court in that regard. (2) Directions under this rule may be sought at any directions hearing or case management conference or, if no such hearing or conference has been fixed or is imminent, by notice of motion or pursuant to liberty to restore. (3) Unless the court otherwise orders, expert evidence may not be adduced at trial: (a) unless directions have been sought in accordance with this rule, and (b) if any such directions have been given by the court, otherwise than in accordance with those directions. (4) This rule does not apply to proceedings with respect to a professional negligence claim."
Second, Practice Note SC Eq 5 provides: "Restrictions on the number of experts
Generally, and in accordance with UCPR 31.20 (2), only one expert per specified issue will be allowed to: the plaintiff, and any one of multiple defendants. Defendants who have the same interest in the expert evidence will be treated as one, and should confer at an early stage to agree on a single expert.
More than one expert per specified issue may be allowed if good reason is shown in a particular case.11. Generally, the experts engaged in relation to a specified issue should confer before the trial and produce a joint report in accordance with UCPR 31.24 to include (where relevant): a statement as to their agreed conclusions, and a statement of their differences and of the apparent reasons thereof. Directions regarding experts
Under UCPR 31.19, a party considering or intending to adduce expert evidence at trial must promptly seek directions from the court in that regard. A party must seek those directions in accordance with paragraphs 13, 14 and 15 of this Practice Note."
Third, s 56 of the Civil Procedure Act 2005 (NSW) (the "CPA") includes: "(1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. (2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule."
There was no dispute between the parties that the Health District had not complied with UCPR r 31.28 in relation to the Lynn Report. It could only be admissible if leave was granted under UCPR r 31.28(4)(a), which required the Health District to demonstrate that there were "exceptional circumstances that warrant the granting of leave". The power to grant leave must itself be exercised in accordance with the overriding purpose identified in s 56 of the CPA.
The rules do not specify what constitutes "exceptional circumstances". It depends on the facts of each case. The fundamental consideration must be the just determination of the proceedings: see ASIC v Rich [2005] NSWSC 706 at [56]-[58].
The Health District submitted that the following justified a finding of "exceptional circumstances": "(a) The fact that the general law provides that "reference works" may be relied on by experts despite the fact that they are hearsay, and that any such reference works relied upon are prima facie unconditionally admissible (subject to discretionary exclusion); (b) The fact that the Court expressly authorized the experts to use the Lynn report as a potential "reference work" in the conventional way, and the Plaintiff expressly acquiesced in that course. By implication that course included the tender of those sections relied upon by the experts; (c) The Plaintiff has had notice of the Lynn report since May 2014; (d) The expertise of Ms Lynn is not challenged. Indeed, Mr Milou adopts substantial sections of her report; (e) The fact that "considerable care should be exercise before s136 of the Evidence Act is invoked to limit the use of evidence on the ground that its use might be unfairly prejudicial". The policy underlying section 60 "should not be undercut by the making of orders under s 136 as a matter of course". Directions under section 136 "should not be made as a matter of course": see Defendant 1, [40(a)] (f) The fact that the Defendant does not object to tender being conditional on Ms Lynn being made available for cross-examination (thereby eliminating any forensic prejudice otherwise arising from the inability to cross-examine); (g) The fact that "prejudice" must be unfair to justify discretionary exclusion of evidence under section 135-6: Defendant1, [40(c)]; and the absence of any basis for finding that material "unfair prejudice" would be caused by the tender of the Contested Sections: see paragraph 37 to 40 above; (h) The fact that Ms Lynn has agreed to be bound by the Expert Code, and there is no basis to infer that her opinion has been compromised (consciously or unconsciously) by adversarial bias: see paragraph 28 above; (i) The candidly conceded limitation of expertise of Mr Milou and Mr O'Sullivan in relation to pricing, by reason of which the evidence of Ms Lynn on pricing would form a useful and relevant part of the evidentiary matrix relating to pricing."
I do not accept that any of those matters, taken either severally or cumulatively, constitute "exceptional circumstances" in this case to warrant the admission of the Lynn Report to which objection had been taken. In relation to sections 12.1 and 12.3, I develop in paragraphs [628] to [636] below why I do not consider those sections to be "reference works" of the kind admissible under the general law and why they do not appear to have been used by Mr O'Sullivan in a legally significant way.
In any event, to the extent that any or all of the matters identified in paragraph [621] above may be such circumstances, their quality as such is negatived, or it would be contrary to the overriding purpose to grant leave, by reason of the following matters: 1. Each of Messrs O'Sullivan and Milou had grappled with the pricing in question and with each other's views on the topic. No need to introduce an additional expert was made out. In particular, the Health District had failed to demonstrate any satisfactory reason as to why it should be permitted to have a second expert on these topics contrary to the general position set out in the applicable practice note (see paragraph [617] above) that each party should only have one expert on any particular issue. 2. Insofar as it was suggested that either or both of those gentlemen lacked expertise in relation to pricing, the case had been conducted with them as the experts on the question, notwithstanding that alleged limitation. If the Lynn Report was to be admitted by reason of that alleged limitation of expertise, then it followed as a matter of procedural fairness that Macquarie would be entitled to call a suitably qualified expert to meet Ms Lynn's views (because this approach assumes Mr O'Sullivan's lack of expertise). The Court would not permit that to happen because, on the 65th day of the hearing, it would not be consistent with the overriding purpose to bring about a situation where delay and expense would be incurred to enable the briefing of a further expert by Macquarie. Macquarie had approached a possible expert and, through its solicitor, had tendered evidence that the costs associated with that expert could be as high as $240,000 and that four months would be required to prepare the responsive report. Even if those figures were an overestimate (by reason of the fact that a responsive report might only be required in relation to more limited matters, such as section 12 of the Lynn Report), it was clear that delay and additional expense would be incurred. Without being critical, the behaviour of the parties to date left me with no doubt that any new avenue would be fully explored and that compliance with timetables could not be assumed with confidence. Once the evidence was on, Ms Lynn and Macquarie's new expert would need to conclave and be cross-examined. If all of this was allowed to happen, there was no way the proceedings would be completed within the time then allocated for their completion. 3. As is developed further below (see paragraphs [630] to [636]), Mr O'Sullivan's cross referencing of the Lynn Report was neither to the extent nor of the kind that made it necessary for it to be in evidence to understand Mr O'Sullivan's conclusions. 4. I accept Macquarie's submission that there was very significant overlap between the Lynn Report and Mr O'Sullivan's reports as follows: LYNN REPORT O'SULLIVAN REPORTS Section 12.1 (staff pricing) Expert Report dated 18.11.13 [Ex. 15P Tab 38 INQ-BD-4766-4938] - section 9.1 Supplementary Expert Report dated 23.12.13 [Ex 15P - Tab 40 INQ-B - 4996] section 3.8 Third Supplementary Expert Report dated 23.1.14 [Ex. 17P Tab 45 INQ-A-6447-6450] - section 2 Fourth Supplementary Expert Report dated 09.04.14 [Ex. 35P-36P Tab 18 INQ-BD-4768-5463] - section 9 Joint Expert Report dated 27.06.14 [Ex 59P INQ-BD-9106-9165] - sections 2.4, 2.6.2 Final Expert Report dated 27.06.14 Ex 59P Tab 1 INQ-BD-9166-9382] - section 2.2.8 Section 12.3 (price elasticity) Expert Report dated 18.11.13 [Ex. 15P Tab 38 INQ-BD-4766-4938] - sections 9.1 Supplementary Expert Report dated 23.12.13 [Ex 15P - Tab 40] section 3.4.3 Fourth Supplementary Expert Report dated 09.04.14 [Ex. 35P-36P Tab 18 INQ-BD-4768-5463] - section 10 Joint Expert Report dated 27.06.14 [Ex 59P INQ-BD-9106-9165] - section 2.4 Final Expert Report dated 27.06.14 Ex 59P Tab 1 INQ-BD-9166-9382] - section 2.8

[99]

The Lynn Report - The admissibility of "source materials"

Section 60 of the EA provides: "60 Exception: evidence relevant for a non-hearsay purpose (1) The hearsay rule does not apply to evidence of a previous representation that is admitted because it is relevant for a purpose other than proof of an asserted fact. (2) This section applies whether or not the person who made the representation had personal knowledge of the asserted fact (within the meaning of section 62 (2)). (3) However, this section does not apply in a criminal proceeding to evidence of an admission."
To obtain the benefit of s 60, the evidence must have already been admitted for some other purpose. The Health District submitted that it was uncontroversial that an expert is permitted to ground his or her opinion on articles, reports and publications in their field of expertise ("source materials"), notwithstanding the source materials are strictly hearsay. However, that proposition begs the question of the evidentiary status of the source materials themselves. The Health District submitted that there are two lines of authority concerning that question which meant that Mr O'Sullivan's stated reliance on the Lynn Report made it admissible.
The first line of authority was described as supporting the "broad tender principle". This was that source material is admissible to prove the truth of the facts or opinions set out in the source material.
The second line of authority was referred to as the "restricted tender principle". This was said to be that while the source material is not admitted as independent proof of facts and opinions expressed in it, it is admitted as: 1. Testimonial evidence of the expert witness if the expert witness adopts or acknowledges the correctness of the source material; or 2. Evidence of what was in fact the basis for the expert's opinion (without being evidence of the truth of the facts and opinions contained in the source materials).
Macquarie responded that the opinions of another expert about the very matters that were the subject of the proceedings were not "source materials" as the authorities understood them. The latter materials were in the nature of professional, scientific literature or data which was published or otherwise widely available in the expert's field of expertise and which formed part of the body of discourse among the relevant expert community. This included research, articles and letters in refereed journals and other authoritative professional literature. Macquarie submitted that there was a distinction between data of general application, which might qualify as source materials, and facts and opinions which are unique to the facts of the case at bar which must be proved by ordinary rules of evidence. Macquarie relied on the dictum of McGarvie J in PQ v Australian Red Cross Society [1992] 1 VR 19 at 36: "So far I have been dealing with the entitlement of an expert witness to give evidence of facts of general application. Facts peculiar to the particular case are in a different position. They have to be proved by evidence admissible under the ordinary rules: R v Fizzell (1987) 31 A Crim R 131 and R v Turner [1975] QB 834, at p. 840. These are facts of the type which in R v Abadom [1983] 1 WLR 126, at p. 131 were treated as the facts basic to the question on which the expert was asked to express an opinion. That case draws the distinction between an expert's reliance on facts peculiar to the particular case, which require proof according to the ordinary rules of evidence and reliance on scientific data of general application, which may be derived from sources usually relied on by experts such as the witness."
I accept Macquarie's submission and the distinction drawn by McGarvie J. Ms Lynn's opinion as to staff pricing and her concurrence with Mr O'Sullivan's approach to the question of price elasticity are not source materials of the kind that would be admissible under either of the lines of authority identified by the Health District.
However, in addition to my acceptance of Macquarie's submission on this point, in my view there is a more fundamental reason why, in the circumstances of this case, Sections 12.1 and 12.3 of the Lynn Report are not admissible and therefore, not having been admitted, do not obtain the benefit of s 60 of the EA. That fundamental reason derives from the proposition that the touchstone of admissibility is relevance. As s 56(2) of the EA provides, "evidence that is not relevant in the proceedings is not admissible".
I have set out in paragraph [610] above that section of Mr O'Sullivan's report in which he sets out how he relied on Section 12 of the Lynn Report. In summary, he asserts his view (and assuming he is qualified to express it) that Ms Lynn is one of the leading parking consultants in Australia and that he has "substantial respect" for her expertise. He then goes on to say that the opinions he formed in relation to staff pricing and price elasticity were "significantly reinforced" by her opinions and observations, which he regarded as "significantly relevant" to his own opinions. He also says that he adopted and acknowledged the reasonableness of her opinions.
Accepting, as I do, the truth of those statements, they do not make the Lynn Report relevant. As counsel for the Health District acknowledged, it is nowhere apparent in Mr O'Sullivan's report how he relied upon or otherwise used the Report in his own processes of reasoning to arrive at the opinions expressed in his report.
Section 55 of the EA provides: "55 Relevant evidence (1) The evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding. (2) In particular, evidence is not taken to be irrelevant only because it relates only to: (a) the credibility of a witness, or (b) the admissibility of other evidence, or (c) a failure to adduce evidence."
The purpose of opinion evidence is to enable the Court to find facts. In the absence of it being apparent how the material in the Lynn Report affected Mr O'Sullivan's process of reasoning, that material cannot be said to "rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding", that fact being the fact which the Court is being asked to infer or find from Mr O'Sullivan's opinion.
In the absence of an exposed, reasoned connection between the material in the Lynn Report and Mr O'Sullivan's process of reasoning, his references to being reinforced in his views or his adoption and acknowledgement of the reasonableness of Ms Lynn's opinions are no more or less than a modern form of oath helping. I intend no disrespect to Mr O'Sullivan in making that comment. Nevertheless, the opinion of expert A will not be made relevant if expert B does no more than acknowledge expert A's expertise and adopts or is fortified by the opinions of expert A.
For the reasons expressed in paragraphs [630] to [635] above, it is therefore my view that the inquiry into the admissibility of Sections 12.1 and 12.3 of the Lynn Report never even reaches the point where the authorities concerning the admissibility of "source materials" need to be considered.

[101]

The Lynn Report - pp 57-58

This is the other substantial section to which objection was taken. The objected passage is short enough to be conveniently reproduced: "As mentioned on page 51 of this report I concur with Mr O'Sullivan's assessment that CSCP would be the least likely parking choice for RPAH staff, outpatients and visitors due to its relatively inconvenient location. … In other words, Susan Street Car Park, St John's Car Park and relevant on-street spaces will be utilised by parkers in preference to CSCP, so that demand will only flow into CSCP if those other spaces are full. CSP only gets the excess demand when the other spaces are full. In appropriate scenarios, I have also undertaken a similar process in relation to parking demand at MIHCPH, assuming that it was built (which in reality it wasn't), except that first priority for parking is given to MIHCPH with any surplus being allocated to RPAH, as CSCP would have been the primary source of parking supply for MIHCPH. Outpatients and visitors to RPAH would be more likely to use Susan Street Car Park and on-street parking close to RPAH in preference to CSCP, due to the distance from CSCP to RPAH (approximately 300m)."
As will be apparent, this section expresses agreement with Mr O'Sullivan's report. It is not a section that Mr O'Sullivan says he relied upon. Therefore, the second aspect of the arguments dealt with above as to why this passage should be admissible does not apply.
The reasons given in paragraph [623] above as to why the Court declined to grant leave for the other contested sections of the Lynn Report to be admitted apply equally to this passage. In particular, given the full engagement on this aspect of the matter between the existing experts, there is no case for an essentially duplicating or concurring expert opinion to be admitted.
In any event, for the reasons given in paragraphs [623] and [641] above, including the element of unnecessary duplication, I would otherwise have excluded the passage under s 135 of the EA because its probative value is, in my view, substantially outweighed by the danger that the material is either unfairly prejudicial to Macquarie or would cause or result in undue wasted time.
In light of my rejection of Sections 12.1 and 12.3 of the Lynn Report and the passage set out in paragraph [645] above, I also rejected as irrelevant Ms Lynn's curriculum vitae and the other few sentences about which the parties were in dispute.