Milatos & Anor v Clayton Utz [2007] NTSC 44

Milatos & Anor v Clayton Utz [2007] NTSC 44 - NTSC 2007 case summary — Zoe

[4]

[5] The Lake Bennett Wilderness Resort consists of a man made lake and surrounds, located approximately seven kilometres off the Stuart Highway 80 kilometres south of Darwin.

[6] I shall commence with setting out some of the formal findings relevant to the litigation between the parties.

In the defence to the plaintiffs' statement of claim, the defendant joined two third parties namely James Nairn and Company Pty Ltd as the first third party and the Northern Territory of Australia as the second third party. During the course of the hearing, the defendant settled its action with respect to each of the third parties.

On 25 January 2007, terms of settlement between the defendant, the first third party and the second third party, were filed. This concluded the proceedings between the defendant and the first third party.

On 30 March 2007, the court recorded a minute of consent orders between the defendant and the second third party which concluded the proceedings between the defendant and the second third party.

Thereafter the hearing proceeded solely between the plaintiffs and the defendant.

In March 1996 the property known as Lake Bennett was owned by Nazime Pty Ltd (ACN 009 634 137) ("Nazime"). The directors of this company were David Shoobridge and his wife Elizabeth Shoobridge.

On 10 May 1996, Anadyr Pty Ltd (ACN 009 624 462) ("Anadyr") signed an option agreement to purchase the project property being Section 152 Hundred of Howard from Nazime. The property was subject to recreational easements in favour of the surrounding lots.

Anadyr was a company owned by George Milatos and his brother Michael Milatos. Pauline Milatos, Michael's wife, became a director on 23 October 1998. At that time, George Milatos ceased to be a director, however, he still maintained 60% of the shares (Exhibit P6).

In October 1996 the option agreement was transferred to City Developments Pty Ltd (ACN 009 638 733) ("City Developments").

City Developments was a company duly incorporated according to law.

A discretionary trust known as the "Lake Bennett Trust" ("the trust") was established by Deed of Settlement executed on 2 October 1996 between Anadyr Pty Ltd as trustee and Raymond Oak Grimshaw as settlor.

Under and by virtue of the Deed, City Developments was a beneficiary and Mr George Milatos named as the principal of the trust.

By Deed of Variation dated 23 October 1996, the trust deed was varied so as to exclude City Developments as a beneficiary (Trust Deed and Variation are annexure ML3 to Mr Lewis' report, Exhibit D214). Subsequent discussions took place and correspondence was exchanged between Ray Grimshaw, Guy Riley and George Milatos (copies of which can be found in Exhibit P5) making it clear that City Developments was now acting as trustee for the trust. The Lake Bennett Trust financial statements for the years 1996-2002 (inclusive) reflect City Developments acts as trustee for the trust (Exhibit P199).

The plaintiffs were the persons who exercised all of the powers and duties of management of City Developments. They were its only directors at the relevant time.

Between March 1996 and May 2002 the plaintiffs, who were the directors of City Developments, worked to develop Lake Bennett as a tourist resort. This included arranging finance for further development, liaising with government authorities and various interested persons, building accommodation, upgrading the resort, marketing the resort as a tourist destination and selling the units built around the foreshore. The work that was carried out will be set out in more detail hereunder.

Australian Transportable Homes Pty Ltd (ACN 065 856 359) ("Australian Transportable Homes") is an entity of which George Milatos was the managing director. It was established by George Milatos for the purpose of building houses at premises in Berrimah, which houses could be transported to remote communities and placed on site. Australian Transportable Homes ceased to operate in February 2002.

The plaintiffs had, at all relevant times, differing roles in the development of Lake Bennett. George Milatos, as director of Australian Transportable Homes, constructed buildings which were subsequently transported to Lake Bennett and placed on various lots around the foreshore. Mr Milatos was responsible for all the legal and financial dealings associated with the development of the property. Colleen Milatos (now Mrs Colleen Cambronero) managed the resort, assisted in furnishing and decorating the units once they were built and developed the gardens around the resort. As manager of the resort, Colleen Milatos built it up as a tourist attraction providing restaurant and other facilities to tourists and those who lived in the units or cabins adjacent to the resort or around the foreshore of the lake. Colleen Milatos marketed the resort and established networks with various tour operators.

Between 1996-97, Section 152 Hundred of Howard was subdivided into Section 245 the lake and Section 244 the surrounding foreshore. Registration of the subdivision occurred on 3 February 1997. The land was still subject to recreational easements in favour of the surrounding lots.

On 24 March 1997, contracts for sale of Sections 244 and 245 by Nazime to City Developments were exchanged. The purchase price was $630,000 with a mortgage back to Nazime. Settlement of this purchase was effected on 16 April 1997.

On 29 August 2001, the Court of Appeal of the Supreme Court of the Northern Territory, confirmed that the recreational easements over Section 152, now Sections 244 and 245, in favour of surrounding lots, were good in law.

By December 2001, City Developments was indebted to the ANZ Bank in the sum of approximately $2.6 million.

Between December 2000 and May 2002, the ANZ Bank communicated their concerns about the indebtedness to the Bank and sought the debt be either refinanced or repaid. Attempts were made by agents to find a buyer for Lake Bennett at the price of $2.5 million. No sale eventuated.

In April 2002 the Lake Bennett Wilderness Resort Pty Ltd was incorporated for the purpose of acquiring the resort business from City Developments. Michael Milatos, is a director of this company. Michael and Pauline Milatos are the two shareholders in the company.

In May 2002 Section 245 (the lake and the resort) was sold to Lake Bennett Wilderness Resort Pty Ltd for $500,000 with the monies remitted on 10 May 2002 as follows:

[9]

[12] As at May 1996, there were registered, in respect of Section 152 Hundred of Howard, and in favour of Sections 93, 94, 96, 101, 102, 103, 104, 105, 106, 107 and 108, easements styled "recreational easements". There were a total of 11 sections which had the benefit of the recreational easements.

[13] These recreational easements were in writing and registered on the title to Section 152. In substance they conferred on the sold lots rights to enter upon and use Section 152 for recreational purposes.

[14] In early 1996, the plaintiffs began various enquiries as to the viability of purchasing and developing Section 152 (referred to as Lake Bennett) from Nazime. The proposed development to be established was a residential holiday village and resort.

[15] By reason of the nature of the recreational easements and the provisions of the Real Property Act 1996 (NT), the Unit Titles Act 1976 (NT) and the Real Property (Unit Titles) Act 1976 (NT), there existed the following impediments to the development of Lake Bennett. These impediments were:

The consent of the easement holders was a necessary legal pre-requisite to the construction of any buildings or other improvements on Section 152.

The written consent of the easement holders was a necessary legal pre-requisite of registration of any further easements on the title to Section 152.

The written consent of the easement holders was a necessary legal pre-requisite of any subdivision of Section 152 under general law.

The written consent of the easement holders was a necessary legal pre-requisite of approval by the Attorney-General of any disclosure statement for any subdivision of, or of any part of, Section 152 by way of condominium development proposal under the Unit Titles Act.

The written consent of the easement holders was a necessary legal pre-requisite of the registration on the title to Section 152, or on any part thereof, of such a disclosure statement.

Following any such registration of an approved disclosure statement for a condominium development, the written consent of the easement holders was a necessary legal pre-requisite of the registration of a units plan authorised by any such disclosure statement.

The written consent of the easement holders was a necessary legal pre-requisite of approval for, and registration of, any alteration or variation of any registered disclosure statement relating to, or to part of, Section 152.

Constructing buildings or other improvements on Section 152, or part thereof, was a necessary legal pre-requisite of the plaintiffs being entitled to carry out a unit title subdivision on Section 152, or any part thereof.

The written consent of the easement holders was a necessary legal pre-requisite of any subdivision of, or of any part of, Section 152 pursuant to the Unit Titles Act.

No provision existed in law to enable any officer of government to dispense with any of the above required consents.

By reason of each and all of the foregoing, any one or more of the easement holders possessed an effective power of veto on the whole, or any element, of the project exercisable and re-exercisable, at any stage of the progress of the project.

[11]

[16] George Milatos was born on 3 November 1951 at Kalymnos in Greece. In 1963 his father, who was a stonemason, left Kalymnos and came to Australia. George and other members of his family followed and arrived in Darwin about Christmas in 1964. Before coming to Australia, George had completed primary school, one year of high school and served for approximately four months as an apprentice painter.

[17] On arriving in Darwin he attended night classes to learn English. At that time he was between 13 and 14 years of age. He worked as an apprentice painter. At the age of 17 he started his own business as a painter. He learnt to speak English by mixing with English speaking people. He does have some difficulties with the English language but is conversant in that language. His business developed and he became the largest painting contractor in Darwin. By 1970 he was already doing some small building jobs. In that year he won a job to build four units in Stuart Park and subsequently another four or five units in Alawa. He had launched his career as Milatos Constructions Pty Ltd ("Milatos Constructions").

[18] Exhibit P6A is a series of 139 photographs of projects undertaken by Milatos Constructions over the subsequent years. In the two years after he completed the units in Alawa he constructed about 40 private houses.

[19] In 1971 Mr Milatos met his future wife Colleen. They married in 1973. The shares in Milatos Constructions were held 50% by him and 50% by his father. In 1983 he bought his father's share of the company and his brother Michael Milatos came into the business. They continued together as Milatos Constructions until the early 1990s. In 1973 he incorporated a subsidiary into the company called Winnellie Joinery which built kitchens and wardrobes for their construction company. By 1974 nearly all of his business was government contracts. These included the pre-school at Moil, executive flats in Fannie Bay for the Reserve Bank, houses for the Commonwealth Housing Commission and the Department of Transport and Works. He also did work for private individuals including Savvas Motors on the corner of Daly and Smith Street.

[20] By December 1994 the company had built between 200-300 houses. In the period immediately before the cyclone in December 1974, the company's annual turnover was approximately $5-$7 million.

[21] At the date of the cyclone in December 1974, Colleen was expecting their first child and was subsequently evacuated to Brisbane. From February 1975 to September 1975, Mr Milatos was involved in the construction and clean up work in Darwin. He built 40 houses in about 20 weeks. From that time, up to about 1980, he built between 100 and 200 homes every year. These were almost exclusively government contracts. In 1976 Mr Milatos had established a business called Territory Timber and Hardware. This business imported timber, which was mainly frames for elevated houses, that were on sold to Milatos Constructions and other builders. Mr Milatos sold his interest in Territory Timber and Hardware in 1979 to a Perth based business. In 1977 he commenced building the Nightcliff Sports Complex. This included a 16 lane indoor bowling alley, eight squash courts, a restaurant, a crèche facility, snack bar and offices. This is shown in photographs MP13-MP15 which forms part of Exhibit P6A. The facility opened in September/October 1977.

[22] The second stage involved the first roller skating rink American style disco. In addition there were two health studios, a hairdressing salon and a sportsman's bar. This stage opened about mid July 1978. This project cost approximately $2 million. Finance was obtained through Westpac and subsequently from Tricontinental which was associated with the State Bank of Victoria.

[23] In 1979-80, Mr Milatos purchased a property next to the sports complex and built the Phoenix Hotel, a semi resort style hotel which opened in late 1980. A photograph of this project is MP9 in Exhibit P6A. The complex contained 60 rooms, a restaurant for 120 people, conference facilities for 70-80 people and associated other facilities. The whole project cost $1.7-$1.8 million. It was originally financed through the development corporation, a government initiated body, and then refinanced with Tricontinental. During this time Mr Milatos had also incorporated two other businesses, Winnellie Windows and Winnellie Steelworks. They were closed down in the early 1980s because it became cheaper to engage external subcontractors.

[24] Other projects undertaken by Mr Milatos included the NT News premises in Mitchell Street (MP11) and the family residence in Allen Street, Fannie Bay (MP62). He continued to build government houses up until the mid 1980s when this work ceased. Between 1981-84, Mr Milatos built three major roller skating rinks in Perth. They were sold in 1984-85. Mr Milatos described some of the other building developments with which Milatos Constructions were involved during the early 1980s. These included staff quarters for Barclay Constructions, 20 houses in the Northlakes Estate which were leased out to the armed forces, over 400 units and townhouses for the Northern Territory Housing Commission in Nightcliff, Palmerston and Wanguri and quarters for airmen at the RAAF Base. Photographs MP67-MP79 depict various housing commission projects completed during the early 1980s.

[25] In about July 1985 the company commenced building Enterprise House. The building consisted of 30 car parking bays, and above that two floors of approximately 1300 square metres per floor (MP16 and MP17). This project cost approximately $1.7 million. Again finance was obtained through Tricontinental (tp 322).

[26] In 1986, Milatos Constructions was involved in building a cinema complex at Casuarina and commenced to build the Harbour View Plaza. The approximate cost of construction of the Harbour View Plaza was $10 million. It consisted of a multi storey building with an underground carpark and approximately 5000-6000 square metres of area for lease. The greater part of it was leased to the Northern Territory Government. It was completed in November 1987. This was their first high rise construction. Mr Milatos described some of the other projects he looked into including the Bayview Estate and a hotel in The Gardens. The latter project became very controversial and attracted protest meetings and other conflict situations, some of which Colleen Milatos was confronted with. Mr Milatos abandoned this project.

[27] In 1989 Tricontinental and the parent company, The State Bank of Victoria, went into liquidation. Tricontinental called in their loan to Milatos Constructions. George and Colleen Milatos were involved in attempting to refinance the loan or alternatively to sell the building. Mr Milatos, and his solicitor Nicholas Mitaros, travelled overseas in an effort to raise money to salvage the project. These efforts were to no avail. Milatos Constructions was placed in liquidation in about mid 1992. George and Michael Milatos were forced to sell their personal homes and other assets to pay the debts. The two families were forced to share their parents home.

[28] George Milatos borrowed money from his father and commenced building a property at Bayview. He was involved in building five town houses at Stoddart Drive, Bayview, two were sold and three were retained (MP95). Mr Milatos gave evidence of other building projects at Bayview that he constructed. Within a few months of this time Mr Milatos started up the company called Australian Transportable Homes. He established a yard at Berrimah where houses were constructed and subsequently transported to remote localities around Darwin, MP19 and MP26 are two photos which are examples of the buildings constructed by Australian Transportable Homes.

[29] About 1994-95, Mr Milatos commenced looking at the possibility of developing a project at Manton Dam. He decided against this because of the many regulatory requirements that affected the property. Following this Mr Milatos turned to look at the potential for development at Lake Bennett.

[30] During the early years of their marriage, Colleen Milatos was engaged in caring for their three sons. In 1987 Colleen Milatos obtained a certificate as a real estate agents representative. She obtained employment in this capacity. In about 1988-89 Colleen Milatos set up her own business under the name Commercial and General Realty. Following the merger with another business it later became known as Nova National Realty. The business operated from the ground floor of the Harbour View Plaza which had been constructed by Milatos Constructions. Colleen Milatos was very involved in the efforts to salvage the company, Milatos Constructions, following the collapse of their financiers.

[31] Some years prior to this, approximately 1986-87, Colleen Milatos had taken their children on a camping trip to Lake Bennett. She had told her husband about her experience there. She was subsequently in favour of developing Lake Bennett, particularly as she believed there was no government involvement in the property and they could acquire freehold land. Details of later relevant events in their history, and their respective roles in the development of Lake Bennett, are given under the headings relating to the history of Lake Bennett.

[12]

[32] In January 1996 George Milatos was approached by David Shoobridge, who had a property known as Lake Bennett for sale. Mr Milatos visited Lake Bennett. He drove around and took a dinghy ride around the lake. He was informed by Mr Shoobridge that the road was public and there were 6 to 8 metre easements around either side of the road. Mr Shoobridge informed him the boundaries were between 5 to 100 metres from the waters edge. He advised Mr Milatos that he had given 11 people legal access to the lake and explained there were other properties that adjoined his property. Mr Shoobridge offered Mr Milatos Sections 95, 101, 103, 104, 106, 108, 110 and 152. Section 152 was later divided into Sections 245 and 244. Mr Milatos indicated that he was only interested in Section 152, the lake and its shores. Exhibit P4 contains a number of maps, diagrams and photographs. Document 3 is titled "Lake Bennett Topography", the marks with yellow highlighter are dry land. The fourth document in that exhibit shows Lake Bennett, Section 244 is the land around the foreshore and Section 245 is the lake. Mr Shoobridge provided Mr Milatos with a number of documents concerning Lake Bennett which are Exhibit P7. This included the background to the location of Lake Bennett together with possible development, prior sales and details of Section 152 with existing improvement. Mr Milatos asked Mr Shoobridge for a 90 day option. Mr Shoobridge promised to get back to him if he agreed to give Mr Milatos an option.

[33] Prior to seeking legal advice, Mr Milatos, on his own evidence, states he consulted Kevin Dodd at Earl James and Associates, licensed surveyors. Mr Milatos gave evidence that on 5 February 1996 he wrote to Mr Dodd regarding his plans for Lake Bennett as a residential and resort development (Exhibit D37). In that letter, Mr Milatos sought advice from Mr Dodd as to how he could best achieve his goal.

[34] On 5 March 1996, Mr Dodd of Earl James & Associates wrote a letter to Mr Milatos in which he proffered advice on a number of matters. This letter is Exhibit D38. The most pertinent matters addressed by Mr Dodd concerning the proposed development of Lake Bennett, were as follows:

That a number of adjoining sections have a registered recreational easement over Section 152 which contains the actual lake.

These easements allow each of the sections to enjoy the use of the lake.

That to make Nazime's other properties more attractive it may be an advantage to also grant them recreational easements over Section 152.

[35] Mr Dodd then outlined two possible options. He described the first and simplest option to involve carrying out a unit title subdivision on one or more of the properties owned by Nazime. He then referred to the construction of one and two bedroom units and the factors to take into consideration if this option were to proceed.

[36] Option 2 involved using the Estate Development section (Part IVB) of the Unit Titles Act. He then explained the requirements if this option were to proceed. The letter concluded as follows (Exhibit D38 p3):

[20]

[37] In March 1996, Mr Milatos commissioned Craig Tarbottom who prepared schematic drawings of cabins Mr Milatos proposed to build around the foreshore (Exhibit P8).

[38] On 25 March 1996, Mr Milatos consulted Nicholas Mitaros, then a managing partner in the legal firm of Clayton Utz. Mr Milatos gave evidence he took with him plans and computer drawings prepared by his architectural draftsman, Mr Tarbottom (Exhibit P8) and also the documents that Mr Shoobridge gave him (Exhibit P7). Mr Milatos gave Mr Mitaros an outline of his plans for the block, including his proposal to build small air-conditioned waterfront cabins as weekenders. He spoke of his ideas about building a resort type development with a golf course. Mr Milatos advised Mr Mitaros that his initial plans were to build 16 cabins on the northern side, if he was successful in selling these then he would build on the eastern side. Mr Milatos stated he wanted Mr Mitaros to prepare a 90 day option to allow the "due diligent checks" to be done and sort out all the legal issues. Mr Milatos advised Mr Mitaros he would be requiring him to later work on a sale agreement and to act for him on the conveyance of the various units. Mr Milatos did not specifically ask that a title search of the land be done. There was no discussion between them at this meeting concerning the recreational easements. The volumes that make up Exhibit P5 are the plaintiffs' copy of the Clayton Utz file in this matter.

[39] From the evidence of Mr Milatos and the Clayton Utz file, Mr Mitaros was to prepare an option to purchase agreement. This was to enable Mr Milatos to carry out a test of the market for cabins. Cabins were to be installed and offered for sale, with the cooperation of the vendor, Nazime. The option to purchase would be exercised if there was a favourable market response. Mr Mitaros was to prepare standard cabin sales contracts and do the conveyancing of cabins if the option was exercised. Provisions were also made for Mr Mitaros to stage a unit title development. In addition Mr Mitaros was to draw an investor-lender agreement to enable Mr Milatos to raise working capital loans.

[40] On 26 March 1996, Mr Mitaros obtained a title search of Section 152. He did not order a search of the 11 recreational easements that were registered on the land. There is no evidence he read these easements. On the same date Mr Mitaros opened a file under the name "Milatos, George re Lake Bennett Proposal".

[41] Mr Mitaros prepared the option agreement which Mr Milatos collected from the receptionist at Clayton Utz on or about 8 April 1996. The nominated purchaser was Anadyr.

[42] Volume 3 of Exhibit P5 includes copies of a number of discovered documents from the Clayton Utz file. Pages 1-3 is a file note headed "Milatos - 25.3.96. Lot 152 - Lake Title". There are a number of notations including the following: "Total feasibility study to construct 100-150 bungalows strata titled units around waters edge of lake". At the foot of page 1 and at the top of page 2 appears the following notation "plus 1 commercial block (eight hectare block-shop and sporting facilities) complete feasibility in 90 days".

[43] On 22 April 1996, Mr Milatos wrote a letter to Mr Shoobridge, copy of which is Exhibit P39. In this letter, Mr Milatos agrees to the "granting of legal recreational access to the other lots (95, 97, 99, 100, 108 and 110) as per your requirements ...". He further agreed to the subdivision of those lots on certain conditions. Mr Milatos stated that no payments of monthly interest would be made during the investigation period. Reference was then made to the purchase price of $630,000. Mr Milatos indicated that his company was not prepared to make full payment at the time of exercising the option to purchase. Mr Milatos then put forward various alternate proposals for payment of the purchase price that involved utilising financial assistance for the project from Mr Shoobridge. This letter was forwarded by Mr Milatos without input from Mr Mitaros. There is no evidence Mr Milatos consulted Mr Mitaros before forwarding the letter. There is a copy of this letter discovered on the plaintiffs' copy of the Clayton Utz file (Exhibit P5 Vol 3 pp17-18).

[44] On 23 April 1996, Mr Shoobridge replied to Mr Milatos' letter of 22 April 1996, copy of which is at Exhibit P5 Vol 3 pp20-21. Mr Shoobridge confirmed a number of matters:

Nazime grants to Anadyr the exclusive right of investigation into the project for a period of 120 days.

In the event of Anadyr deciding to exercise its option during the investigation period, then certain arrangements for payment would apply which included an option to pay the full purchase price by a certain date or alternately with Nazime holding a first mortgage over the land with a time limit for payment in full and interest to be paid on the amount of the mortgage.

There were other conditions relating to payment of the purchase price and the rights of Nazime to be able to continue to trade and an acknowledgement as to the speculative nature of the project.

[45] On 7 May 1996, Morgan Buckley, as solicitors for Nazime, forwarded a letter to Clayton Utz, copy of which is at Exhibit P5 Vol 3 pp24-25. This letter confirms the purchase price for the Lake Bennett property as $630,000 and sets out how, and over what period, this amount should be paid. The final clause under the heading "Terms of the agreement" is as follows: (Exhibit P5 Vol 3 p25)

[36]

[53] On 6 June 1996, Mr Mitaros forwarded a letter to Mr Milatos in which Mr Mitaros noted that Mr Milatos had arranged directly with Nazime for the execution and exchange of documentation in respect of the Lake Bennett proposal.

[54] Enclosed with this letter was an account for services provided to the end of May 1996. This account included a disbursement in the sum of $27 for a land titles search. Copy of this letter and the account are at Exhibit P5 Vol 3 pp55-56.

[55] At pp57-58 of Exhibit P5 Vol 3, is a copy of a letter from Mr Milatos to Mr Mitaros dated 6 June 1996 in which Mr Milatos offers Mr Mitaros an opportunity to become a private investor in the Lake Bennett development. Mr Milatos also outlined his plans to raise and expend the funds he received. He asked Mr Mitaros to draw up a contract of sale so they could start signing up purchasers and a contract document for those who choose to become initial investors.

[56] In June 1996, Mr Milatos attended a meeting which included Kevin Dodd and Phil Timney. The strata title development proposed for Lake Bennett was discussed. It is Mr Milatos' understanding that Mr Timney stated that the development did not require the consent of the easement holders as it did not block access to the lake.

[57] On 11 June 1996, Mr Timney forwarded a fax addressed to "Mr George Mitaros" (presumably meaning Mr George Milatos) attaching copy of a letter from Mr Timney to Mr Dodd noting Mr Dodd's advice that the Planning Authority had no problems with the proposed development (Exhibit D44). Mr Timney also stated that from a registration point of view he could see no difficulties with the proposal as put forward "subject of course to the normal consents". He also noted the body corporate will need to make an application for re-subdivision relating to the creation of more units.

[58] In his evidence under cross examination, Mr Milatos stated that the meeting referred to above, and the subsequent letter, had set his mind at rest in regards to the issue of needing the consent of other land owners to the development, and that he did not ask Mr Mitaros for advice on this issue.

[59] On 4 July 1996, Mr Mitaros noted in the Clayton Utz file that he had received instructions from Mr Milatos regarding documentation for the investors providing working capital, that Mr Milatos needed 20 sales for it to go ahead and the requirement for a prudency clause (Exhibit P5 Vol 3 p61).

[60] On 9 July 1996, Mr Milatos wrote to Mr Mitaros advising the names of four people who wished to proceed to contract on the $100,000 investment proposition (Exhibit P5 Vol 3 p64). Also on that date, Mr Mitaros prepared a draft agreement for the initial seven investors (Exhibit P5 Vol 3 p63).

[61] On 18 July 1996, Mr Mitaros took instructions from Mr Milatos concerning a model standard contract of sale for the cabins. On the same date Mr Mitaros finalised a model standard contract of sale for the conveyance of cabins and provided this to Mr Milatos (Exhibit P5 Vol 3 pp79-80).

[62] Late in July 1996, George and Colleen Milatos conducted an open day at Lake Bennett. Mr Mitaros attended the open day. He advised Mr Milatos he would not invest in the project. Mr Mitaros was asked to draw up deeds of loan agreement for those who had expressed interest in purchasing units. Seven orders were taken on that date.

[63] On 1 August 1996, Mr Mitaros forwarded a letter to Mr Milatos noting that Mr Milatos had collected four of the loan deeds and also the standard contract for purchase of units at Lake Bennett by members of the general public. Enclosed was an account for professional services to the end of July 1996. Copy of the letter and statement of account are at Exhibit P5 Vol 3 pp120-121.

[64] Mr Milatos gave evidence that by August 1996 at least four or five purchasers for the units had signed up. Mr Milatos gave further evidence he had been approached by Mr Shoobridge in August 1996 about selling an access easement to "one of the Scarton brothers for $5,000". Mr Milatos met with Mr Shoobridge who provided him with a copy of the easement he was trying to sell. Mr Milatos instructed his secretary to forward this to Mr Mitaros and ask him whether there were any legal issues regarding this. The deed had a clause to be signed by Anadyr that reads as follows:

[42]

[71] Mr Milatos gave evidence concerning a meeting he had with the easement holders, the Coomalie Council and Mr Shoobridge. He stated that at this meeting, concerns were raised with him about the development blocking access to the lake. It is Mr Milatos' evidence that at that meeting he agreed to give the easement holders a 10 metre easement corridor in front of each of their blocks of land to ensure they would continue to have access to the lake. Mr Milatos gave further evidence that two days later he informed Mr Mitaros by telephone of this meeting.

[72] On 9 September 1996, Mr Milatos wrote to Mr Mitaros asking for advice about an interest expressed by Power and Water in Lake Bennett. The following day Mr Mitaros advised Mr Milatos verbally about the authority of Power and Water over the lake (Exhibit P5 Vol 3 pp136-144).

[73] On 11 September 1996, Earl James & Associates lodged an application to the Minister, on behalf of Nazime and City Developments, for approval to subdivide Section 152 into two separate parcels. This was to create two separate parcels with individual titles respectively for:

the lake together with the resort site as one title to become known as Section 245; and

for the land comprising the site for the proposed unit title subdivision for holiday cabins to become known as Section 244.

[74] On 12 September 1996, Mr Mitaros received instructions from Mr Milatos that Mr Milatos intended to exercise the option and was awaiting approval from the vendor's bank.

[75] On 14 September 1996, Mr Mitaros handed the Clayton Utz file in this matter over to Guy Riley who was then a solicitor and partner in the firm of Clayton Utz. Mr Riley had commenced working for Phillip and Mitaros in 1992. This firm later merged into Clayton Utz. Mr Riley's work was mainly commercial, conveyancing, leases and business sales. He had not previously been involved in the registration of a units plan. When Mr Riley received the file from Mr Mitaros, he made an assumption that Mr Mitaros had already given Mr Milatos competent and proper advice about the easements.

[76] On 17 September 1996, Mr Riley made a file note (Exhibit P5 Vol 4 p148) concerning financial arrangements to be made relevant to the option agreement and noting that Mr Milatos did not have finance confirmed but was looking to exercise the option.

[77] On 18 September 1996, Mr Riley received a letter from Ray Grimshaw, accountant for Mr Milatos, advising of the establishment of a discretionary trust and stating the names of the entities in respect of the Lake Bennett development (Exhibit P5 Vol 4 pp149-150). Mr Riley subsequently prepared the trust deed in accordance with these instructions.

[78] On 19 September 1996, Mr Milatos forwarded a letter to Bill Martin, one of the easement holders, a copy of which is Exhibit D52. In this letter he confirms his verbal promise made at the meeting of 3 September 1996 that:

[45]

[79] On 7 October 1996, Mr Riley telephoned Pam Waudby, secretary to Mr Milatos (Exhibit P5 Vol 4 p155), seeking advice as to when the option was exercised. Mr Riley also had a telephone conversation with Mr Milatos (Exhibit P5 Vol 4 p154) regarding the exercise of the option. Mr Milatos advised Mr Riley that he had purported to exercise the option. Mr Riley discovered that Mr Milatos had served notice of the exercise of the option on Nazime's bank and not on Nazime. Mr Riley advised Mr Milatos that was not a proper exercise of the option and that notice had to be given to Nazime. There was also discussion with Mr Milatos about the date of execution of the option as Mr Riley wanted to make sure that the trust deed was dated before the exercise of the option because they were buying the land in their capacity as trustee.

[80] Mr Milatos gave evidence under cross examination that on 9 October 1996 he had a meeting at the Land Titles Office with Mr Timney, Mr Dodd, Ms Fleay and Mr Buckle. At this meeting Mr Milatos provided documents regarding the subdivision.

[81] On 7 October 1996, Mr Milatos took possession of Lake Bennett. Work commenced on the services for 16 cabins. Mr Riley gave evidence that he was not aware that Mr Milatos had taken possession to the exclusion of Mr Shoobridge. He further stated that Mr Milatos did not ask him for advice relating to taking possession or preparing a licence agreement between Mr Milatos and Mr Shoobridge. Mr Milatos gave evidence in cross examination that Anadyr sold Enterprise House which it owned. The holding in Anadyr was split 60/40 between George and Michael Milatos. The whole of the proceeds of the sale of Enterprise House being $263,000 was put into Lake Bennett, including Michael Milatos' share of the proceeds. This was done by way of an unwritten agreement between George and Michael Milatos.

[82] In October 1996, Colleen Milatos commenced working in the gardens around the resort. She and George moved into a house about one month later to live at Lake Bennett. In 1997 buildings were renovated into a commercial centre.

[83] On 16 October 1996, Mr Mitaros was due back in the office. Mr Riley handed the file back to Mr Mitaros but Mr Mitaros said that Mr Riley could keep the file. Mr Riley and Mr Mitaros did not have any other discussion about the history of the file at this time.

[84] On 18 October 1996, Mr Riley spoke with Mr Milatos and Mr Grimshaw who both advised him "it is going to be City Developments not Anadyr". Mr Grimshaw advised Mr Riley to "prepare a Deed getting rid of City Developments as a beneficiary. Because at present under the terms of the trust it is disqualified from acting as trustee. He will arrange for the appointment of the City Developments as trustee" - see Exhibit P5 Vol 4 pp157-158.

[85] On 23 October 1996, Mr Riley wrote a letter to Mr Milatos with respect to the change of name from Anadyr to City Developments and gave advice concerning his understanding that the option had not been formally exercised, the liability for payment of stamp duty and the questionable validity of contracts when the vendor purporting to sell does not own the land (Exhibit P5 Vol 4 pp160-161). He further advised that one step that must be completed before the exercise of the option, was the change of trustee and before the trustee could be changed it was necessary to vary the terms of the Trust Deed to exclude City Developments as a beneficiary. Mr Riley then provided further advice about the ramifications of disclosing the Trust (Lake Bennett Trust) to prospective purchasers.

[86] On 4 November 1996, Mr Shoobridge on behalf of Nazime wrote a letter to Mr Milatos, City Developments (Exhibit D77). This letter referred to discussions on 31 October 1996 regarding purchase arrangements of Lake Bennett under the deed of agreement dated 10 May 1996.

[87] This letter set out the detailed arrangements to be entered into for payment of the purchase price, that Nazime would cease trading at Lake Bennett on 7 October 1996 to allow redevelopment to commence and concluded with the statement that the foregoing was subject to a further legal agreement being entered into.

[88] On 14 November 1996, a development permit was issued with respect to Section 152 on behalf of the Minister for Lands, Planning and Environment. This permit noted that consent was granted pursuant to Section 52(1)(a)(i) of the Planning Act 1994 (NT) for the purpose of creating two lots, subject to the conditions in the schedule and for the reasons set out in the attached statement of reasons. The two lots referred to were Lot A the foreshore and Lot B the lake. Condition 6 in the Schedule of Conditions provided that (Exhibit D54):

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[89] Mr Milatos gave evidence that in November 1996 he told the Scartons he would not sell them the part of the lake directly in front of Sections 92 and 93. An interim development control order applied to the Lake Bennett area. Mr Mitaros referred Mr Milatos to Annette McKenzie (within Clayton Utz) to deal with this issue. Mr Milatos gave evidence that he dealt with Mr Riley concerning the option agreement and the re-signing of the option agreement. Mr Riley advised Mr Milatos that stamp duty was payable within 30 days of the option agreement being signed. Mr Milatos was not in a position to pay the stamp duty. Mr Riley provided Mr Milatos with assistance to delay signing of the option agreement. Subsequently Mr Riley wrote to the stamp duties office on behalf of Mr Milatos in an effort to avoid payment for a double transfer of property.

[90] Mr Milatos gave evidence that in December 1996 the final option agreement was signed as extended by himself and Mr Shoobridge. He gave evidence under cross examination that he did not have the money to finance this and raised $300,000 from other investors to finance the project. Following the subdivision of Section 152 into two lots, Mr Milatos did have a discussion with Mr Riley concerning the easements, but only in relation to granting access to the lake.

[91] On 8 November 1996, there are file notes on the Clayton Utz file (Exhibit P5 Vol 4 pp167-168) concerning problems that had arisen because of the interim development control orders and that there was nothing Mr Milatos could do about this.

[92] During this time Mr Riley was preparing contracts for orders that had been taken for cabins at Lake Bennett.

[93] Mr Milatos gave detailed evidence concerning his expenditure on the property in December 1996, which included eight cabins purchased from Australian Transportable Homes at a cost of $35,000-$45,000 per cabin. The cost of transportation and installation of footings was $5,000-$6,000 per building and other costs included landscaping, reticulation costs, agents' commission and legal fees. By Christmas 1996, Mr Milatos had completed services for 16 cabins including sewerage, septic tanks, pumps, electrical reticulation, water and a service road which finally estimated at $9,000 per unit with a connection of approximately $2,000 per unit and incidentals including surveyor's fees. By this time Mr Milatos, through his company City Developments, had also expended several hundred thousand dollars on Lake Bennett. He did not have security of title. The amount of $300,000 was raised from investors and the sum of $400,000 was from his own funds including money he received through the sale of Enterprise House by Anadyr.

[94] On 12 December 1996, there was a grant of easement to the Scartons in respect of Section 92. This grant of easement to Section 92 was registered on 18 December 1996 (Exhibit P5 Vol 4). Mr Riley was not aware at this time that Mr Quinn, in the office of Clayton Utz, was acting on behalf of the Scartons.

[95] On 17 December 1996, Mr Riley prepared a form of notice for the exercise of the option to purchase Section 152 as contained in the agreement dated 10 May 1996 (Exhibit P5 Vol 4). On the same date, City Developments gave to the vendor, Nazime, notice of exercising the option to purchase Section 152.

[96] On 20 December 1996, a development permit issued by the Minister for Lands, Planning and Environment pursuant to s 52(1)(a)(i) of the Planning Act, for the purpose of building 90 holiday bungalows in eight stages on Lot A (which was to become Section 244) subject to the condition in the schedule and for the reasons set out in the statement of reasons (Exhibit D55). This permit was necessary to enable Mr Milatos to submit a disclosure statement under the Unit Titles Act to enable City Developments to carry out a condominium development of Section 244 to achieve the sale of cabins in stages under the Unit Titles Act. On the same date a disclosure statement was prepared by City Developments in the name of and executed by Nazime (Exhibit P55).

[97] On 23 December 1996, Mr Dodd from Earl James & Associates, forwarded a facsimile to Mr Milatos concerning the reluctance of Coomalie Council to grant approval to the two lot subdivision because suitable access ways to the two properties have not been constructed. Mr Dodd suggested options to overcome the problem (Exhibit D76).

[98] Mr Milatos completed construction of the first eight cabins and instructed his surveyor to apply for title.

[99] On 30 December 1996, Mr Milatos replied to Mr Dodd advising that he had written to the Coomalie Council outlining certain guarantees and instructing Mr Dodd to lodge the subdivision plan with the Registrar-General, the plan for strata titling and the disclosure statement forthwith, on the basis that approval from the Commonwealth Development Bank would be forthcoming within the next few days (Exhibit D76).

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[100] During December 1996 and January 1997, Mr Riley corresponded with the stamp duties office concerning stamp duty ramifications with respect to the Lake Bennett development (Exhibit P5 Vol 4 pp177-178, 180-182).

[101] On 10 January 1997, there was a variation to the development permit issued on 20 December 1996 with an additional condition requiring compliance with the disclosure statement (Exhibit D55).

[102] On 15 January 1997, Mr Dodd signed an application for a condominium development on Section 244.

[103] On 23 January 1997, Mr Milatos' surveyor completed and submitted for approval the proposed units plan 97/26 for the first eight cabins and the subsequent issue of titles.

[104] On 30 January 1997, there was a further variation to the development permit DPM 96/0048B for the purpose of 80 holiday bungalows in 19 stages (Exhibit D55).

[105] On 3 February 1997, the subdivision of Section 152 into Sections 244 and 245 was registered.

[106] On 5 February 1997, Mr Dodd wrote to Mr Milatos advising him about "some of the possible shortfalls of taking the condominium development path" (Exhibit D53).

[107] On 11 February 1997, Nazime granted recreational easement 369268 to Section 244 for the benefit of purchasers in unit plan 97/26 in substantially similar terms to the form of the original recreational easements in accordance with the subdivision approval.

[108] On 17 February 1997, Mr Riley received a letter (Exhibit P5 Vol 4 p183) from Morgan Buckley, solicitors for Nazime. The letter enclosed a contract of sale for Sections 244 and 245 Lake Bennett. This letter noted that Mr Milatos had been in possession of Section 152 and had been carrying out development works for some considerable time. The letter noted Mr Milatos had been paying, by way of licence fee, the interest payments due on the loan Nazime had from the Commonwealth Development Bank. The letter advised that the contract for sale contained the provisions as set out in the letter from Mr Shoobridge to Mr Milatos dated 4 November 1996. Mr Riley gave evidence he believed the draft contract he was sent by Morgan Buckley contained a condition requiring the grant of the recreational easements to the vendor. Mr Riley agreed in cross examination that at this time he could have taken the whole thing back to the start but that the difficulty was that Mr Milatos was completely committed and he needed the settlement to go through as quickly as possible so that the money would come in.

[109] On 20 February 1997, Mr Riley faxed the contract of sale to Mr Milatos who instructed Mr Riley to check his recreational rights and make sure that it was limited to Mr Shoobridge and his family. Mr Riley was not aware until later in February 1997 of the meeting Mr Milatos had held with the easement holders on 3 September 1996 or the proposal to grant 10 metre wide access strips to each of the easement holders.

[110] On 21 February 1997, Mr Riley obtained a copy of one of the recreational easements. Mr Riley read it on 24 February 1997 and requested a copy of Waterworks Licence 363 referred to therein. Copy of the easement received is at Exhibit P5 Vol 4 pp193-194. It is the easement in respect of Section 103, registered easement Land Titles Office number 307087 and reads as follows at p194:

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[112] Exhibit P5 Vol 4 pp203-204 contains Mr Riley's notes of a conversation he had with Mr Milatos on 27 February 1997 concerning the impending settlement of the purchase of Lake Bennett and the sale of the first eight cabins for which contracts had been signed. There was a discussion about the contract of sale attached to the letter from Morgan Buckley. There is reference to the recreational easements and the granting of easements adjacent to the block of land (minimum 10 metres). There is no reference to any advice about the true effect of the easements or that they were an impediment to building on the land at Lake Bennett.

[113] On 28 February 1997, Mr Riley had a meeting with Janet Terry of Morgan Buckley (Exhibit P5 Vol 4 p201). Mr Riley believed at this time that the easements were a potential problem because the rights which people enjoyed over the land were not specified to defined corridors and therefore any building development works upon those lands were arguably inconsistent with the rights of the easement holders. Mr Riley was under the misapprehension that the easement holders rights over the land areas were access rights and that they had the right to pass and repass freely over the land for the purpose of exercising their recreation rights over the lake. Mr Riley agreed in cross examination that his reading of the easements was wrong. His initial concern had been the complete lack of a plan specifying the easement area. His belief was that the easements could apply to the whole of the land which in turn led to his concern that any building on the land could incur the risk of impeding the access rights granted. Mr Riley gave evidence that he had a conversation with Mr Milatos and told him that the unspecified easements were inconsistent with Mr Milatos' ability to develop the land. There is no file note on the Clayton Utz file concerning this conversation. The advice is not contained in a letter from Mr Riley to Mr Milatos and there is no record of such conversation in the time cost records. Mr Riley gave evidence he believed it was at this time Mr Milatos told him about the meeting with the easement holders and assured Mr Riley it was not a problem as Mr Milatos had agreed to give them 10 metre access strips.

[114] Mr Riley did agree in cross examination that after he had read one of the easements he arranged to have Mr Milatos committed to a purchase where these easements presented a risk for the development that was to follow the purchase. Mr Riley gave evidence that at that time he felt Mr Milatos was culpable for actually commencing a development under an option agreement. Mr Riley agreed in cross examination that this was his approach all through 1997 and that this was the wrong approach. Throughout 1997, Mr Riley's approach had been that Mr Milatos was foolish to have commenced building before the option was exercised. Mr Riley stated he considered he was managing a commercial risk. He agreed that because there was a legal risk it had the potential to impact upon the commercial aspect of the deal.

[115] In February 1997, Colleen and George Milatos sold unit 3/51 Stoddart Drive, Bayview Haven to raise working capital for the Lake Bennett project and moved to live permanently at Lake Bennett. From this date, Colleen Milatos took over management of the resort supervising renovations and preparing for the opening of the resort. Mr Milatos stated in cross examination that the unit sold for $234,375. From this amount, $150,000 was paid to the ANZ Bank residential loan and the balance put into the Lake Bennett development.

[116] Mr Milatos gave evidence that during January and February of 1997, Mr Dodd prepared the disclosure statement. Mr Milatos states during this time he commenced services for the resort building including sewerage installations, septic tanks, electrical reticulation, which cost approximately $150,000. He gave further evidence that he had discussions with Mr Riley concerning the easements registered on the title for Section 244. There was a meeting between Mr Riley, Mr Dodd and Mr Milatos.

[117] On 3 March 1997, the units plan was registered by the Registrar-General for Section 244.

[118] On 3 March 1997, Mr Milatos wrote to Mr Riley (Exhibit P5 Vol 4 p207). In this letter the first three paragraphs read as follows:

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[119] The letter goes on to refer to the meeting Mr Milatos had with the easement holders in September 1996. At that meeting Mr Milatos had promised to give them all a 10 metre personal recreational easement in front of each of their blocks of land. Mr Milatos developed that proposal further in this letter and sought Mr Riley's advice about the legal terms that should be used in seeking an extinguishment of the present easement and granting a new private easement of 10 metres in front of each block. He then made reference in the letter to his inclination to proceed to obtain the first eight titles immediately from the Land Titles Office, proceed to settlement with the purchasers and deal with each individual purchaser who may raise the issue of the easement registered on their title.

[120] On 3 March 1997, Mr Milatos forwarded a facsimile to Esanda Finance ("Esanda") proposing that Esanda take over the mortgage on Section 244 (Exhibit D60). He attached a copy of his letter to Mr Riley of the same date.

[121] On 3 March 1997, there was a meeting between Mr Milatos, Mr Riley and Mr Dodd. Mr Riley had earlier spoken with Ms Waudby who advised Mr Riley that because of Mr Milatos' difficult financial circumstances, settlements had to go through as quickly as possible. A file note of this meeting prepared by Mr Riley is at Exhibit P5 Vol 4 pp209-210. The file note records there was a discussion between them about the easements and notes the agreed solution. Mr Riley was to prepare a letter to the various easement holders proposing an exchange of their existing easements for a more specific easement delineating, a 10 metre access strip in each case. Mr Riley gave evidence that at this meeting the purpose was to give advice to Mr Milatos that these easements exist and the effect of them, that they should have been dealt with before the exercise of the option and that Mr Milatos should have been told about them before. Mr Riley gave evidence under cross examination that throughout 1997 he still believed it was his client's foolishness in developing the land before acquiring titles to the property rather than any omission on the part of the lawyers that was the cause of the problem.

[122] Under cross examination Mr Riley agrees that there is no mention in his file note of 3 March 1997 that he advised Mr Milatos of the threat to development of the land or indeed any constraints on building on the land. Mr Riley agreed that he realised that Mr Milatos had exercised the option and he had been given an opportunity to get out of the contract attached to the option by the vendor's solicitors. Mr Riley gave evidence that he had carefully explained all of this to Mr Milatos at the meeting on 3 March 1997 and that Mr Milatos had instructed him to go ahead as he subsequently did. Mr Riley agrees there is no reference to this advice in the file note of 3 March 1997. Nor was there any letter to Mr Milatos stating this advice.

[123] Mr Riley gave evidence that it was obvious to him from their meeting on 3 March 1997 that Mr Mitaros had not given any advice to Mr Milatos about the easements. Mr Milatos' knowledge of the easements appeared to stem from his discussions with the easement holders and Mr Shoobridge.

[124] Mr Riley agreed that at that time, Clause 1.3 in the cabin contracts (Exhibit P5 Vol 3 p118) would have enabled City Developments a way out of the contract as it was made conditional upon the issue of titles. It is Mr Riley's evidence that his concern at the time was whether or not Mr Milatos was bound by the other contract, not the cabin contracts.

[125] Following the registration of the units plan of subdivision on 3 March 1997, Mr Riley had a conversation with Mr Milatos regarding some of the individual sales of units.

[126] On 5 March 1997, Mr Riley drafted two letters, one to the owners adjacent to Section 244 (Exhibit P5 Vol 4 pp212-213) and one to the owners adjacent to Section 245 (Exhibit P5 Vol 4 pp214-215).

[127] The first draft letter explained the need to specify where the owners could cross over Sections 244 and 245 to get to the lake, as the present easements did not define this. Enclosed were documents to be signed by the land owners. These included an extinguishment of their present easement, a replacement easement and a second easement to grant the land owner a right of access over eight 10 metre corridors across Section 244. The concluding two paragraphs read as follows (Exhibit P5 Vol 4 p213):

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[128] The second draft was in similar terms with appropriate adjustment for the owners of property adjacent to Section 245 (Exhibit P5 Vol 4 pp214-215). Mr Riley agreed in cross examination that the whole focus of these letters was about access, there was no mention of any restraint to the development.

[129] A facsimile from Mr Milatos' secretary dated, 5 March 1997, was forwarded to Mr Riley indicating the draft letters were fine, sending a list of easement holders and arranging to pick up the letters by 9.00am the following day (Exhibit P5 Vol 4 pp217-219). These letters were dated 6 March 1997. Copies of the letter which were forwarded to some of the easement holders, appear at Exhibit P5 Vol 4 pp221-226. Conditions appear at pp227-228. The conditions were attached to the letters that were sent.

[130] Two replies to these letters were received on 11 March 1997 and appear at pp268-273. The Catholic Church rejected the proposal and a reply on behalf of Mr Nash sought to have an amendment to the position of the right of way. On 11 March 1997, Mr Riley made a note in the file (Exhibit P5 Vol 4 p267) about a discussion with Mr Milatos about these two letters. There was no note recognising or advising that the recreational easements were an impediment to building.

[131] On 6 March 1997, Mr Milatos wrote to Mr Riley listing the first seven units to be sold. Mr Riley was to act for him on the conveyances. Mr Milatos stressed the urgency for settlement. Mr Riley gave evidence that Mr Milatos was desperate for money at this time.

[132] During the course of the next few days, Mr Riley had contact with a number of the easement holders and also with the solicitors for the vendor concerning the contract of sale.

[133] Mr Riley gave evidence that on 19 March 1997 he first sighted the executed copy of the option deed and the notice of the exercise of the option.

[134] On 20 March 1997, Cridlands forwarded a letter to Mr Riley on behalf of their clients, Andre and Rinaldo Scarton, regarding Sections 92 and 93 Hundred of Howard (Lake Bennett). This letter was in response to the letter from Clayton Utz dated 6 March 1997. Copy of this letter appears at Exhibit P5 Vol 4 pp291-293. The letter rejects the proposal put forward by Clayton Utz in respect of the easements and stated that the Scartons intended to assert their rights to use the area to the full extent permitted under the existing registered easements. This letter makes very clear the broad extent of the easements. Paragraphs 2-4 of the letter read as follows:

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[136] Mr Milatos gave evidence that he spoke with Mr Riley who assured him that the easements would not limit, control, stop or prevent development on the land. Mr Milatos further stated that Mr Riley informed him that as long as Mr Milatos did not block the easement holders' access to the lake he had nothing to worry about. His evidence is that Mr Riley told him the letter from Cridlands did not require a response and that no legal action should be taken as the easements were only about access.

[137] Mr Riley, in his evidence, substantially confirmed this was the advice he had given to Mr Milatos. He agreed in cross examination that he should have picked up on the fact they were asserting recreation rights over the land and he had failed to do this. He agreed that the contents of this letter was "the highest level of threat to the development". Mr Riley's evidence is that he did not understand it this way as he still thought nothing had changed from his earlier belief. Mr Riley agreed that this was another point at which Mr Milatos could have reconsidered entering the contract and proceeding with the development. Mr Riley stated it is his belief the outcome would have been no different. Mr Riley continued to negotiate with the solicitors for Nazime with respect to the proposed contract of sale which was to replace the option agreement.

[138] Mr Riley agreed in cross examination that Mr Milatos should have been given advice at the very outset that the easements prevented Mr Milatos building on the land.

[139] On 24 March 1997, City Developments exchanged contracts with Nazime for the purchase of Sections 244 and 245 for $630,000. Mr Riley agreed to the final form of the contract. A copy of the contract is included in Exhibit P5 Vol 4. It does not have a page number but appears to have been inserted between p304 and p308. Mr Riley attended on the exchange of contracts with the solicitor for the vendor. Mr Riley had also personally attended upon Colleen Milatos to sign the contract of sale. He had recommended to George and Colleen Milatos that they sign the contract.

[140] During the latter part of March 1997, Mr Riley acted on settlements of units as they were being sold.

[141] On 27 March 1997, Mr Riley forwarded a transfer to solicitors for Nazime to sign with respect to the "balance of the land". The transfer was forwarded under cover of letter from Clayton Utz (Exhibit P5 Vol 4 pp320-321).

[142] On 1 April 1997, Mr Milatos forwarded a facsimile to Mr Timney, the Registrar-General, expressing surprise that the strata title units, when issued, carried registration of the recreational easements on them. He asked if there was a way these easements could be registered only against Sections 244 and 245 and not on the strata title units (Exhibit D56).

[143] On 1 April 1997, Mr Riley had a telephone conversation with the Registrar-General. A file note of this appears at Exhibit P5 Vol 4 p325. The telephone conversation was about the issue of the titles and whether the easement holders should have been asked for their consent. Mr Riley gave evidence this was the first time, so far as he was aware, that the consent issue had been raised. However, it was now a fait accompli. There was a further discussion about a partial release of an easement.

[144] On 3 April 1997 (Exhibit D57), Mr Timney responded to the facsimile from Mr Milatos. In this letter Mr Timney advised that the rights of the easement holders could not be removed without their consent. Mr Timney advised that any variation to the form or area of the easements would need to be negotiated between the owners of the land in Sections 244 and 245 and the owners of the lakeside blocks which enjoy the benefit of the easement.

[145] Mr Riley gave evidence that early in April he had spoken with Mr Milatos regarding the conversation with the Registrar-General. Mr Riley told Mr Milatos that he had "got away with it" and as long as he did not try to change his disclosure statement it did not matter.

[146] On 4 and 8 April 1997, the sale of a further three cabins was completed and the proceeds paid into the bank for Nazime.

[147] On 11 April 1997, Mr Timney advised Mr Milatos that he had received a similar letter from Cridlands acting on behalf of the Scartons, asserting a right on behalf of the Scartons, to free, full and unrestricted access to Section 152.

[148] On 3 April 1997, Mr Riley had a conversation with Mr Milatos regarding the proceeds from Unit 6 and the fact no titles had issued. Mr Riley advised that the solicitor for the vendor, Nazime, wanted the second mortgage in favour of Nazime, easements and encumbrances sorted out before they would authorise the release of titles.

[149] On 3 April 1997, Mr Timney wrote to Mr Milatos concerning the easements being carried forward and advised that such easements would remain and continue into the future unless there was a joint application to remove them (Exhibit P5 Vol 4 p336).

[150] Mr Milatos gave evidence that by April 1997 approximately eight cabins had been installed with services provided to a further eight cabin sites. He stated contracts had been signed and exchanged. Mr Milatos stated a loan of $500,000 was approved by the ANZ Bank. Renovations on the resort commenced, including the warehouse, restaurant, bar, shop and convenience store. About 18 caravan sites were created and improvements made to the sewerage and water system.

[151] On 16 April 1997, the settlement for the sale of Lake Bennett from Nazime to City Developments, being purchase of Sections 244 and 245, was effected.

[152] The titles were transferred to City Developments subject to mortgage No. 373402 in favour of Nazime registered against the title to Section 244 to secure payment to Nazime of the unpaid balance of purchase price being $630,000 less sums paid to Nazime's bank to discharge its mortgage.

[153] In the latter half of April 1997, Mr Milatos expended a further $200,000 on the development of Section 244. This further development was known to Mr Riley who acted on the conveyance of a further three cabins (Exhibit P10). During this period, Mr Riley assisted Colleen and George Milatos to execute and finalise an ANZ Bank loan to City Developments in the sum of $500,000. Mr Riley was aware this was to finance developments at the resort. City Developments subsequently expended approximately $650,000 refurbishing and expanding the resort. This was known to Mr Riley. The money came from the ANZ Bank loan of $500,000 and general funds.

[154] On 24 April 1997, Mr Timney wrote to various easement holders advising that because of indefeasibility of title the subdivisions and subsequent registration could not be undone.

[155] On 5 May 1997, Mr Riley wrote a file note (Exhibit P5 Vol 4 pp434-435). This details the research Mr Riley had undertaken with respect to the easements. The second paragraph on p435 reads as follows:

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[163] The letter sought certain amendments to the relevant legislation and drew attention to the problems that arise where the holder of an easement does not agree to modify or cancel an easement where the right granted under the easement is no longer being used or fully used. A copy of this letter was sent to Mr Milatos on 4 July 1997. A reply to this letter was received by Mr Riley from the Attorney-General on 26 September 1997. The Attorney-General advised that he would have his department undertake a review of the Unit Titles Act and he would consider their submission (Exhibit P5 Vol 5 p479).

[164] On 17 July 1997, Mr Riley completed settlement of two further cabins on behalf of Mr Milatos.

[165] During August 1997, Mr Timney advised Mr Milatos that he did not have to be concerned about the complaint to the Ombudsman as the Ombudsman did not have jurisdiction over the Registrar-General.

[166] On 6 September 1997, the renovated resort area at Lake Bennett was officially opened by the Attorney-General, Shane Stone. Mr Riley was an official guest at the opening.

[167] In 1997 and 1998, Colleen Milatos won awards from the Keep Australia Beautiful Council for the best tourist facility in the Northern Territory (Exhibit P186).

[168] From August 1997, Colleen Milatos was managing and organising staff, running the resort and marketing the resort. When necessary she would also do the cleaning and the cooking. She continued to maintain the gardens around the resort. She prepared brochures for the local market and became involved in networking with local operators and others in the tourism industry to promote the resort. She then progressively marketed throughout Australia and actively pursued coach operators and many others in the tourism business. They were eventually successful in putting in a bitumen road with the help of the Coomalie Council and the Northern Territory Government. Mr Milatos had built 12 garden wing rooms and they were able to attract the tour bus market. The last lot of rooms were completed in 1999. Colleen Milatos was also successful in marketing the resort for conferences. The expectation was that the cabin sales would support the resort. George Milatos handled all the legal and financial aspects including obtaining bank loans for the business.

[169] By October 1997 services for a further 44 units had been completed.

[170] On 16 October 1997, the plaintiffs sold the property at 39 Stoddart Drive, Bayview for $273,728. An amount of $201,578 went to pay out the ANZ residential investment property loan. Construction costs totalled $100,000. Maximum profit from the project was $65,000.

[171] During October, November and December 1997, Mr Milatos was in dispute with the Coomalie Council concerning the rates. There is correspondence from Mr Riley to Mr Milatos on this (Exhibit P5 Vol 5 pp480-491). In November 1997 another four cabins were completed.

[172] Under cross examination, Mr Riley agreed that in his letter to Mr Milatos dated 5 November 1997 (Exhibit P5 Vol 5 p487), he had gone into detail about whether or not rates were payable in respect of the units that had been completed. He agreed he had written letters of advice dealing with stamp duty, rates, financing and canoe hire agreement but no letter of advice about the fundamental issue relating to the development which was the effect of the recreational easements.

[173] The units plan for stage 3 of the development was approved and registered resulting in the issue of titles for cabins 1, 2, 15 and 16.

[174] On 22 December 1997, Mr Milatos forwarded a letter to Esanda advising that sales had slowed and requesting $200,000 for working capital as a considerable amount had been spent on the resort.

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[181] On 10 March 1998, immediately following the meeting at the Registrar-General's office, Mr Milatos gave evidence that he and Mr Riley had a discussion at Mr Riley's office. He stated that Mr Riley said words to the effect, "We've fucked up. You've got every right to sue us". Mr Milatos said to Mr Riley, words to the effect that, he "didn't sue his friends".

[182] Mr Riley agreed in evidence that at some stage Mr Milatos had said to him that he did not sue his friends, but he was unsure of when that discussion took place. Mr Riley further stated that he does not believe he would have used the expression "fucked up", but that it was possible Mr Milatos may have thought he was culpable.

[183] Mr Riley gave evidence concerning the meeting that was held on 10 March 1998, subsequently referred to as "the wise men meeting". He gave evidence they were able to resolve the encroachment issue with the verandahs of the units. At that meeting Michael Grant had expressed the opinion that the consent of the easement holders was required at every stage of the unit development.

[184] Under cross examination Mr Riley gave evidence that what he was essentially told at this meeting was that Mr Milatos could not get any titles issued for future stages without the consent of all interested parties including the easement holders. He agreed that if Mr Grant was correct, then that was devastating for the development. Shortly after this meeting, Mr Riley concluded that Mr Grant was right on this consent issue. Mr Riley gave evidence in cross examination that he knew the Scartons in particular would not consent to any further titles being issued or any further development occurring. Mr Riley stated he did not believe he was responsible for the position that had been reached. Also in cross examination Mr Riley gave evidence that in relation to the consent issue he knew Mr Mitaros was instructed at the start that it was a unit development and at one stage he was instructed to address the consent issue in relation to unit titles in so far as it applied, prior to unit title development.

[185] On 11 March 1998, Mr Riley made a file note concerning the meeting that had taken place on 10 March 1998 at the office of the Registrar-General (Exhibit P5 Vol 5 pp513-517). Included in the file note at p 517, par 3 are the words "We have all proceeded on the basis of practice rather than the strict letter of the law and we are now faced with having to find a solution because the practice was wrong and the law enables easement holders to prevent what we want to do".

[186] On 17 March 1998, Mr Riley forwarded a letter to the Registrar-General on behalf of Mr Milatos (Exhibit P5 Vol 5 pp520-524). In this letter, Mr Riley asks the Registrar-General to exercise her discretion "under s 247 of the Real Property Act to accept George Milatos' plans for the issue of subsequent titles in the development without the need for strict compliance with the requirements of s 7 of the Real Property (Unit Titles) Act, and in particular the requirement that the consent of all those with a registered interest in the land be obtained". Paragraphs 5, 6 and 7 of this letter reads as follows:

[143]

[195] Mr Riley gave evidence in cross examination that given the nature of the transaction he would have expected Mr Mitaros to advise Mr Milatos about any problems with the title presented by the easements. He stated he would have expected Mr Mitaros to do a title search, obtain a copy of one of the easements, to read the easement and advise Mr Milatos not to proceed any further until the issue was addressed. Mr Riley stated he was embarrassed that he had got it wrong. He conceded that it was a situation where once he realised the full impact of the easements he should have written a comprehensive letter of advice and had a face to face meeting with Mr Milatos rather than advising him over the telephone.

[196] Mr Milatos gave evidence that during April or May 1998, he met with Ms Kelly to discuss suing the Northern Territory Government. On 20 May 1998 the Northern Territory Government had enacted the amendment to the Unit Titles Act. The date for commencement of the Act was 9 June 1998. The legislation did overcome the problem regarding the requirements to obtain consent from the easement holders before subsequent stage titles could issue. However, the legislation did not resolve all of the problems Mr Milatos had with the recreational easements at Lake Bennett. The legislation did not address the problem Mr Riley recognised and documented on 7 April 1998 that the easements were a bar to building on land at Lake Bennett. Mr Riley did not inform Mr Milatos of these circumstances nor make any record that Mr Milatos recognised those circumstances.

[197] On 8 April 1998, Mr Riley prepared a further file note which appears at Exhibit P5 Vol 5 pp550-551. This file note refers to drafting an advice to Mr Milatos to pass on to the Minister and suggesting various options with respect to amending the legislation. This advice was apparently lost off the tape. Mr Riley noted the results of his research into the relevant legislation and what he had told Mr Milatos about the effects of this legislation. There is nothing in this file note to indicate Mr Riley had told Mr Milatos of his recent discovery as to the full impact of the recreational easements, how this could affect the future development at Lake Bennett or that Mr Milatos may have a potential claim for negligence against Clayton Utz.

[198] On 8 April 1998, Mr Riley forwarded a facsimile to Ms Kelly advising of the view he now held about the effect of the easements (Exhibit D237). He says he had "reiterated to George that this easement is a potential disaster and the more people he can convince to convert it to a recreational easement over the lake and an access easement over the land adjacent to their property, the better." Mr Riley had set out the background details in this letter and sought an opinion from Ms Kelly "as to whether it was possible to sue the Northern Territory Government for misrepresentation by a public servant as to his registration requirements, that was relied upon and which has caused economic loss." In cross examination Mr Riley agreed, after being presented with time sheet records of his telephone attendances upon Mr Milatos between 7 April and October 1998, there was insufficient time to have enabled him to explain the effect of the easements and give advice to Mr Milatos. Mr Riley also agreed that the time sheet records show two personal attendances on Mr Milatos on 9 June 1998. This was the first personal attendance since 7 April 1998. Mr Riley agreed that this is inconsistent with the urgency of the situation. He agreed that there is no record of him giving Mr Milatos advice with respect to the easements in a face to face situation.

[199] Mr Milatos gave evidence that Mr Riley did not acquaint him with his revised understanding of the meaning of the easements. There was no written advice received from Ms Kelly.

[200] On 5 June 1998, Mr Milatos wrote to Mr Gronow, Director of Planning and Environment, seeking approval to vary the disclosure statement (Exhibit D75). This essentially involved reducing the sector which contains 44 residential units to 41 units and increasing the number of lots on the western side by three, still keeping the total number of 80 units as per the approval.

[201] On 11 June 1998, Mr Milatos wrote to the ANZ Bank (Exhibit D82). He pointed out in this letter that he had achieved 25 unit sales in 18 months on the residential estate varying from $73,000 to $163,000 per unit and stating that they would "require a mere 9 sales per annum to be able to repay a loan and interest without envisaging possible profit from the resort from years 2-5". Mr Milatos sought a loan of $260,000 which was the amount required to refurbish the resort and all the external works leaving the funding and commencement of construction for the 15 rooms to start within 60 days.

[202] Mr Milatos gave evidence that on 23 June 1998 he had a discussion with Jim Laouris, from the office of the Registrar-General, to discuss the variation. Mr Laouris informed Mr Milatos that the changes proposed for the development outlined by Mr Milatos would require a second variation of the disclosure statement and that Mr Milatos would need to follow the same procedure as for the first variation.

[203] On 25 June 1998, Mr Milatos sent a facsimile to Mr Riley regarding the second variation he wanted to make and the need to approach the easement holders for their approval. Mr Milatos had drafted a letter and consent form to be sent to the easement holders and requested Mr Riley's feed back (Exhibit D83).

[204] On 29 June 1998, Mr Riley faxed another version of the consent form to Mr Milatos (Exhibit D84). In the covering letter, Mr Riley highlighted the fact that the consent was for three more units on the western side and three fewer on the eastern side. A consent form signed by City Developments dated 30 June 1998 is Exhibit D87. Mr Riley did not advise Mr Milatos that it would not be possible for Mr Milatos to vary the disclosure statement without the consent of the easement holders, nor did he communicate this to Mr Milatos in any other way.

[205] During June and July of 1998, services were installed on the western side of the lake for 23 sites.

[206] Mr Milatos gave evidence that in July 1998 titles issued for further cabins. His evidence is that there was a delay of 4-5 months due to the easement issue.

[207] On 3 July 1998 a variation to development permit was issued (Exhibit D85 DPM 96/0048D).

[208] On 16 July 1998, Mr Milatos forwarded a facsimile to Esanda regarding the proposed development and the progress with the sales of units. Attached was a copy of the purchase arrangements with Nazime and suggesting options to the ANZ Bank concerning the monies still owed to Nazime. The letter concludes with Mr Milatos outlining the healthy state of the borrowings from Esanda and advising that from now on he would be building houses as they were sold and there would be no need to build on speculation (Exhibit D86).

[209] On 29 July 1998, Mr Milatos forwarded a letter to the ANZ Bank setting out replies to the issues the ANZ Bank had raised in a letter dated 15 July 1998. The letter concluded with a summary of future development. He confirmed that City Developments had decided to restrict the number of units to 80 on Section 244 and that the plan was to build a first class resort on Section 245 and stated that he anticipated "the commercial facility will be exceptionally profitable within 3 years" (Exhibit D89).

[210] On 6 and 12 August 1998, Mr Riley acted on the settlement of a further three cabins.

[211] On 4 August 1998, Mr Milatos wrote to the ANZ Bank (Exhibit D90). In this letter he refers to the fact that between Esanda and the ANZ Bank, the existing loans amounted to $1,580,000. He also detailed new loans amounting to $620,000 which were for services to 23 units on the western side $200,000, refurbishing of the main building, extending the camping area, basketball and tennis courts and a new irrigation system $200,000, working capital for the resort $50,000 and capitalisation of interest for one year $170,000. In addition he sought $400,000 for a "come and go" facility to be used exclusively on construction of new units as they are sold and unconditional contracts exchanged. He made reference to the building of a further 12 to 15 rooms for the resort in the next six months and his ideas for how this could be achieved.

[212] On 18 August 1998, Mr Milatos forwarded a letter to Mr Shoobridge stating he was unable to meet the original agreement, in regards to payments for the land, due to the difficulties associated with the easements and the fact that since December 1997 the only two new orders they had received was for units 31 and 32 and that they had been unable to obtain any titles until July 1998. Mr Milatos requested that Mr and Mrs Shoobridge forego the interest on the outstanding amount owed to them as Mr Milatos considered they should accept some responsibility for the problems with the easements and the effect on development (Exhibit D69).

[213] Throughout August and September 1998, Mr Riley provided legal services in relation to miscellaneous matters associated with the Lake Bennett project. On 23 August 1998, Mr Riley effected settlement on the sale of cabin 53.

[214] On 3 September 1998, Mr Milatos wrote to Esanda (Exhibit D91) explaining the liquidity problems being experienced by City Developments. In this letter Mr Milatos suggested his company retain 20% of the sales of the units to cover the costs outlined in the letter.

[215] On September 1998, as requested by Mr Milatos, Mr Riley prepared a pro forma contract for the sale of Lake Bennett units. This was forwarded to Mr Milatos along with a cover letter outlining the necessary steps to complete the contract (Exhibit P5 Vol 5 pp621-634).

[216] On 17 September 1998, Mr Milatos forwarded a letter to the Registrar-General formally applying to vary the disclosure statement (Exhibit D92). The formal application was to reduce the project from 90 units to 80 units, formalise site and lot layout for 23 units (formally stages 4 and 8) on the western side, reduce the number of lots on the eastern side from 44 to 41, introduce a new parkland in the middle and increase the number of lots on the western side from 20 to 23. The letter enclosed the consent to variation from the current residential land owners.

[217] On 21 September 1998, the settlement on the sale of a cabin was concluded by Mr Riley. Mr Riley concluded three further sales between 22 September 1998 and 2 October 1998.

[218] On 29 September 1998, Esanda forwarded a letter to City Developments (Exhibit D93). The offer included further financial accommodation of up to $130,000 for services on the western side of the lake. It was a condition of the offer that Rider Hunt confirm the costings. During September 1998 there was correspondence between Morgan Buckley and Clayton Utz and between Clayton Utz and Mr Milatos concerning the encumbrances.

[219] On 15 October 1998, the Registrar-General wrote to Mr Milatos advising him that the application for variation to the disclosure statement would not be approved (Exhibit D71). The reason given being that the application did not comply with the requirements of the Unit Titles Act and because the proposed variation purported to subdivide common property for which title is already possessed by the body corporate. Registration required the consent of the easement holders. The letter advised Mr Milatos to seek legal advice before proceeding with the proposed variation. Mr Milatos did not forward this letter at any time to either the ANZ Bank or Esanda. Mr Milatos discussed the Registrar-General's refusal with Mr Riley who made a note of the conversation.

[220] On 21 October 1998, Mr Riley informed Mr Milatos that the decision of the Registrar-General was correct (Exhibit P5 Vol 5 pp677-681). The letter states inter alia (pp679-80 par 6)

[147]

[221] Mr Riley referred to proposed changes to the unit title legislation and suggested Mr Milatos talk to his local member and to the Attorney-General and stress to them the inadequacies of the existing legislation and the importance of it being overhauled. Mr Riley advised that there was nothing he could do to assist. The letter stated "you cannot start building on the western shore until this issue has been resolved". The letter did not suggest that such advice had been given to Mr Milatos following 7 April 1998 or that at any time, Mr Milatos had been advised his building on the land infringed the rights of the easement holders to the extent that he should not build at all.

[222] On 23 October 1998, Mr Milatos wrote to the Attorney-General (Exhibit D94 and also Exhibit P5 Vol 5 pp692-695). Mr Milatos set out the history of the development at Lake Bennett and the difficulties he had encountered, including the Registrar-General's refusal to register the second variation to the disclosure statement. Mr Milatos urged the Attorney-General to expedite the passing of the proposed amendments to the Unit Titles Act and asked the Attorney-General to waive the requirements of the Registrar-General and approve the variation to the disclosure statement. This letter had been drafted by Mr Milatos (Exhibit P5 Vol 5 pp684-686) and was forwarded to Mr Riley to check. Mr Riley agreed in cross examination that the content of this letter is inconsistent with the position that he set out in his file note of 7 April 1998. He agreed that this could have given Mr Milatos the impression his view was the same as it had been prior to April 1998. Mr Riley also conceded that in this letter he was assisting Mr Milatos to tell the Attorney-General the exact opposite of what his realisation was on 7 April 1998. He agreed this did not convey to the Attorney-General, via Mr Milatos, a truthful version of what he, Mr Riley, believed.

[223] During all this period, with the exception of the delay following "the wise men meeting" on 10 March 1998 and the development being brought to a standstill in October 1998, everything was proceeding as normal. Buildings were being built, cabins were being sold, money was borrowed. Mr Riley agreed in cross examination that he knew all of this was happening and at least from 7 April 1998 thought that any building on the land was inconsistent with the rights of the easement holders.

[224] On 26 November 1998, Mr Riley had a discussion with Michael Grant and the Registrar-General regarding the impasse that had been reached regarding the second variation to the disclosure statement. Exhibit P5 Vol 6 pp712-713 is a file note Mr Riley made following the discussion.

[225] On 1 December 1998, Mr Riley forwarded a letter to the Registrar-General on Mr Milatos' instruction (Exhibit P5 Vol 6 pp724-725). This letter was essentially a follow up letter of the discussions that had taken place on 26 November 1998.

[226] On 9 December 1998, the Attorney-General forwarded a letter to Mr Milatos (Exhibit D73) advising he could not vary the disclosure statement under the existing legislation.

[227] On 15 December 1998, the Registrar-General wrote to Mr Riley (Exhibit P5 Vol 6 pp733-734). This letter confirms the refusal to approve the second variation to the disclosure statement and further advising inter alia as follows:

[160]

[237] Mr Riley agreed in cross examination that he was referring to the easement holders interests and how they were affected. He agreed that he did not state in this letter "that building on the land is completely inconsistent with the easement holders rights". It is the evidence of Mr Riley that he was hoping that Mr Milatos would be able to keep getting away with building on the land and that none of this would come to a head.

[238] Mr Milatos gave evidence that on 2 February 1999 he spent approximately two hours in consultation with John Waters QC.

[239] On 3 February 1999, Mr Riley attended a conference with Mr Waters QC who was provided with the background information and formally briefed to prepare an opinion.

[240] On 3 February 1999, Mr Milatos forwarded a letter to the Registrar-General (Exhibit D96). In this letter he advised the Registrar-General he had been unable to get the consent of the easement holders to the proposed variation to the development and that the development had come to a standstill. He further advised that if the matter cannot be resolved reasonably and quickly City Developments will be in breach of contract to deliver homes and many people will lose their jobs.

[241] On 11 February 1999 the Registrar-General wrote to Mr Milatos refuting his claims for monetary loss, informing him the variation to the disclosure statement cannot be approved and advising him about the proposed legislation and the effect of this legislation on the easement holders (Exhibit D97).

[242] On 16 February 1999, Mr Waters QC prepared an opinion for Mr Milatos (Exhibit D78). In his opinion Mr Waters QC clearly states that the proposed variation would need the consent of the easement holders and that the further progress of the development and viability of the current sales program were "clearly in major jeopardy". There was further advice to the effect that Mr Milatos could pursue the option of advocating for further legislative changes to allow the development to continue. He then stated it would be extraordinary if the Northern Territory Government would allow this because of an anticipated public backlash because the rights of easement holders were being affected without compensation. Mr Waters QC then went on to give advice as to the resolution of the matter. This advice was forwarded to Mr Riley on 17 February 1999 (Exhibit P5 Vol 6 p768).

[243] Mr Milatos gave evidence of a further meeting with Mr Waters QC on 18 February 1999. At this meeting Mr Milatos says he was told that the terms of the easement meant the easement holders had the right to carry out any "recreational activity" on the land, which would obstruct building or any other development. Mr Waters QC suggested forwarding a letter to each of the easement holders. Mr Riley was also present at this meeting.

[244] On 1 March 1999, Mr Riley made a file note of a conversation he had with the Registrar-General (Exhibit P5 Vol 6 pp810-812). In that conversation the effect of the legislation and the re-subdivision issues were discussed.

[245] On 3 March 1999, Mr Riley forwarded a letter to the Registrar-General questioning the construction of the Unit Titles Act (Exhibit P5 Vol 6 pp813-814).

[246] On 18 March 1999, George and Colleen Milatos sold the property at Gunbar Street for $220,000 which was the value of the land at the time of purchase. Also on 18 March 1999, Mr Riley sent Mr Milatos a facsimile with a draft of Mr Waters' letter to the easement holders attached (Exhibits D79 and D80). This letter refers to Mr Waters' opinion that the concept of an "easement for recreational purposes is so vague and wide as to be legally unsustainable and would be struck down by the courts ....". The letter offered defined corridors within Section 244 to allow for passage to and from the lake and stating their rights upon the lake would not be affected. This attempt to "rationalise the easements" was sent to all the easement holders. However, the easement holders were not all prepared to negotiate. There was a considerable amount of correspondence from the various easement holders to Mr Riley. The issue in respect to the easements was not resolved.

[247] On 25 March 1999, the ANZ Bank wrote to Mr Milatos asking him to agree to pay for a new Colliers Jardine valuation (Exhibit D88). This was required for the Bank's consideration of the request by Mr Milatos to refinance the existing borrowings.

[248] On 26 March 1999, Mr Riley effected settlement of the sale of a further cabin.

[249] On 14 April 1999, Mr Milatos forwarded a letter to Mr Waters QC seeking a meeting and advising him that he would like to create a precedent and take legal action against two of the owners, Mr & Mrs Sullivan and the Scartons (Exhibit D98).

[250] The conference with Mr Waters QC took place on 19 April 1999. Mr Milatos gave evidence that Mr Waters QC informed him there was always a threat the easement holders may seek an injunction against him in order to protect their easement. Mr Waters QC suggested a test case should be launched to test the validity of the easements. Mr Milatos gave evidence that nothing he knew about the easements or the threat of court action deterred him from proceeding ahead with the development at this stage. Mr Riley was present at this conference and subsequently wrote a file note outlining the discussions that had taken place (Exhibit P5 Vol 6 pp1076-1077).

[251] On 22 April 1999, Mr Riley received a letter from Mr Waters QC which made reference to the conference that was held on 19 April 1999 and the proposed test case (Exhibit D238).

[252] On 23 April 1999, Mr Milatos wrote to Esanda (Exhibit D99). In this letter Mr Milatos outlines the finance requirements for Lake Bennett. He describes the work he has done, including work carried out on the western side. The letter makes it appear Mr Milatos was spending money providing services to blocks on the western side in accordance with the second variation before the variation had been approved. In addition to other finance Mr Milatos sought $115,000 to complete services to the remaining lots on the western side.

[253] In May 1999, Mr Milatos borrowed almost $1 million from the ANZ Bank to build 20 new rooms on the resort. City Developments level of debt rose to well over $2 million.

[254] On 27 May 1999, Mr Milatos wrote to Esanda (Exhibit D100) concerning the cost of building an extra 20 rooms on the resort in support of his application for finance. The construction of the 20 rooms was completed in October 1999. At no time did Mr Riley, or any other legal practitioner at Clayton Utz, advise Mr Milatos that building activities on the resort, i.e. on Section 245, required the consent of the recreational easement holders. In May 1999, Mr Riley concluded two further cabin sales.

[255] On 4 June 1999, a letter was forwarded to Mr Milatos from Mr Riley (Exhibit P5 Vol 6 p1141) concerning a complaint made to the Law Society by the Scartons. Mr Riley stated that it had been drawn to his attention that when the Scartons acquired their land and access easement from Nazime, a conveyancing clerk, who used to be in the employ of Clayton Utz, acted for them. He advised Mr Milatos that he could not act for City Developments in the proposed easement litigation because of the Scartons complaint to the Law Society. On 21 June 1999, Mr Riley wrote to the Law Society advising that Clayton Utz would no longer act for City Developments in the easement litigation. Mr Milatos made arrangements to forward his files to his new solicitors, De Silva Hebron (Exhibit P5 Vol 6 pp1143-1145).

[256] On 23 June 1999, Mr Milatos wrote to Mr Riley (Exhibit P5 Vol 6 p1147) raising concern about accounts received from Clayton Utz and complained about blunders and poor advice. Mr Riley replied to this letter on 1 July 1999 (Exhibit P5 Vol 6 pp1149-1151). In this letter Mr Riley acknowledged a fault on the part of Clayton Utz with respect to the "Shoobridge encumbrances". He did say "if you think we have been negligent, you may have an action against Clayton Utz". He again urged Mr Milatos to "rationalise the easements". Mr Riley did discount the fees to preserve "their ongoing relationship". Mr Riley agreed in cross examination there is no statement in the letter about building on the land being completely inconsistent with the easements.

[257] Mr Riley advised that although he was in a conflict situation with respect to the easement litigation, he could continue to act in relation to the continuing conveyancing issues. He agreed this advice would have been given after receipt of the letter from Mr Milatos dated 23 June 1999.

[258] On 9 June 1999, Mr Milatos wrote to ANZ Business which had merged with Esanda seeking a further $104,000 to complete services to the remainder of the blocks on the western side (Exhibit D101). The letter further indicates that Mr Milatos anticipated settlement of six units before the end of July 1999.

[259] On 10 June 1999, Mr Milatos wrote to the Registrar-General noting the amendments to the Real Property (Unit Titles) Act and Unit Titles Act which he claimed had been passed in the legislative assembly. The legislation commenced on 9 June 1999. Mr Milatos again asked the Registrar-General to reconsider the application to vary the disclosure statement (Exhibit D102).

[260] On 17 June 1999, Mr Milatos forwarded a letter to ANZ Business with a breakdown of the construction costs for the 20 new rooms at Lake Bennett (Exhibit D103).

[261] During June 1999, Mr Riley acted on the settlement and sale of two further cabins.

[262] In July 1999 the finance was granted by ANZ Business for the building of the additional 20 rooms at Lake Bennett.

[263] On 1 July 1999, Mr Riley prepared a file note on the Clayton Utz file headed "Potential Negligence Claim - Lake Bennett" (Exhibit P5 Vol 6 pp1152-1156). Mr Riley outlines the history of the matter and his concerns of a possible claim against Clayton Utz. At paragraphs 6 and 7 on p1155 he states:

[163]

[264] Mr Riley agreed in cross examination that this was the first time he had conveyed in writing to anyone else in the firm the possibility of a negligence claim. He said before he prepared this memo addressed to "Dirk" he discussed the matter with Mr Mitaros. Mr Riley said he accepted the fundamental problem was that Mr Mitaros should have given the advice about the easements at the very start.

[265] On 5 July 1999, the Registrar-General wrote to Mr Milatos advising he would issue the titles notwithstanding the apparent discrepancy in the unit numbering on the western side. He further stated that if Mr Milatos was eventually successful in amending the disclosure statement it would be necessary to do a further renumbering exercise (Exhibit D104).

[266] On 5 July 1999, the Registrar-General forwarded a further letter to Mr Milatos advising him he had to again reject the application for variation to the disclosure statement on the basis that, in the absence of consent of the easement holders and the broad nature of the registered easements, it would be inappropriate to decide that the easement holders' interests are not affected and that it was a matter for the Court to decide (Exhibit D105).

[267] On 7 July 1999, Mr Milatos received a letter from the ANZ Bank offering to consolidate all the loans and bring the total facilities to $3,202,785.72 including $950,000 for resort expansion and $104,000 for services to the western side (Exhibit D81). One of the conditions of providing the facilities was that Rider Hunt provide an estimate of costs for each unit before construction began and then payments were to be made against progress certificates issued by Rider Hunt. This arrangement had been in place since the beginning of the development. Another condition was that a minimum of one sale a month had to be achieved commencing from October 1999 through to April 2000 and further that a minimum of two sales per month to be achieved from May to September 2000. From unit sales, City Developments was to get 5% and the rest of the money was to go to the ANZ Bank. There were a number of other conditions of the loan.

[268] On 12 July 1999, George and Colleen Milatos signed an acceptance of the ANZ Bank offer of finance and a surety acknowledgment, both of which are included in Exhibit D81.

[269] On 12 July 1999, Mr Milatos forwarded a letter to the ANZ Bank seeking variations to the conditions attached to the loan offer and requested an additional 5% from the proceeds of the residential sales to enable City Developments to have an annual budget for advertising and marketing.

[270] Mr Milatos gave evidence that he had verbally informed the ANZ Bank that there were problems on the western side in obtaining approval for the new configuration of the sites. The refusal by the Registrar-General to approve the second variation to the disclosure statement, does not appear to have been conveyed to the ANZ Bank by Mr Milatos in a letter or any other formal documentation.

[271] On 20 July 1999, Mr Riley wrote to the Registrar-General (Exhibit P5 Vol 6 pp1161-1163) in response to a suggestion that the amendments to the legislation were designed specifically to accommodate Mr Milatos. At p1162 Mr Riley states, inter alia:

[165]

[272] In this letter, Mr Riley outlines that there are other unit developments in Darwin that are also burdened by easements, which will benefit from the recent amendments.

[273] On 27 July 1999, Mr Milatos forwarded a letter to De Silva Hebron (Exhibit D46). This letter sets out background information concerning the issues surrounding the Lake Bennett development from Mr Milatos' perspective. Mr Milatos also states he believes there was a strong case for suing the Northern Territory Government and in particular the Registrar-General for negligence, misinformation and incompetence, which caused considerable financial loss to City Developments.

[274] On 3 August 1999, the sale of cabin 47 for $150,000 was settled by Mr Riley. On 4 August 1999, the sale of cabin 76 was settled by Mr Riley for $210,290. On 6 August 1999, the sale of cabin 28 for $145,000 was settled by Mr Riley.

[275] On 9 August 1999, Mr Milatos forwarded a letter as Director of City Developments to Clayton Utz complaining about the withholding of monies for payment of their disputed fees. He informed Clayton Utz that they no longer acted on behalf of City Developments or Australian Transportable Homes and he would advise of his new legal representatives in due course (Exhibit P5 Vol 6 p1165). He requested the return of all files in all matters.

[276] On 23 August 1999, City Developments issued an originating motion in the Northern Territory Supreme Court to challenge the validity of the easements.

[277] Mr Milatos gave evidence that in September 1999 the sale of cabins all but stopped.

[278] On 21 September 1999 there is a file note on the Clayton Utz file (Exhibit P5 Vol 6 pp1167-1171) which details the background to the matter and the problem with the easements. The file note acknowledges Clayton Utz may be responsible for failing to give comprehensive advice at the time the option was entered into and/or to ensure that the contract obliged the previous owner to transfer title to the land without the easements. The file note also refers to the Registrar-General's role in allowing registration of the units plan without obtaining the consent of the easement holders and the actions of the developer for commencing work upon the land without seeking legal advice on the contract terms.

[279] It was noted that although no claim had been made against Clayton Utz, the potential was now greater. This was because Clayton Utz had been conflicted out of the court action against the neighbouring easement holders. Secondly, it was noted the developer was disputing Clayton Utz accounts which largely relate to advice given and work carried out with respect to the easement problems.

[280] On 21 September 1999, Mr Milatos wrote to De Silva Hebron in response to a letter from Close and Carter referring to matters raised by Robert Nash, one of the easement holders. The letter details the Registrar-General's actions in registering the units plan of the subdivision and the first variation to the disclosure statement without the consent from the easement holders (Exhibit D126).

[281] On 26 September 1999, a directions hearing in the easement litigation was held in the Supreme Court. It was the subject of a substantial report on page 4 in the NT News on the following day (Exhibit P11).

[282] Mr Milatos gave evidence that in October 1999 he was given legal advice to await the outcome of the litigation against the easement holders before suing Clayton Utz.

[283] On 5 October 1999, Mr Milatos wrote to the Registrar-General advising him that all sales had been suspended.

[284] On 28 October 1999, Mr Milatos received a letter from Mr Mitaros asking Mr Milatos to pay $3,000 and sign a deed of release for the files to be forwarded to him (Exhibit P5 Vol 6 pp1172-1174). Mr Milatos gave evidence that on advice from De Silva Hebron he did not sign the deed of release.

[285] On 16 November 1999, the sale of cabin 37 was settled.

[286] On 17 November 1999, Mr Milatos forwarded a letter to Mr Riley concerning an account of $12,000 and the $8,600 which had been held back contrary to his instructions (Exhibit P5 Vol 6 p1175). Mr Riley gave evidence that Clayton Utz claimed a lien over these monies held in the trust account.

[287] On 23 November 1999, the ANZ Bank wrote to Mr Milatos (Exhibit D108). This letter was a reminder concerning the provision of annual financial statements and the requirement to provide "actual versus budget" reports, the first of which was due on 12 December 1999.

[288] Mr Milatos gave evidence that by late 1999 onwards sales had dropped off significantly. By this time 40-42 cabins had been installed and servicing was in place for 80 units.

[289] Mr Milatos gave evidence that in December 1999 the opinion of Mr Waters QC was provided to the ANZ Bank.

[290] On 1 December 1999, Mr Milatos forwarded a letter to the ANZ Bank (Exhibit D109). The letter is headed "Re Lake Bennett Wilderness Resort Report July-October 1999". Mr Milatos detailed various matters that had occurred with respect to the development at Lake Bennett including construction of the lake view rooms, the enlarged electrical mains, sewer and water mains, extension to the conference facilities and completion of a grandstand without either approval or financing from the Bank. The letter discusses the legal issues as Mr Milatos saw them at that time. He advised his intention to take legal proceedings against Clayton Utz and others and sought additional funds of $200,000 to complete the disabled persons room, shop front reception, legal fees and to cover losses of the operation between July 1999 to April 2000.

[291] On 9 December 1999, Mr Riley wrote to Mr Milatos amending the offer to $3,500 in full settlement of the account and submitted an amended indemnity deed (Exhibit P5 Vol 6 p1177-1179). De Silva Hebron responded on 20 December 1999 advising that the matter should await the outcome of the easement litigation (Exhibit P5 Vol 6 p1180).

[292] On 20 December 1999 the ANZ Bank responded to the letter of 1 December 1999 (Exhibit D110). On behalf of the ANZ Bank, Darren Meers indicated he was considering the request for further finance and requested a "budget versus actual" report covering the period from July 1999 to 20 December 1999 and going forward with the budget until the end of April 2000. Mr Milatos responded on the same date (Exhibit D111). Mr Milatos gave evidence that on 20 December 1999 unit 66 settled for $200,000.

[293] On 20 December 1999 the sale of cabin 65 was concluded for $170,000 and on 21 December 1999 the sale of cabin 49 was settled for $171,000.

[166]

[294] During 1999/2000 the resort had a 3.5 star rating. The Darwin Symphony Orchestra played at the resort in 2000. Colleen Milatos developed packaging options with Australian Pacific Tours. As a consequence of the efforts of Colleen Milatos the Lake Bennett resort was accepted onto the Qantas reservation system and a number of outward bound style groups. In 2000 Colleen Milatos won the Chief Ministers Award for Tourism Excellence.

[295] Mr Milatos gave evidence that during the year 2000 it became clear the target of 15 units per year was not going to be reached. The ANZ Bank regarded this as a default and did not renew financial arrangements with City Developments. All sale proceeds then went to the Bank.

[296] On 14 January 2000, the ANZ Bank wrote to Mr Milatos (Exhibit D112). In this letter the ANZ Bank offered additional facilities with a number of conditions precedent. The total facilities amounted to $2,610,000. The additional facilities were accepted by Mr Milatos. The bank approved and loaned $35,000 in support of the easement litigation.

[297] On 31 January 2000, Mr Milatos wrote to De Silva Hebron (Exhibit D127) advising that City Developments wanted to issue legal proceedings against the Northern Territory Government and more particularly the Registrar-General and the Town Planning Authority for damage caused to City Developments. The letter detailed the difficulties and obstructions Mr Milatos had met in the course of developing Lake Bennett.

[298] On 28 January 2000, the sale of cabin 55 for $162,000 was completed and on 28 February 2000 the sale of cabin 29 for $80,000 was completed.

[299] On 28 February 2000, Mr Milatos wrote to the ANZ Bank requesting permission to use funds approved for legal actions to cover the costs of the legal action regarding the validity of the easements and that the money received in recovering the legal costs in relation to the validity of the easements will be used to pursue the case for damages against the Northern Territory Government and Clayton Utz (Exhibit D118).

[300] Mr Milatos gave evidence that in March 2000 unit 75 sold and contracts had been entered into for the sale of unit 42.

[301] On 3 March 2000, Mr Milatos forwarded a letter to David Booth from Territory First National (Exhibit D40). In this letter Mr Milatos sought a comment from Mr Booth as to the lack of real estate sales at the Lake Bennett residential estate in the previous three to four months and seeking his ideas on how real estate sales could be resurrected.

[302] On 7 March 2000, Mr Booth replied (Exhibit D40). In his reply he stated the over supply of units in Darwin should not affect Lake Bennett. Mr Booth made various suggestions concerning further construction work at Lake Bennett and how and when to relaunch the marketing campaign.

[303] On 10 March 2000, the ANZ Bank forwarded a letter to City Developments confirming verbal advice provided on 9 March 2000, that the sales covenant contained in their letter of offer dated 7 July 1999 (Exhibit D81) had been breached and the lending facilities were now in default (Exhibit D116). The ANZ Bank stated the position would be reviewed again on 30 April 2000 stating they looked forward to an improvement in the sales rate of units over the next two months.

[304] On 16 and 17 March 2000, the trial of the easement litigation was heard in the Supreme Court.

[305] On 6 April 2000, Mr Milatos wrote to the ANZ Bank regarding the poor tracking of the resort and lack of residential sales, he attributed this to confusion about GST (Exhibit D40). The letter also refers to another project at Palmerston which City Developments had signed an option to purchase named "Pit Stop Straight Car Centre".

[306] On 7 April 2000, Mr Riley wrote to De Silva Hebron confirming they were still holding the sum of $8,180 pending resolution of their claim against City Developments for costs (Exhibit P5 Vol 6 p1191).

[307] On 19 April 2000, Mr Milatos forwarded a letter to the Ombudsman setting out a number of grievances with respect to the Registrar-General and the Town Planning Authority. He made reference to the withdrawal of blocks on the western side until the Court dispute was resolved and made reference to the bad publicity and biased reporting by the media as primary causes for the drop in sales (Exhibit D114).

[308] On 20 April 2000, Mr Milatos forwarded a letter to the ANZ Bank advising them of his dealings with the Ombudsman and a list of possible purchasers of units at Lake Bennett (Exhibit D113).

[309] Mr Milatos gave evidence that on 26 April 2000, unit 50 sold. He gave evidence that in May 2000 the sale of unit 75 was settled.

[310] On 2 May 2000, Mr Milatos wrote to the ANZ Bank concerning the "technical default" of the loan agreement (Exhibit D40). He listed a number of reasons for this including: general slow down of sales in the Northern Territory, the GST and the wet season weather. In this letter he also detailed the work and success with respect to the resort. Mr Milatos gave evidence in cross examination, that he later realised the reasons he had set out in this letter, were not the reasons for the slow down in sales.

[311] On 16 May 2000, Clayton Utz received a letter from De Silva Hebron (Exhibit P5 Vol 6 p1192) advising they had received instructions from Mr Milatos that Clayton Utz costs would not be paid and requesting a cheque in the sum of $8,180 pursuant to the provisions of the Legal Practitioners Act. Mr Riley gave evidence that this was a formal request to forward the monies Clayton Utz held in their trust account in respect of Mr Milatos. On the same date, Mr Riley wrote a memo to Mr Mitaros (Exhibit P5 Vol 6 p1193). Mr Riley queried whether they should let Mr Milatos "get away with it by returning the money with no guarantee he would not sue or sue him and invite a counterclaim for professional negligence?" Mr Mitaros hand wrote a reply on the bottom of the memorandum of 28 May 2000 to the effect that they write off their fees and see what Mr Milatos does. He also queried whether the matter had been reported to their insurers.

[312] On 8 June 2000, Mr Riley responded to De Silva Hebron's letter dated 16 May 2000 (Exhibit P5 Vol 6 p1199). He asked "Is City Developments going to sue us?" The response then reads "If not, on a without prejudice basis, we advise that we are prepared to release the money to your client and write off our fees so long as your client signs a release in our favour". The facsimile then advised that if Mr Milatos intends to sue, Clayton Utz will retain their lien. Mr Riley reiterated his belief in this facsimile that Mr Milatos' predicament was of his own making in commencing subdivision and building work as soon as he secured an option without receiving advice from Clayton Utz as to the suitability of the land for a building project. The message goes on to note that there is no legal impediment to the completion of the development in accordance with the disclosure statement.

[313] Mr Riley gave evidence in cross examination that at this time he knew that Mr Milatos, or his company, was involved in easement litigation and agreed that it was litigation Mr Milatos should not have had to become involved with.

[314] On 9 June 2000, Mr Riley forwarded a memorandum to Mr Mitaros (Exhibit P5 Vol 6 p1201-1202). In this memo he stated he was not in a rush to give City Developments the money back. He then made reference to the attitude of the firm's insurers who essentially wanted Mr Milatos to sign a Deed of Release. He queried when the cause of action arose, nominating various times and referring to the actions of Mr Milatos in starting to build without advice from Clayton Utz or their knowledge, when he only held an option. Mr Riley stated at p1201 inter alia:

[168]

[315] In his cross examination Mr Riley gave evidence that he wished he had not said this in the memorandum.

[316] Mr Riley's evidence is he still believes Mr Milatos was responsible for a lot of his own losses.

[317] Mr Riley stated under cross examination that he agreed if Mr Mitaros had given the comprehensive advice about the effect of the easements, George and Colleen Milatos could have avoided the whole disaster (tp 2982).

[318] It is Mr Milatos' evidence that in June 2000 a contract was signed in regards to unit 79.

[319] On 2 June 2000, the Supreme Court of the Northern Territory delivered a decision with respect to the challenge to the validity of the easements. The judgment refused to declare the easements invalid. An appeal against this decision was subsequently lodged.

[320] On 7 June 2000, Mr Milatos wrote to the ANZ Bank concerning the slump in the Darwin/Northern Territory property and construction market (Exhibit D40).

[321] On 13 June 2000, Mr Milatos forwarded a letter to the ANZ Bank in reference to reducing the price of the land and units in order to stimulate sales (Exhibit D40).

[322] On 20 June 2000, Mr Milatos wrote to the ANZ Bank regarding the decision of the Supreme Court in the easement litigation and the likely success of an appeal. He sought approval to proceed with the appeal. In this letter Mr Milatos advised he was considering a public float of the resort. He details the hard work of himself and his wife in the operation of the resort (Exhibit D117).

[323] On 29 June 2000, the ANZ Bank forwarded a letter to Mr Milatos (Exhibit D115) requesting outstanding interest payments and informing him that his performance obligations under the conditions of the loan were in breach. Mr Milatos was reminded that there was also a trading performance covenant to ensure trading performance of the resort be monitored against budgets and that the performance of the resort was well below revised forecasts and was therefore considered a performance failure of his obligations.

[324] On 5 July 2000, Mr Milatos wrote to prospective purchasers regarding the reduction in unit prices (Exhibit D40).

[325] Mr Milatos gave evidence that in September 2000, unit 42 settled for a reduced price as the purchasers expressed a reluctance due to the easements.

[326] On 11 September 2000, Mr Milatos forwarded a letter to the ANZ Bank in regards to a proposal to strata title the resort rooms and about the general flat state of the Darwin real estate market (Exhibit D40).

[327] On 28 September 2000, Mr Milatos wrote to the ANZ Bank about a technical default on the loan and the demand for interest payments, stating the lack of sales had nothing to do with the Lake Bennett project but rather with a problem in the market relating to interest rate hikes (Exhibit D40). He detailed prospects for future sales.

[328] In October 2000, the ANZ Bank gave City Developments the option of selling Lake Bennett to repay the debt. City Developments retained LJ Hooker. On 6 October 2000, TC Waters Pepper and Co Pty Ltd (LJ Hooker) wrote to City Developments which stated inter alia:

[175]

[330] LJ Hooker continued to work on attempts to sell the resort until about June 2001 but were not successful.

[331] In his evidence (tp 1661) Mr Loy stated it may have been some six weeks after his firm was approached in October 2000 that his firm realised there was a major problem with marketing the development area (Section 244) being the easements. They then focused on the sale of the resort because there were issues relating to Lake Bennett that were unclear. Subsequently, his firm ceased to market Lake Bennett rather than risk misleading any prospective purchasers.

[332] On 17 November 2000, Mr Milatos wrote to the ANZ Bank enclosing budget details, profit and loss, balance sheets and tax returns. He also stated the Darwin market was facing a crisis (Exhibit D40).

[333] Mr Milatos gave evidence that in December 2000 unit 41 settled.

[334] On 7 December 2000, a letter was forwarded to the ANZ Bank regarding City Developments' default on the loan, the inability to make interest payments and poor sales because of the general decline in the market due to the GST. The letter also outlines the reduction in prices of the land content in an effort to stimulate sales and a hope that the market would improve considerably by April-May 2001 (Exhibit D40).

[335] On 8 December 2000, Mr Milatos wrote to the ANZ Bank following a meeting which was held to discuss the conditions of the loan (Exhibit D120) and his proposed strategy to overcome the difficulties. The ANZ Bank replied to Mr Milatos stating that from that time onwards full settlement proceeds from unit sales were required by the ANZ Bank to go towards debt reduction (Exhibit D121). This letter also set out a number of conditions City Developments were to comply with and advised of the appointment of an investigative accountant as a consequence of the breach of the terms and conditions of the current loan facility.

[336] In cross examination, Mr Milatos stated that from this time onwards he was broke. Colleen Milatos had an income as manager of the resort. Mr Milatos was working for Australian Transportable Homes and doing small jobs for some other organisations.

[337] Late in 2000 the marital relationship between George and Colleen Milatos suffered a breakdown and the couple separated.

[176]

[338] George Milatos gave evidence that in January 2001 De Silva Hebron suggested that he sue Clayton Utz. Mr Milatos stated he disagreed as he could not see how Mr Mitaros could be at fault as he had never discussed the recreational easements with him. At this time Mr Milatos said he wanted to sue the Northern Territory Government. His evidence is that by this time he realised the recreational easements were an impediment to the development of the land at Lake Bennett.

[339] On 5 January 2001, Mr Milatos wrote to Denis Burke, in his capacity as Chief Minister and Attorney-General (Exhibit D119). Mr Milatos asked for Mr Burke's support in opening negotiations to avoid litigation against the Northern Territory Government and the Registrar-General. In this letter, Mr Milatos outlined the history of his problems in the Lake Bennett project and advised Mr Burke that the problems continued to cause considerable grief and financial loss.

[340] On 1 February 2001, De Silva Hebron on behalf of Mr Milatos filed a writ naming Guy Riley as the first defendant and Splinter Creek Pty Ltd (ACN 009 633 427) as the second defendant.

[341] In 2001 Colleen Milatos was one of the first persons in the Northern Territory to obtain accreditation for a resort.

[342] On 16 February 2001, Colleen Milatos wrote to the ANZ Bank (Exhibit D189). In this letter, she sets out the dire financial circumstances for the resort. The letter stated inter alia "As I write to you today, I do not have the capacity to pay wages next week". The letter goes on to give future bookings that have been made at the resort and the possibility of hosting two large conferences. The letter concludes by advising that in the absence of a commitment to fund the resort over the next six weeks, the resort would be forced to cease trading.

[343] On 7 June 2001, the ANZ Bank wrote to City Developments seeking actual income and expenditure details for the May 2001 period, together with actual income and expenditure for the first week of trading in June 2001 stating an assessment of the resort's performance is critical (Exhibit D123). On 7 June 2001, Mr Milatos wrote to the ANZ Bank setting out the current financial position of City Developments (Exhibit D124).

[344] On 8 June 2001, Mr Milatos wrote to the ANZ Bank concerning the suspension of work and stating that "all trust between us has gone" (Exhibit D122).

[345] During all of her time as manager of the resort, Colleen Milatos had been involved in the selling of the cabins and providing information to prospective purchasers. She was also involved in organising a club for the cabin owners, races on the lake and a Christmas and progressive cocktail party for all the bungalow owners.

[346] Colleen Milatos described some of the problems she had in dealing with the cabin owners. She had told them what she believed to be the truth with respect to the easements and other issues. She gave evidence that it was not until the first day of the hearing of these court proceedings that she realised what the real problem with the easements was and that what she had been telling the cabin owners was not correct. She had been assuring them that everything was alright and presenting a positive aspect for the sake of the business.

[347] On 11 June 2001, Mr Milatos wrote to the ANZ Bank in Adelaide (Exhibit D125) advising he had reduced the prices of units to the 1996 level. He requested a new overdraft limit as his cheques were bouncing. He stressed the need to keep the resort trading until they could sell. He referred to a proposal to have Kennedy McVann, real estate agents, auction the resort.

[348] On 29 August 2001, the Northern Territory Court of Appeal delivered its decision concerning the validity of the easements, upholding the decision at first instance and confirming the easements were good in law. City Developments were ordered to pay costs of both hearings.

[349] On 31 August 2001, Mr Milatos applied for a five year extension of the completion date of the development under the disclosure statement (Exhibit P153). The Registrar-General replied on 14 September 2001 advising the easement holders would be given 21 days to consider their options. He proposed advising the easement holders their interests were not affected by the application for an extension of time.

[350] On 17 September 2001, the sale of cabin 42 for $130,000 was completed.

[351] During August and September 2001, Mr Milatos sought legal advice from Mr Geoff James. He subsequently transferred his files from De Silva Hebron.

[352] In December 2001, the project at Lake Bennett came to an end. On 21 December 2001, the Supreme Court granted an injunction on an application by the easement holders effectively preventing any further titles being issued at Lake Bennett. The judgment in favour of the Scartons was that without the consent of the easement holders, time for performance of the development could not be extended.

[353] On 31 December 2001, the time permitted by the disclosure statement for completion of the project expired.

[354] The easement holders applied to have City Developments wound up after obtaining a costs order with respect to the easement litigation. Mr Milatos arranged with Michael Milatos, for City Developments to obtain a loan to cover the costs order. The Coomalie Council continued the petition to wind up the company. The latest date for completion of the development was 31 December 2001. Mr Milatos tried to have this extended. The Registrar-General was unable to grant approval for an extension because of the injunction.

[179]

[356] The report made a number of recommendations concerning the importance of resolving the issues affecting the recreational easement holders.

[357] Colleen Milatos gave evidence as to the number of reports she was required to prepare for the ANZ Bank during the latter part of 2001 and the early part of 2002. On 26 February 2002, she applied for planning approval to build a conference facility at the resort. The plans were not approved. She became an expert in exchanging accommodation for advertising. It was her wish to continue operating and expanding the resort. She continued working very long hours every day. During 2002, Colleen Milatos was awarded the Brolga Award for Tourism Excellence for the resort. The two Brolga Award certificates are Exhibit P187.

[358] On 18 February 2002, a facsimile was sent by the ANZ Bank to George and Colleen Milatos attaching a letter addressed to Peter McVann of Knight Frank (NT). This attached letter to be signed by City Developments was an authority to Mr McVann so he could prepare a submission to initiate a marketing campaign and sell the resort, Section 245 Hundred of Howard (Exhibit D128).

[359] On 20 February 2002, Mr Milatos wrote to Mr McVann listing Section 245 at Lake Bennett with Mr McVann's company for sale. He advised Mr McVann that any improvements to the resort, including future extensions, will require the consent of the recreational easement holders (Exhibit D129).

[360] In March 2002, City Developments' debt to the ANZ Bank including interest was approximately $2.4 million (Exhibit P210).

[361] On 19 March 2002, Mr Milatos had a meeting with Mr Meers from the ANZ Bank and Michael Milatos regarding the sale of the resort to Michael Milatos. At this time George Milatos entered into a private arrangement with Michael Milatos which allowed George Milatos to acquire the resort at some future date upon repaying Michael Milatos what he was owed with respect to the resort.

[362] On 13 May 2002, Lake Bennett Wilderness Resort Pty Ltd a company owned by Michael and Pauline Milatos purchased Section 245 Lake Bennett Resort for $500,000. George Milatos gave evidence he commenced work as the resort manager.

[363] As a result of the arrangements entered into in March, April and May 2002, George and Colleen Milatos acquired the title to units 57 and 51 from City Developments for $200,000. By Deed of Release dated 14 October 2002, George and Colleen Milatos were released from their personal guarantees for the debts of City Developments on condition they would institute and pursue the litigation with respect to the recreational easements and from any proceeds pay the debts of City Developments to the ANZ Bank (Exhibit P12).

[364] On 15 October 2002, Michael and Pauline Milatos borrowed $63,920.75 from the ANZ Bank. This money was loaned to City Developments who paid it to the creditors who were petitioning for the winding-up of City Developments to recover the balance of costs of the easement litigation (Exhibit P12).

[365] Late in 2002 there was mediation between representatives of the Northern Territory Government, George Milatos and the easement holders. Mr Milatos gave evidence that as a result of the mediation the property (Section 245) was split into two. One part comprising the lake over which the recreational easements are registered and the other part comprising the dry land of the resort which is free of recreational easements.

[366] This mediation resulted in Parliament passing an Act regarding the land title and easement situation at Lake Bennett. The Lake Bennett (Land Title) Act 2005 (NT) commenced on 9 March 2005. This Act provided, amongst other things, for a mechanism to extinguish the recreational easements to the extent that they affected the resort development and the unit development other than the common property area which formed part of the unit development. The easement rights remained over the lake and undeveloped part of the foreshore. The legislation also provides that:

[185]

[372] On 19 February 2004, a loan agreement was made between Lake Bennett Wilderness Resort Pty Ltd, George Milatos, Colleen Milatos and Geoff James. Mr James took a second mortgage over the resort to protect his costs in the litigation. Exhibit D169 is an extract of the loan agreement (pp1-3 and 14).

[373] In an e-mail dated 31 March 2004, Mr Anderson as solicitor for the Northern Territory, addressed to Michael and George Milatos, asked for information about the legal or equitable interest that George or Colleen Milatos had in the resort company or any understanding between Michael Milatos and George Milatos whereby George or Colleen Milatos may in the future gain an interest in the resort. Michael Milatos replied on 6 April 2004 (both documents are Exhibit D167). Michael Milatos advised in this letter that he purchased the resort because he was financial enough to take advantage of the mortgagees valuation. He stated he did not purchase the resort for George and Colleen Milatos nor had he made a commitment to pay them any amount from profits he may make in the future. He had told them that if he sold the property for a profit he would be willing to help George and Colleen Milatos financially, primarily to assist them to pursue their legal case against the Northern Territory and Clayton Utz. Michael Milatos stated that when the property was put up for sale by public tender, a few months previously only two tenders were received for just over $700,000. Michael Milatos did not advise Mr Anderson of the verbal arrangement he had with George Milatos and that George could purchase the property back from him if he could pay Michael Milatos all that he was owed. Michael Milatos gave evidence he reserved the right to put the property on the open market if that became necessary.

[374] Asked about the letter to George Milatos dated 3 March 2005 (Exhibit 165) Michael Milatos stated that since this letter they have approval to build 12 lake view rooms but he had been reluctant to spend any more funds. No work had been done on the 42 garden wing rooms, the 20 budget rooms or the 33 caravan sites for the same reason. Work had been done at the resort to expand the conference area to cater for larger conferences. George Milatos and his son did this using monies extended by Michael Milatos. Michael Milatos said he was aware George Milatos was exploring the possibility of building units on the resort land and strata title them to be sold freehold to prospective owners.

[375] In March 2005, George Milatos forwarded a letter to Michael Milatos seeking funding for the resort expansion.

[376] On 9 March 2005 the Lake Bennett (Land Title) Act commenced. The "object" of the Act was:

[188]

[377] Michael Milatos gave evidence he purchased Unit 200 at Lake Bennett early in 2006 from City Developments (in liquidation). This consisted of 15 lakeside lots all of which had sold, the last one sold in about January 2007. He retained unit 58. These 15 lots are being built upon by San Industries Pty Ltd ("San Industries") which is owned by George Milatos. It was George Milatos who informed Michael Milatos that Unit 200 was for sale. When he purchased the land on the eastern side of the lake, Michael Milatos entered into a verbal contract with George Milatos who was to construct the buildings, two and three bedroom units, and do the marketing. Michael Milatos said his primary interest was to keep George Milatos employed and provide him with an opportunity to have a job. Michael Milatos stated he expected to double his investment in the project. He stated George was getting paid a fee per house. There is no agreement to share the profits with him. The standard fee for a two bedroom house is $120,000 and for a three bedroom house is $150,000. Michael Milatos gave evidence that George Milatos would build the houses and receive a fee and the balance of the funds go to himself. Five units have been completed and waiting issue of the titles. Michael Milatos has loaned San Industries the money to build the houses. George Milatos has not applied for progress payments. He agreed this was an unusual arrangement but stated that George is his brother. Michael Milatos agreed that he will receive close to $1,000,000 for the land component of Unit 200 when all the houses have sold. He paid $300,000 for the land and will have tripled his money. He has never discussed sharing this profit with George. Michael Milatos said he had made a deal with George Milatos that when George had paid him what the resort had cost Michael to purchase, then George would be entitled to have it returned to him. He gave evidence there was no documentation to this effect. George Milatos had been running the resort since Michael Milatos purchased it in May 2002 in the name of Lake Bennett Wilderness Resort Pty Ltd. This was a shelf company Michael Milatos had purchased. Michael and Pauline Milatos hold the shares in that company. The purchase price of $500,000 plus a further $100,000 as working capital was arranged with the ANZ Bank and guaranteed by M & P Pty Ltd ("M & P") a company owned by Michael and Pauline Milatos. Michael Milatos gave evidence he had since transferred to the Commonwealth Bank. There is an interest bearing loan. George Milatos pays the interest from the takings at the resort. Michael Milatos said he had made further loans to the resort which included a tax bill, wages during the wet season and stamp duty.

[378] Michael Milatos was shown a letter from George Milatos dated 3 March 2005 (Exhibit D165). He agreed the letter fairly represented the arrangements between them. In this letter George Milatos sets out his plans for the further development of the resort and the estimated cost. On p3 of this letter he states under the heading "Brief History":

[193]

[379] Michael Milatos gave evidence that he did lend George Milatos the $300,000 for the purpose as requested by George. Michael Milatos said he had not funded his brother to bring this litigation and apart from the sum of $25,000 or $28,000 obtained from the refund of stamp duty on the purchase price of $500,000 he had not paid any of George Milatos' legal fees to Mr James. Michael Milatos gave evidence there were no monies loaned to George and Colleen Milatos from the resort in regards to the litigation. There was a second mortgage on the Lake Bennett Wilderness Resort to cover George and Colleen Milatos' expenses in regards to the litigation. Michael Milatos repeated the fact he had only ever bought the resort to provide employment for George Milatos and his then wife. His interests were protected by a first mortgage. It is the evidence of Michael Milatos that he only ever wanted to recover what he had paid for the resort. George Milatos was free to take out a second mortgage. Michael Milatos said he had acquired the property for a good price and wanted to preserve George Milatos' right to buy it back if he could at some later time, provided he paid him the money he owed. Michael Milatos said he agreed to a second mortgage with the bank to safeguard Geoff James' position as far as fees were concerned.

[380] Michael Milatos agreed the construction had commenced on 11 to 12 of the lots in Unit 200 and the value of the work when completed on 14 lots would be in the vicinity of $1.5 to $2 million. He also agreed that following the subpoena issued to M & P, there were no documents produced that evidenced any arrangement between himself or his company and his brother George Milatos or his company concerning the construction of houses on Unit 200. Michael Milatos stated that his company had no records as to the costings for the houses, no plans or specifications. He said that there was a verbal agreement between himself and his brother. He said when the individual units are sold he would have a transaction from San Industries as an invoice. He would then pay the required amount and there would be a record of this for tax and other purposes. Michael Milatos said he had made loans to San Industries in the order of $900,000 but the titles were still in his name and upon settlement there would be monies paid on presentation of an invoice. He stated he had personally and periodically inspected the progress of the work. Michael Milatos was referred to a number of cheque butts showing he had made a series of payments from M & P to San Industries commencing on 15 October 2006 for $100,000 for building of houses and payments up to 14 February 2007 totalling $600,000. Michael Milatos said the balance of $300,000 he was referring to in his evidence related to the amount he paid for the purchase of the land. From these payments San Industries have had to pay for the labour and materials for the construction of the houses. The loans would be repaid upon the sale of the units. He did not keep costings on the building of the units because he was not the builder. He was the developer.

[381] Michael Milatos was referred to a letter he wrote on 6 February 2006 to the liquidator of City Developments putting forward a proposal to purchase Unit 200, Section 1252 Chinner Road, Lake Bennett. The letter notes the current market value of the land as assessed by Michael Mooney, a valuer, was $260,000. The letter was tendered and marked Exhibit D166. Michael Milatos agreed he and George Milatos thought this would be a good buy. The offer to purchase was by private treaty rather than putting the property on the open market. Michael Milatos agreed that he had tripled his money on the investment. He confirmed that the only arrangement with George Milatos was that George would receive his builder's margin on the building of the houses. Michael Milatos gave evidence that there had been no downturn in his business in 2000 because of the introduction of Goods and Services Tax. Michael Milatos gave evidence that his company M & P has the building permits issued in respect of each of the lots in Unit 200. The building permit to build on 15 lots in Unit 200, Section 1252 Chinner Road, Lake Bennett dated 6 September 2006 was tendered (Exhibit D168). Section 1252 was formerly part of Section 244. George Milatos has sought formal legal advice on this issue. Michael Milatos stated that George Milatos had done all of the work entailed in the building of the houses on Unit 200. George Milatos' company San Industries was handling the sale of the houses through Kristen's Conveyancing Services. Michael Milatos said he may at a later time consider giving George Milatos something more than his builders margin, but at present that had not been discussed.

[382] Michael Milatos gave evidence about a number of his brother's building projects and matters that were investigated but did not come to fruition. He agreed that George Milatos had a particular interest in large scale commercial developments. Others have described George Milatos as a visionary developer. Many of the projects met with an unhappy ending or did not come to fruition but they were trying to get things moving in Darwin at a time when the only other developments were warehouses at Winnellie and houses in the Northern suburbs. No one at that time was building units.

[383] Details of buildings completed by Cento Pty Ltd (the building company of which Michael Milatos is a director) between 1991-2006 and profits made totalling $6,071,212 was tendered as Exhibit D170.

[236]

[398] With respect to the matters about which George Milatos has given evidence and Mr Mitaros could have been expected to give evidence, then the inferences must favour the plaintiffs. For example there is a letter from Mr Mitaros to Morgan Buckley Lawyers dated 20 August 1996 (Exhibit D49 and Exhibit P5 Vol 3) which is relevant to the easements. Mr Milatos gave evidence he did not see this letter until some years later (tp 359-363, 371-373, 375-376, XXM tp833-840 and RXM tp1281-1282).

[399] The plaintiffs have established misleading or deceptive conduct on the part of the defendant under s 52 of the Trade Practices Act.

[400] In a claim under the Trade Practices Act or the Consumer Affairs and Fair Trading Act, the relevant question on causation in a "no transaction case" involves a comparison between the position the plaintiffs are in, having embarked upon the transaction or project, and the position they would have been in if they had not embarked upon it.

[401] The plaintiffs need to show the defendant's contravention was a cause, not the sole or principal cause - Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [126] per McHugh J and at [162]-[163] per Hayne J.

[402] On the balance of probabilities, if the defendant had properly advised the plaintiffs with respect to the easements, the plaintiffs would not have caused City Developments to proceed with the option to purchase the property and therefore City Developments would not have proceeded with the project at Lake Bennett.

[403] The defendant's submission is that a person who breaches s 52 of the Trade Practices Act is responsible only for the losses directly attributable to his wrongdoing and is not responsible for losses that do not relate directly to the misrepresentation (Travel Compensation Fund v Tambree t/as R Tambree and Associates [2005] HCA 69; (2005) 224 CLR 627; Collins Marrickville Pty Ltd v Henjo Investment Pty Ltd (1987) ATPR 40-822; Trust Co of Australia v Perpetual Trustees WA Ltd & Ors (1997) 42 NSWLR 237; St George Commercial Credit Corporation Ltd v Collins Wallis Properties Pty Ltd unreported judgment of Rolfe J in New South Wales Supreme Court delivered 21 August 1998 (BC 9804076)). In Carr v Fischer [2006] NSWCA 313 (BC200609425), the court held that the solicitor had been retained to carry out certain investigations relating to one of the earlier investments. This could not be characterised as requiring the solicitor to provide views about financial matters, and accordingly, the breaches alleged against the solicitor could not have caused the plaintiff's losses.

[404] The defendant places reliance on the statement by Gaudron J in Kenny & Good Pty Ltd v MGICA (1992) Limited [1999] HCA 25; (1999) 199 CLR 413 at [26] "a person who negligently provides information or advice should not be held liable for loss that would have been suffered if the information had been correct".

[405] Mr Maurice QC, on behalf of the defendant, submits that Henville v Walker (supra) which was decided before the recent amendments allowing deductions on account of contributory negligence, is authority only for the proposition that an applicant for damages under s 82(1) cannot have his damages reduced on account of his own contributory negligence.

[406] Mr Maurice QC distinguishes the decision in Henville v Walker (supra) from the matter before this Court on the following basis (defendant's written submissions p179):

[249]

[411] It is the submission on behalf of the defendant that in so far as the plaintiffs' losses were caused, or made worse, by unreasonable conduct or want of prudence on the part of the plaintiffs, those losses should not be attributed to the defendant's conduct. Reasonableness in this context being as between the plaintiffs and the defendant - Henville v Walker (supra) per McHugh J at [140], I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (supra) per Gleeson CJ at [24], Mehta v Commonwealth Bank of Australia (supra) per Rogers CJ Comm D at 68,142.

[412] I accept the evidence given by both George and Colleen Milatos, that if they had been informed the existence of the recreational easements was completely inconsistent with their rights to build on the land, they would never have proceeded with the purchase of the Lake Bennett property.

[413] I accept their evidence that the very reason they wanted to purchase the land was to build upon and that Mr Mitaros was aware of this from the beginning. In addition to accepting their evidence it would defy commonsense that Mr Milatos, who was essentially a builder, would purchase land which he could not build upon - Kenny & Good Pty Ltd v MGICA (1999) Limited (supra) Gaudron J at [21].

[414] I accept the submission made by Mr Reeves QC that the plaintiffs' claim is a "no transaction" claim meaning that, but for the defendant's breach in failing to advise about the recreational easements, there would have been no transaction.

[415] The fact that such advice was never given was a decisive consideration in the plaintiffs' decision to proceed with the purchase of Lake Bennett.

[416] I agree with the submission made by counsel for the plaintiffs that this is not affected by any advice that may have been provided by the surveyor or the Registrar-General. Their input into this debacle does not detract from the decisive effect of the defendant's failure to give advice and therefore, its responsibility for the plaintiffs' decision to proceed with the project.

[417] I find that if the defendant had advised the plaintiffs in their capacity as directors of City Developments that recreational easements were inconsistent with their right to build on the land, they would not have made the decision to purchase the land at Lake Bennett and the Lake Bennett project would not have proceeded.

[418] The failure to advise of the effect of the recreational easements, which were directly inconsistent with the building of 80 cabins at Lake Bennett, was fundamental to the profitable operation of the Lake Bennett development not just a matter that affected the level of profit - see Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (supra).

[419] Mr Reeves QC submits the plaintiffs say the "but for" test should be applied in this case as described by Gaudron J in Kenny & Good Pty Ltd v MGICA (1999) Limited (supra) at [19], p425:

[255]

[423] I agree with the submission by counsel for the plaintiffs that the defendant cannot rely upon any contributory negligence by the plaintiffs based on the allegation that the resort was unviable and unprofitable from the outset - see Henville v Walker (supra) and I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (supra).

[424] As the recital of facts discloses under the "History of Lake Bennett" contracts for purchase of Lake Bennett - Section 152 were not exchanged until 24 March 1997, some 12 months after Mr Milatos first consulted Mr Mitaros. A few days prior to exchange of contracts, Mr Riley had received a letter from Cridlands expressly relating to the easements. The contracts could have been made subject to the vendor resolving the easements' issue, or alternately the plaintiffs could have pulled out of the purchase and been saved from subsequent disaster. Mr Riley agreed in his evidence that the purchase could have been stopped at this point.

[425] I also agree with the submission for the plaintiffs that the defendant cannot rely on the downturn in the property market in 1999 to reduce the defendant's liability. A downturn in the property market did not involve a human agent and was an event that could not be totally unexpected when dealing with buying and selling real estate. This did not constitute a cause of a separate and distinct part of the whole loss such that any reduction should be made in the plaintiffs' damages - see Henville v Walker (supra) Gleeson CJ at [33] and McHugh J at [90].

[426] I agree that the evidence of Mr Lewis is irrelevant on the issue of causation. I have already found that whether or not the resort was unviable and unprofitable from the outset is not a reason to reduce the damages to which the plaintiffs are entitled. It was the inadequate legal advice which caused the plaintiffs to purchase the property. Similarly, the evidence of Mr Gore is irrelevant as whether the loss of cabin sales in 1999 was caused by a drop in the market or rumours about the easements does not provide any basis for a reduction in the plaintiffs' damages. Mr Gore is a certified practising valuer and managing director of McGees (NT) Pty Ltd. Mr Gore also holds a real estate agent's representative licence under the Agents Licensing Act of the Northern Territory.

[427] I find later in these reason for decision that Mr Lewis has made some very justifiable criticisms of Mr Milatos as a financial planner. However, I am not able to find that City Developments would necessarily have gone into liquidation had it not been for the various problems the recreational easements presented. The evidence of both George and Colleen Milatos is that they intended to start small and build up over the long term. The project provided them with accommodation and a lifestyle they enjoyed. For them it was more than just a financial development. The project had over a period of time made a profit, even though not as large as predicted, on the cabin sales on Section 244. A report by Horwath Hospitality NT, prepared in June 1999, is Exhibit P158. On p2 of that report appears the following statement:

[260]

[430] Mr Reeves QC counsel for the plaintiffs, submitted that the relevant question on causation in a "no transaction" case such as this, involves a comparison between the position the plaintiffs are in, having embarked upon the transaction or project, and the position they would have been in if they had not embarked upon it (Henville v Walker (supra)). He further submitted that all the plaintiffs need to show is that the defendant's contravention was "a" cause of the loss not that it was the sole or principal cause (Henville v Walker (supra))

[431] I agree that the plaintiffs need to prove on the balance of probabilities that "if City Developments had received the advice from Nicholas Mitaros, would they have caused it not to purchase the Lake Bennett property and would City Developments have therefore not embarked on the Lake Bennett project but instead would the plaintiffs have operated as builder/developers in Darwin".

[432] The evidence of Mr Milatos is that Mr Mitaros never told him about the existing recreational easements. Mr Milatos stated that if he had received this advice he would have stopped the development immediately. He would have tried to work things out with the vendor. He gave evidence he is a builder and developer. He would not buy a property that he could not build on when this was his only interest in purchasing such property (tp 381). Under cross examination he gave evidence that if he had been aware of the restrictions of the easements over the resort in 1996, he would have turned around and walked away (tp 1072).

[433] Colleen Milatos gave evidence (tp 1760) that she would not have proceeded with the development at Lake Bennett if she had known it could not be undertaken because of easements. It had meant splitting up her family because she had a son attending high school in Darwin. She did not want to be involved in another controversy and it would not have made sense to buy the property if you could not build on it.

[434] I am satisfied on the evidence of George and Colleen Milatos, that the plaintiffs would not have proceeded with the purchase of Lake Bennett if they had been advised by Clayton Utz about the effect of the recreational easements that were on the title and that these easements were completely inconsistent with their ability to build.

[435] In Henville v Walker (supra) the High Court was considering an appeal from the Court of Appeal in Western Australia which court had allowed an appeal from the trial judge and found for the respondents. The action involved a claim by an architect (the appellant) against a real estate agent, who the architect claimed, had breached s 52 of the Trade Practices Act by a misrepresentation as to the demand and sale price for units the architect planned to build. There was also evidence the architect had seriously underestimated the cost of building the units and made other errors.

[436] The High Court reversed the decision of the Full Court of the Supreme Court of Western Australia and confirmed the award of damages to the appellant made by the trial judge, Gleeson CJ at 468-469:

[274]

[445] There are stringent requirements on the extent of the disclosure and the burden of proof is on the fiduciary in relation to it - Maguire & Anor v Makaronis & Anor (supra) at 466, 495 and 496. See also Birtchnell v Equity Trustees Executors & Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384, Isaacs J at 398.

[446] The defendant has failed to prove on the balance of probabilities that it made the necessary, full and comprehensive disclosure of its conflict to Mr Milatos. The evidence of Mr Riley, which has been summarised earlier in these reasons for judgment, is vague and uncertain. Mr Riley agreed in cross examination that his memory of the events, which occurred 9-10 years ago, is poor and he was at the time very busy with other clients. His evidence on this issue, such as it was, is not supported by any contemporaneous record. He gave evidence he did tell Mr Milatos he had made a mistake but could not remember if this was by telephone call or a face to face meeting. He did not state in his evidence that he told Mr Milatos that there was a conflict of interest between Mr Milatos and Clayton Utz because of a possible claim for negligence.

[447] I am not persuaded Mr Riley did admit to any mistake. His evidence is that his state of mind as at 7 April 1998 was that nothing had changed in practical terms. This was because he had always considered the rights of access over the land, which he previously believed the easements to be, created a problem in respect of building on the land.

[448] The correspondence from Mr Riley, prior to and after the file note of 7 April 1998, did not disclose he believed a mistake had been made - see letter from Guy Riley to Registrar-General dated 17 March 1998 with copy to George Milatos (Exhibit P5 Vol 5 pp520-522); letter dated 21 October 1998 Guy Riley to George Milatos (Exhibit P5 Vol 5 pp677-681); letter dated 23 October 1998 George Milatos to Attorney-General settled by Guy Riley (Exhibit P5 Vol 5 pp 692-695) and letter dated 2 February 1999 Guy Riley to George Milatos (Exhibit P5 Vol 6 pp752-757). Under cross examination Mr Riley agrees that the letters all contain the same theme which is that the easement holders' rights are not affected by the development at Lake Bennett.

[449] A number of times through his evidence, Mr Riley stated his belief was that Mr Milatos was in effect the author of his own misfortune. Accordingly, this misfortune was not something for which he considered Clayton Utz could be held responsible.

[450] Mr Riley agreed in cross examination that he had used words to the effect "you may believe I am culpable" when he spoke with Mr Milatos. This is very different to making any admission as to the specific mistake and advising Mr Milatos to seek independent legal advice.

[451] The file note made by Mr Riley on the Clayton Utz file dated 7 April 1998 (Exhibit P5 Vol 5 pp545-549), does not include any reference to a conflict of interest or that Mr Milatos had been advised to pursue independent legal advice. It does not support a finding that there had been a full and comprehensive disclosure of the conflict, or a full and comprehensive disclosure as to the effect of the recreational easements and that they were inconsistent with any building on the land.

[452] Mr Riley agreed in cross examination that the matter disclosed in the memorandum of 7 April 1998 was one of the most significant events in the history of the file (tp 2868). He also agreed that it was a situation that required careful explanation, a detailed letter of advice, a face to face meeting and a careful file note of the explanation that had been given. There was no detailed letter of advice as there had been on less important topics, nor was there a file note of any conversation whether in person or by telephone. The subsequent file note of 1 July 1999 makes no reference to any conversation disclosing a mistake or possible negligence on the part of Clayton Utz. The file note of 1 July 1999 (Exhibit P5 Vol 6 pp1152-1156) was to detail a possible negligence claim. It made no reference to the file note of 7 April 1998 or that Mr Riley had communicated with Mr Milatos about the possible negligence claim.

[453] In his evidence to the Court on this issue, Mr Milatos has denied that after 7 April 1998 Mr Riley told him of a possible negligence claim against Clayton Utz, that there was a conflict of interest and he should seek independent legal advice (tp 426-427).

[454] I find that the defendant did not have the fully informed consent of the plaintiffs to continue to act for them after the realisation of the full effect of the recreational easements as documented in the file note dated 7 April 1998. Mr Milatos gave evidence that he did not become aware of the file note dated 7 April 1998 until December 2003 when he was reading through the Clayton Utz file (Exhibit P5). I accept this evidence of George Milatos.

[455] On 2 February 1999, Mr Riley gave advice to Mr Milatos in a memorandum faxed to him, part of which has been quoted under "History of Lake Bennett 1999" in these reasons for judgment. The memorandum goes on to explain that the proposed Law of Property Bill may offer solutions but it was not known when it would come into force. He then advised that "the cheapest and simplest way of solving your problem is to get the easement holders to consent to the change to the disclosure statement". He then went on to explain why it may be difficult to obtain the agreement of Parliament to make the amendment to the Real Property (Unit Titles) Act which would remove the need for the easement holders consent entirely.

[456] He then concluded with the following words (Exhibit P5 Vol 6 p 756-757):

[282]

[460] There was still no clear statement made to Mr Milatos of what Mr Riley had concluded in the file note of 7 April 1998, that the recreational easements were completely inconsistent with building development. Mr Milatos had been aware for sometime that the easements created a problem at Lake Bennett. However, it had not been properly explained to him that as from 7 April 1998 his solicitors realised the earlier advice they had given about the easements was incorrect and that in fact the easements which created recreation rights were very different to easements that created rights of access.

[461] In July 1999, Mr Milatos retained new solicitors, De Silva Hebron. He forwarded a letter of termination of services of Clayton Utz by letter dated 9 August 1999.

[462] The defence submission is that the plaintiffs have not established that they suffered any loss as a result of the defendant continuing to act for them from April 1998 to July 1999.

[463] I do not accept this submission. The test of causation in relation to a breach of fiduciary duty is whether the undisclosed facts were material in all the circumstances. The issue is, in all the circumstances what a reasonable person in the position of Mr Milatos would have done had he been clearly informed by Mr Riley that building on the property was inconsistent with the rights of the easement holders, that the earlier advice he had received in relation to the easement was incorrect and that he should consider seeking independent legal advice as his interests could be in conflict with the interests of the defendant.

[464] I consider a reasonable person in the position of Mr Milatos would have stopped the project and sought independent legal advice as to his position which may well have resulted in legal proceedings being issued at that time against the defendant. The plaintiffs could have avoided their subsequent losses.

[465] Such an opportunity was lost as Mr Milatos was never informed about the contents of Mr Riley's file note of 7 April 1998. There is no evidence Mr Riley or anyone explained to Mr Milatos that the previous advice about the effect of the easements was incorrect and that he could not build anywhere on the Lake Bennett land.

[466] In Re HIH Insurance Ltd and HIH Casualty and General Insurance Ltd, Australian Securities and Investments Commission (ASIC) v Adler & Ors (supra), Santow J summarised the applicable principles in relation to causation in equity compared to common law at [748]. He stated at [749]:

[284]

[467] The defendant maintains that the Lake Bennett development was not something to which the plaintiffs were ineluctably committed on 24 March 1997 when the defendant caused City Developments to exchange contracts for the purchase of Sections 244 and 245. It is submitted that between that date, to the date when the property was sold in May 2002, the plaintiffs could have stopped City Developments spending money on the development, sought to extricate the company and exercise their rights against the Northern Territory and the defendant. The plaintiffs did not do this.

[468] Mr Maurice QC, counsel for the defendant, maintains that from April 1997 the plaintiffs knew the risks involved and that they may not be able to obtain a variation to the disclosure statement. It is the position of the defendant that the plaintiffs knew in March 1998 their solicitor's view was a variation to the disclosure statement was not possible without the consent of the easement holders. The defendant maintains that from April 1998 the plaintiffs knew that the easements created recreation rights over the whole of the land, rights which they knew were inconsistent with their development plans. The defendant maintained that following a conversation with Mr Riley on 10 March 1998, after the meeting with the Registrar-General, Mr Milatos knew his company had a cause of action for professional negligence against the defendant for failing to give the company appropriate advice about the easements. This, the defendant maintains, was reinforced on or about 7 April 1998 when, according to the defendant, Mr Riley told Mr Milatos that he (Mr Riley) had made a mistake in his earlier reading of the easements and that he was now in no doubt the easement holders could, if they wanted, stop the development.

[469] The defendant maintains the plaintiffs were not committed to the developments that were carried out at the first or second stages of the expansion of the resort merely by purchasing the resort. The second stage, the defendant submits, involved expenditure in excess of $1.15 million (Exhibits D82, D109 and D112).

[470] It is the defendant's case, that it was the decision of the plaintiffs to carry out the second stage of the resort development which led to the company becoming insolvent. Mr Maurice QC stressed that the second stage of the development was carried out after they received advice from Queen's Counsel, and in the face of this advice, they sold their property at Gunbar Street in Bayview, for the purpose of the resort development.

[471] In late 1998 and the first half of 1999, City Developments spent money developing new sites on the western side of the lake, for many of which it did not have approval. (Exhibits D92, D71, D94, D73, D95, P5 Vol 6 p752, D97, D78, D98 and D105).

[472] Counsel for the defendant maintains that by purchasing the land the plaintiffs were not committed to this development or to the action commenced against the easement holders.

[473] On behalf of the defendant it was further maintained that Mr Milatos was convinced he had a cause of action against the Northern Territory because of "misinformation" provided by the Registrar-General, accordingly he must also have been aware that he had a cause of action against Clayton Utz.

[474] The defendant stated that City Developments made a net profit on the cabin developments of $772,000. The defence submission is that at that time the losses were yet to be sustained and avoidable. It is the case for the defence that the losses are attributable to developing the resort and operating it at a loss for over five years.

[475] It is not an appropriate case, the defendant asserts, to apply the "but for" test only at the date of exchange of contracts i.e. 24 March 1997. On their argument, there is no sufficient connection between the losses which could have been avoided and the failure by the defendant to give appropriate legal advice.

[476] It is the defendant's case that despite the evidence about the risks of further development, and the advice Mr Milatos was given relating to these risks from Mr Riley and Mr Waters QC, Mr Milatos continued the development and in doing so took risks which he cannot now attribute to the defendant.

[477] The defendant maintained the plaintiffs lost their directors' loans because their company became insolvent and the reason the company became insolvent was because the resort was not commercially viable and operated at a loss for five years. The defendant maintained, in particular, by reference to the evidence and report of Mr Lewis, that the location of a resort style development at Lake Bennett was not financially sustainable. The defendant argued this had nothing to do with the easements but rather the debt the plaintiffs allowed to accrue in developing and operating a commercially unviable resort.

[478] In late 1999, there was a fall off in cabin sales which the defendant maintains was due to a downturn in the property market, not the effect of the easements.

[479] The defendant's case is that the plaintiffs have seized upon the easements as being the cause of all their problems, whereas in reality it was their own ill founded expectation that the development at Lake Bennett would be commercially successful.

[480] The defendant seeks to rely on what it alleges was the imprudent and unreasonable conduct of the plaintiffs in building 21 rooms at the resort in 1999 and installing services on the western side in 1998 and 1999. The defendant asserts that the plaintiffs were imprudent in raising a further loan from the ANZ Bank to finance these projects in the face of the advice Mr Milatos had received from both Mr Riley in his facsimile dated 2 February 1999 (Exhibit P5 Vol 6 pp752-757) and the opinion of Mr Waters QC dated 16 February 1999 (Exhibit D78). Mr Milatos was aware that the Registrar-General would not amend his disclosure statement without the consent of the easement holders.

[481] It is the submission for the defendant that the plaintiffs themselves caused the insolvency of City Developments in 2002 by obtaining a further loan in excess of $1 million in 1999, despite clear advice from Mr Riley and Mr Waters QC that because of the rights of the easement holders it would be commercial folly to continue building at Lake Bennett.

[482] The onus of establishing these matters is upon the defendant (Henville v Walker (supra) per McHugh J at [70] and per Hayne J at [146]-[148]).

[483] A sample of the statements in the facsimile from Mr Riley dated 2 February 1999 is as follows:

[298]

[488] The defendant did not really identify a separate and distinct part of the plaintiffs' loss. There is no simple empirical measure of a separate and distinct loss.

[489] The plaintiffs had planned the development of the resort and the building of cabins around the foreshore from the very beginning of the project. It was not a new intervening event.

[490] With respect to the reasonableness or otherwise of the plaintiffs' conduct, I take into account the following:

During 1998 and 1999 and due very much to the hard work of Colleen Milatos in marketing the resort, there was a demand for additional accommodation and it was reasonable to build extra rooms at the resort.

The ANZ Bank approved a loan of $1.1 million on 7 July 1999 following a valuation undertaken by Colliers and a feasibility study completed by Horwaths (Exhibit P158). The vast majority of the $1.1 million loan was expended on building the rooms at the resort (George Milatos at tp 399). George Milatos gave evidence (tp 1300) that he built on the western shore at this time to take advantage of the good weather. From the total amount borrowed only about $150,000 was expended on the western shore. The sale of the cabins was to finance the development of the resort. The sale of cabins had, prior to this time, been good and returned a profit enabling the ANZ Bank debt to be reduced.

At the time of construction the cabin sales were going well, the debt to the ANZ Bank had been reduced and there was an expectation the remaining cabins would sell. It was not until late in 1999 that a problem with cabin sales became apparent.

[491] Whilst Mr Riley and Mr Waters QC both referred to the existence of the easements being a problem, in respect of the development of the project, this advice was amongst advice on a series of matters as to how the problem could be resolved. It was not an unreasonable expectation, in the plaintiffs' minds, from the advice they had received, that either court action or legislation would resolve these problems. No advice was given at this time with respect to the effect of the easements on Section 245 and the building of the 21 rooms at the resort.

[492] The facsimile from Mr Riley to Mr Milatos dated 2 February 1999 and the opinion of Mr Waters QC dated 16 February 1999, arose as a result of Mr Milatos wanting to vary his disclosure statement for a second time. Both of these pieces of correspondence continue to provide Mr Milatos with possible options to continue with the development at Lake Bennett. Some of the options included:

amendments to legislation;

approach easement holders to obtain their consent;

continue with the development under the original proposal until the easement holders obtained an injunction to stop the development, or

[324]

[509] I accept the evidence of George and Colleen Milatos as to the time and effort each of them put into the Lake Bennett project. I have already detailed these efforts in the course of my findings of fact under the headings "History of Lake Bennett". For both George and Colleen Milatos the Lake Bennett development was a way of life, as well as a commercial enterprise which almost totally consumed their time.

[510] George Milatos was the builder/developer and involved himself in sales. George attended to the legal and financial affairs for Lake Bennett. A great deal of his time and energy between 1996 and 2002 was spent in trying to find a solution to the problems created by the recreational easements. A problem he would never have had to wrestle with if he had been properly advised by Clayton Utz as to the effect of the recreational easements. Colleen Milatos was the resort manager which included running the restaurant and management of staff. She had spent a great deal of time and energy in the physical presentation of the resort including the gardens. Colleen Milatos marketed the resort and had been successful in winning a number of awards. This time and effort was wasted once the resort was sold and City Developments was placed into liquidation on 21 November 2002.

[511] Mr Holmes gave evidence (tp 1834) in which he explained the lost earnings schedule and calculations which is Exhibit P191.

[512] Mr Maurice QC, counsel for the defendant, submitted that there is no evidence to support such a claim. It is the submission for the defence that the only relevant wastage is, if one or both of the plaintiffs would have earned more by way of remunerations, in the relevant period, had they not gone to Lake Bennett.

[513] It is the defence submission that a claim for wasted labour cannot be made by Colleen Milatos on the basis of her evidence that she would not have worked elsewhere had she not gone to Lake Bennett (tp 1761). I do not accept this submission. Colleen Milatos, in effect, lost the opportunity to work elsewhere between 1996 and 2002 because she was fully employed at Lake Bennett.

[514] Mr Maurice QC argues that the fundamental difficulty with the approach taken by the plaintiffs, in respect of the claim for wasted time and energy between 1996 and 2002, is that they have not put forward any evidence as to what period of time Mr Milatos spent working for Australian Transportable Homes between 1996 and 2002 and it is not possible to calculate how much he lost because his time and energy were lost as a result of going to Lake Bennett.

[515] I accept that it is not an easy exercise to make such an assessment. Mr Milatos did receive an income from Australian Transportable Homes and Colleen Milatos was paid a wage as manager of the resort. Nevertheless, they both put in a great deal of work and effort into Lake Bennett and on City Developments going into liquidation came away with nothing.

[516] Mr Holmes has over 25 years of experience as a chartered accountant and has been practising in the area of valuations, investigations and assessment of loss and damage for over 15 years. He is a partner in the firm of Ferrier Hodgson in Adelaide. Mr Holmes proceeded on the basis that between January 1997 and May 2002, Colleen Milatos received a total remuneration of $131,687. I accept the evidence of Mr Holmes that based on her experience and expertise, Colleen Milatos could have expected to earn $65,000 per annum. Mr Holmes then deducted 15% for general contingencies and, after allowing for the remuneration received of $131,687, arrived at the figure of $420,813. Mr Holmes agreed in examination in chief that having been advised of the evidence of Colleen Milatos that she would not have worked outside the home had she not gone to Lake Bennett, then the component for unpaid labour for Colleen Milatos assessed in the sum of $420,813 before tax could not be pursued.

[517] The actual question put to Colleen Milatos and her response as appears on the transcript as follows (tp 1761):

[326]

[518] I note, however, that the claim is still pursued in the plaintiffs' written submissions. I interpreted the evidence given by Colleen Milatos as meaning she had no other plans because of her commitments to Lake Bennett. I did not interpret this evidence as meaning she would not have worked outside the home at all if they had not gone to Lake Bennett. Indeed, her history would not support such a finding. She had previously obtained qualifications in the field of real estate and had worked to support her husband's endeavours whatever they may be. She was very involved with his business building Harbour View Plaza. I find that in reality, Colleen Milatos would have worked to support and assist her husband in whatever endeavour he took on and that he would only have taken on a project with her approval.

[519] In addition, the question and answer, need to be considered in context. Colleen Milatos had given evidence she would not have gone to Lake Bennett if she had known the development could not be undertaken because of the easements on the title. She had given evidence about the inconvenience to her family life of moving to live at Lake Bennett. She gave evidence that she would not have moved from the "beautiful home" they had, to go to Lake Bennett, or sold the other properties they had to invest in Lake Bennett if she had known the effect of the easements. I took her response "I'd have still been at home" as a reference to the fact she would still have had a beautiful home to live in had they not moved to Lake Bennett and was not a response relevant to work.

[520] For those reasons, I consider Colleen Milatos is entitled to the claim for wasted time and effort. These figures are supported by the tax returns of Colleen Milatos (Exhibit P196) and the evidence of Mr Holmes including his report (Exhibit P190 par 11.3.4).

[521] Based on Mr Holmes' methodology I would make an award to Colleen Milatos for six years between 1996 and 2002 at $65,000 per annum which equals $390,000 less 15% for contingencies being $58,500, leaves $331,500 less the amount of $131,687 remuneration received equals $199,813. There is no evidence to support a claim for Colleen Milatos after she left Lake Bennett at the end of 2002.

[522] Mr Holmes did calculate a figure for the unpaid labour of Mr Milatos up to December 2006 as being $892,500 before tax. Mr Holmes noted in his report that Mr Milatos had totally diverted his energies into the Lake Bennett project and not received any remuneration from the Lake Bennett Trust in respect of his labours. This was calculated noting that Mr Milatos did receive remuneration from Australian Transportable Homes during the relevant period and assumed that would have been otherwise received. He then calculated a figure on the basis that Mr Milatos would have earned not less than $100,000 per annum up to December 2006. He discounted this by 15% allowing for general contingencies.

[523] Based on these calculations, Mr Milatos could have earned $100,000 per annum from March 1996 to May 2002 (approximately six years) being $600,000 in addition to any earnings from Australian Transportable Homes. This is $600,000 less 15% for contingencies being $90,000, leaving a figure of $510,000.

[524] I have concluded that Mr Milatos is entitled to a claim for lost effort up till May 2002. From May 2002 he commenced receiving a salary as manager of the resort. Mr Milatos stated this was $41,000 plus superannuation. He has also been in receipt of benefits in his capacity as resort manager. These benefits include, a four wheel drive motor vehicle which is leased, mortgage payments on his residence at Lake Bennett, being Unit 57 and part payment of his fuel and telephone bills (tp 767). There is evidence George Milatos and his son worked on expanding the resort with financial assistance from Michael Milatos. He subsequently commenced receiving a builder's margin for building on the various parcels in Unit 200. He is subcontracted to build through his company San Industries. I make no allowance for wasted effort following his appointment as manager of the resort in May 2002. I have concluded that what he has received since May 2002 is better than he could have expected to receive in any other capacity.

[333]

[528] There is evidence from a number of witnesses that the building industry in Darwin, particularly unit development, has been a profitable enterprise. Michael Milatos has given evidence (tp 1353) that he emerged from the liquidation of Milatos Constructions in about 1991/92 without any assets. He gave evidence he started doing small alterations on houses and small contracts and built up from there. He then gave evidence that his role as a developer over the years had returned more profit because he did the building himself. He stated that this meant there was no builder's margin. His evidence is that in the last seven to nine years in Darwin it has been very profitable to be a builder, that there has been an excessive amount of work especially in the unit market.

[529] Mr Stefan Koser gave evidence he is a building engineer. In 1987 he, in partnership, established a building company known as Norbuilt Pty Ltd ("Norbuilt"). He continued as a director of the company until 2001. He provided a list of the buildings with which Norbuilt had been involved, these included townhouses, units, shopping centres and office buildings the largest one being at 282 Casuarina Drive which involved 11 units. He gave evidence that overall during this period, Norbuilt made a profit.

[530] George Milatos himself has a long history in the building industry, including the skills necessary for building houses and units. This history has been detailed under the heading "History of George and Colleen Milatos prior to 1996" earlier in these reasons for judgment.

[531] City Developments, through the efforts of George and Colleen Milatos, was able to make a profit from the building and selling of cabins at Lake Bennett over a specific period of time. The report of Mark Lewis, (Exhibit D213) who is a chartered accountant, business adviser with particular expertise in tourism related projects and managing director of MLCS Corporate Pty Ltd, indicates that City Developments made a cumulative net profit from the condominium development on Section 244 up to the date of liquidation on 21 November 2002 of $772,000. There is evidence from the Australia Bureau of Statistics building activity surveys (Exhibit P206) that there was considerable building activity in Darwin between 1997/99, a downturn in such activity between 2000/02 and an increase again in the activity during 2003/04.

[532] Throughout his working life, both prior to the purchase of Lake Bennett and whilst at Lake Bennett, Mr Milatos has been involved in the building and construction industry. I accept that had he not taken up the Lake Bennett project he would have continued in partnership with his then wife in developing and building.

[533] This is confirmed by the fact that Mr Milatos has in fact continued building and is building on all 15 lots that constitute Unit 200 at Lake Bennett, receiving the construction profits and the opportunity of a share in the overall investment profit.

[534] It is also relevant to take into account the fact that Mr Milatos has had both financial success and failures during his history as a builder. Between the years of 1989/91, he was in difficult financial circumstances and spent a great deal of time attempting to raise money through loans to stave off insolvency. In 1989 he was forced to sell his own home. In 1991 his company, Milatos Constructions, went into liquidation. Between 1993-96 he conducted a business building transportable homes. The returns on this were reasonably modest. Table 2 on p13 of Mr Lewis' report (Exhibit D213) shows that between 1995/98 Australian Transportable Homes had a cumulative net profit. The company made a loss in 1999 reducing the amount of cumulative profit. There is evidence that during this time, Mr Milatos spec built two houses and a block of five units in a joint venture with two other persons. From the evidence provided by Mr Forwood (tp 2464), the venture made only a small profit.

[535] I accept the submission of Mr Reeves QC, counsel for the plaintiffs, that in assessing the value of the lost opportunity this Court has to assess fair and reasonable compensation to restore the plaintiffs to their pre-breach situation.

[536] The Court is greatly assisted in this process by the evidence of various experts.

[537] I will turn to consider what has been described as Loss of Opportunity - Option B. In support of this claim, Mr Milatos prepared Exhibits P16 and P17 as representing the way the plaintiffs say they would have acted had they not gone to Lake Bennett.

[538] Exhibits P16 and P17 evolved from earlier models which are no longer relied upon. The changes were effected following comments made by various experts called by the defendant. These comments highlighted the weaknesses in the earlier models which included matters that had, as Mr Maurice QC submitted, been understated, e.g. the constructions costs miscalculated or overlooked. I accept that the sales income in Appendix 14 is substantially over stated.

[539] In their written submissions, counsel for the defendant has included Appendix C which sets out the evolution of the plaintiffs' building program.

[540] I accept the evidence of Mr Milatos in that he now genuinely believes (tp 499) that if he had not gone to Lake Bennett he would have come back to Darwin, assessed what blocks were available in the areas he would choose to be building and selling, proceeded to purchase such property and start planning to build units. However, I consider this evidence is in fact given with the benefit of hindsight and in anticipation of this litigation.

[541] The statement by George Milatos (tp 389) that he "would've simply gone back to another development whatever that might be, probably in Darwin", is not necessarily inconsistent with his evidence relating to assessing suitable land to purchase in the Darwin area and building units. Counsel for the defendant points to the evidence of Mr Milatos where he agreed that in 1996 he had no specific plans to go into residential development in Darwin. The defendant relies on such evidence as being sufficient to dispose of any lost opportunity claim based on Exhibits P16 and P17. At that time, being 1996, George and Colleen Milatos were enthused about the potential for development at Lake Bennett. It is quite consistent that they would not have been considering unit development in Darwin.

[542] I do take into account the fact that in 1996 the plaintiffs had no working capital and in fact had to borrow all of the money including loans from persons who not only had to be repaid, but were to be provided with a bungalow.

[543] The sale of unit 3/51 Stoddart Drive Bayview, on 28 February 1997, resulted in the sum of $84,130.65 being paid into a cheque account and $150,000 into a residential investment loan (Exhibit D35).

[544] On 16 October 1997, 39 Stoddart Drive Bayview was sold for $285,000 (Exhibit D32). A letter from the ANZ Bank to City Developments dated 16 October 1997 stated a total of $71,904.89 had been paid into cheque accounts of City Developments and Lake Bennett Wilderness Resort and that $201,578.37 had been applied to pay out a residential investment property loan (Exhibit D36).

[545] Enterprise House which was owned by George and Michael Milatos was sold for $285,000. By arrangement between the brothers, George Milatos was paid the full proceeds which was $263,000.

[546] Lot 6141 Gunbar Street, Bayview was sold on 17 March 1999 for $220,000. The net proceeds were $120,000. Even if the plaintiffs borrowed money against their equity in this property, the borrowing would have amounted to less than $100,000 in 1996.

[547] On this evidence, it is not clear exactly what amount of working capital would have been available to the plaintiffs to carry out the proposals in Exhibits P16 and P17.

[548] However, the evidence does not support a finding that the plaintiffs had a borrowing capacity of $700,000 as was assumed by Mr Holmes in the preparation of his report (Exhibit P190 p12).

[549] Mr Holmes assumed George and Colleen Milatos would have continued to own the Bayview properties to the present day and would not have sold them to fund another project other than Lake Bennett. Mr Holmes agreed (tp 1867) this figure involved significant speculation.

[550] The plaintiffs need to prove, on the balance of probabilities, that they suffered the loss of a commercial opportunity i.e. to conduct the business of builders/developers in Darwin, which had some value, not a negligible value - see Sellars & Poseiden Ltd v Adelaide Petroleum NL & Ors (supra) at 354-355. With reference to this authority, I accept the submission of Mr Reeves QC, on behalf of the plaintiffs, that it is sufficient if the plaintiffs establish there was some prospect of success in the business of builders/developers in Darwin i.e. it was possible that business would be profitable, even if on the probability it would have been unprofitable. In both situations, the value of the lost opportunity is then ascertained by the degree of probabilities or possibilities - see also Malec v J.C. Hutton Pty Ltd (supra) at 639-640 per Brennan and Dawson JJ and at 642-643 per Deane, Gaudron and McHugh JJ. I accept that this is so for a claim for damages for breach of s 52 of the Trade Practices Act and s 42 of the Consumer Affairs and Fair Trading Act.

[551] In assessing the value of the lost opportunity, the financial experts, Mr Holmes forensic accountant for the plaintiffs, and Mr Lonergan a chartered accountant for the defendant and managing director of Lonergan Edwards and Associates Limited specialising in the provision of valuation services and related advice to clients, in a report dated 24 July 2006 (Exhibit D229 par 66), agree that the best approach is to value the opportunity as if it were a business for sale on the discounted cash flow method.

[552] In considering all of the evidence on this aspect, I do not accept that in the years 1996 to the time of the collapse of City Developments in 2002, Mr Milatos would have in fact contemplated a building program as he now puts forward in Exhibit P16 and Exhibit P17.

[553] Exhibit P16 is titled "Details of Representative Land Developments" 1996-2006. This then lists a series of development projects essentially building units or townhouses in Stuart Park, Larrakeyah, Darwin City, Fannie Bay, Cullen Bay, Bayview Haven and Palmerston that Mr Milatos considers he would have been involved with had he not purchased Lake Bennett. It is a hypothetical building program.

[554] Exhibit P17 is titled "Amended Details of Representative Land Development Projects Year from 1 July 2006 to 30 June 2007". This is a similar exercise undertaken by Mr Milatos in respect of a later period in time.

[555] It is relevant to note that Mr Milatos put forward in evidence four versions of his proposed building program. Exhibit D41 is titled "Model of Financial Outcome". This document was prepared for Mr Holmes when called by the plaintiffs to give evidence in support of their claim for damages. Exhibit D41 is a broadly costed program of building projects that Mr Milatos agreed were typical of the projects he would have undertaken had he not gone to Lake Bennett (tp 792-3). Although Exhibit D41 does not identify specific lots, it does include construction of commercial properties (workshops, offices, warehouses and retail shops) as well as houses and units. The other models prepared in respect of the period 1996-2006 do not include commercial projects. Exhibit P17, for the period 2006/07, does include a warehouse project which is exactly the same as a project completed by Michael Milatos very profitably. Exhibit D41 also includes unit developments in Nightcliff. These proposals are not repeated in Exhibits P16 or P17.

[556] Appendix 2 titled "Opinions of G Milatos -Details of Business Model" was marked for identification MFI9. By agreement between the parties, this has become Exhibit D278. It is for the period September 1996 to June 2006. On 18 October 2005, Mr Milatos signed a statement. This statement included a substantially revised building program. This statement is attached to the report of Daniel Jones, a quantity surveyor from Rider Hunt (Exhibit P193). Appendix 2 differed from Exhibit D41 in that it provided more specific details in relation to each of the proposed lots.

[557] By August 2006 the defendant had served a number of expert reports responding variously to the building program and costings in Appendix 2 (Exhibit D278).

[558] The changes to Mr Milatos' building program in Appendix 2, were in response to a report dated 28 June 2006 of Bill Linkson, who is a valuer and co-director of Integrated Valuation Services (Exhibit P18). In this report Mr Linkson identifies a number of properties in Appendix 2 (Exhibit D278) where Mr Milatos had incorrectly estimated the number of units he would be allowed to build on his chosen development site e.g. 149 Mitchell Street, Larrakeyah, 31 Coronation Drive, Stuart Park, 19 Hinkler Crescent, Fannie Bay, 3 Mangola Court, Larrakeyah, 47 Bayview Boulevard, Bayview Haven, 8 Voyager Street, Stuart Park, 12 Margaret Street, Stuart Park, 1 Michie Court, Bayview.

[559] In addition to this, Mr Linkson considered that Mr Milatos had overestimated the sales prices he would be able to achieve for many of the hypothetical projects, these include but are not limited to, 19 Stoddart Drive, Bayview, 2 Beagle Street, Larrakeyah, 4 Elsey Street, Parap, 7 Dinah Court, Stuart Park, 49 Bayview Boulevard, Bayview Haven, 9 Drysdale Street, Parap, 10 Tipperary Street, Stuart Park, 15 Dinah Court, Stuart Park, 1 Michie Court, Bayview.

[560] Mr Towell, who is a qualified quantity surveyor and director of Clive Towell & Associates Pty Ltd, prepared a report (Exhibit D233) dated 27 June 2006. In this report, Mr Towell is critical of the "letter of opinion" of Mr Milatos dated 30 March 2006. In particular, he asserts that Mr Milatos:

made insufficient allowance for consultants fees;

makes no allowance for council rates that would apply while the land was vacant and under construction;

did not make proper allowance for the defects liability period;

made insufficient allowance for contingencies;

makes no allowance for the cost of common areas and stores relating to the larger developments;

made insufficient allowance for external works,

made no allowance for GST; and

is critical of the proposed construction schedule on various grounds, including:

being unlikely to be achievable as a matter of logistics,

difficulty in obtaining subcontractors - shortage of tradesmen,

delay in obtaining supply and installation of lifts,

no allowance for the effect of the wet season.

[561] Mr Lonergan is also critical of the building program and costings in Appendix 2. Mr Lonergan prepared a report dated 24 July 2006 (Exhibit D227). This report commenced with an "Executive Summary" which reads as follows (pp4-5):

[345]

[567] Mr Linkson, in his report, expressed difficulties in providing an opinion of the likely valuation without expert opinion from a quantity surveyor or town planner as to the effects of the changes to the business model.

[568] On 21 November 2006, the plaintiffs tendered Exhibits P16 and P17. Exhibit P16 represented a hypothetical building program from 1996/2006 that again differed from Appendix 14. Exhibit P17 represented a hypothetical building program for the 2006/07 financial year. The document which was referred to as "Reworked Appendix 14" was tendered as part of the report of Mr Holmes dated 28 November 2006 (Exhibit P190) and formed the basis of the calculations in Appendix E to this report. The plaintiffs only seek to rely on the model as expressed in Exhibits P16 and P17 and that all previous models are irrelevant.

[569] I do not accept that the hypothetical building program set out in any of the hypothetical models prepared by Mr Milatos represents what the plaintiffs would have done had they not gone to Lake Bennett in 1996. I do not accept the plaintiffs would have proceeded with the model proposed in Exhibits P16 and P17 if they had not gone to Lake Bennett. Rather, I have formed the view that the models have been prepared at a much later date, conscious of the pending litigation, and with the benefit of hindsight. The hypothetical model was then varied a number of times in an effort to meet the criticisms made by the defendant's experts, in particular Mr Towell and Mr Lonergan. The criticisms essentially highlighted the problems as being that Mr Milatos had overstated the amount he would have received from sales and understated the respective construction costs.

[570] I have come to the conclusion Mr Milatos would not have proceeded with Option B, had he not gone to Lake Bennett, for a number of reasons.

Mr Milatos agreed he changed his mind after preparing the initial hypothetical models and deleted any reference to Nightcliff as an area of construction, and that in Exhibit P16 he had deleted any reference to six workshops and offices in the Winnellie industrial area, as had appeared in his first model, and similarly, the retail shops in Palmerston were not carried forward to Exhibit P16. When asked (tp 795): "Is that because you decided that doing shops was a less profitable activity than building units and townhouses?" he replied "probably, yes".

The various alterations to the hypothetical model appear to be in response to criticisms from the defendant's experts and to present his claim in a better light, rather than a true reflection of what he would have done in 1996 to 2006.

I come to this last conclusion bearing in mind that it is a very difficult exercise to be asked some years later what your intentions would have been at an earlier point in time. Even allowing for this difficulty the evidence falls far short of satisfying me that Exhibits P16 and P17, or in fact any of the earlier hypothetical models, represented what would have occurred if Mr Milatos had not continued with the Lake Bennett development in 1996.

It is instructive to have regard to Mr Milatos' more recent history in determining what he would have done in the future. Mr Milatos was, in 1996, the managing director of Australian Transportable Homes which specialised in building prefabricated homes on their premises at Berrimah, which could be transported and erected in remote communities. This had been the main focus of his activities since 1994 and was very different to that contemplated in Exhibits P16 and P17 or any of the earlier hypothetical models. The proposed development at Lake Bennett fitted in with the purpose of Australian Transportable Homes. Australian Transportable Homes later became the contractor that supplied the accommodation for the Lake Bennett development (tp 786).

As at 1996, Mr Milatos had not been involved as a developer, as distinct from a builder in large scale residential development. There is reference to his building in Charlotte Street, Fannie Bay in 1986/87. He had not built any units in 1989, 1990 or 1991. Between 1989 and 1996 George Milatos had constructed a block of five town houses and two houses. Two of these enterprises depended on the financial contribution from his partners.

Prior to 1996, Mr Milatos had, for some time, been considering business opportunities to develop his transportable homes business by a recreational cabin development away from Darwin but in a place which would attract people from Darwin to come for the weekend. He became convinced there was a market for weekend cabins with waterfront access and that this presented a good opportunity for Australian Transportable Homes (tp 789-790). Prior to negotiating an option to purchase Lake Bennett, the plaintiffs had spent some time researching and investigating prospects for developing Manton Dam by constructing cabins similar to those they eventually did at Lake Bennett. The investigations the plaintiffs carried out, with respect to Manton Dam, persuaded them that it was not a project they wanted to embark upon, essentially because of the numerous government regulations that had to be complied with.

In 1989, Milatos Constructions collapsed. Prior to that time, Mr Milatos had undertaken projects of a commercial nature that were somewhat unusual. Examples of these were the building of the cinemas, skating rinks, bowling alleys, produce markets and the Phoenix Hotel. These were the projects which had particular appeal for him, rather than steadily building up an income from consistently constructing units, townhouses and houses over a ten year period.

During his cross examination (tp 784 par 9) Mr Milatos gave evidence as follows:

[351]

[571] There was very extensive evidence given by experts for the plaintiffs and the defence as to the opportunity represented in Exhibits P16 and P17. There is a complete difference of opinion between the experts as to the viability of the opportunity represented in Exhibits P16 and P17. As I have found that the plaintiffs would not have embarked on the program set out in Exhibits P16 and P17, it is probably unnecessary to analyse the conflicting evidence about the value of such lost opportunity.

[572] However, I have summarised some findings in that respect later in these reasons for judgment. I accept the evidence of Mr Lonergan that even on Mr Milatos' own figures in Exhibit P16 he would very quickly have been in financial difficulties to the point where he could not continue the program.

[573] Ironically what has in fact happened, is that Mr Milatos has better prospects for the future than he has had in the last 20 years. In essence, Mr Milatos may have an opportunity to buy back the Lake Bennett Resort from his brother Michael Milatos who has effectively saved George from complete financial ruin. I note however, that there is no legal or equitable obligation upon Michael and Pauline Milatos, through their company Lake Bennett Wilderness Resort Pty Ltd, to transfer the resort to George Milatos. George Milatos has, since May 2002, been working as the manager of the Lake Bennett Resort and continues to receive a salary for this employment and other benefits. I shall detail the evidence relating to Unit 200 at Lake Bennett under the heading "Option C". George Milatos has, since the purchase of Unit 200 by Michael Milatos, been constructing houses on various lots in Unit 200. He receives the profit returned from the construction of these houses and has the possibility of receiving a share of the profits received by Michael Milatos in the total investment in Unit 200.

[574] There is no evidence before the Court that Colleen Milatos has benefited in the same way.

[575] Finally, I would acknowledge the force of the argument presented by Mr Maurice QC on behalf of the defendant under what the defendant referred to as "Option C".

[364]

[580] This opinion is supported by the opinion of Mr Lonergan (Exhibits D227, D228 and D229). Mr Lonergan was also highly critical of the way in which Mr Milatos approached the task of financial planning for development projects. I have already quoted the "Executive Summary" in Mr Lonergan's report dated 24 July 2006 at [561] in these reasons for judgment. Mr Lewis' further reports confirm the concerns he has raised and makes similar comments with respect to Mr Milatos' later attempts at presenting a hypothetical model of future opportunities by amending his earlier models.

[581] I accept the evidence given by Mr Lewis and Mr Lonergan concerning Mr Milatos' difficulties with financial planning. Essentially, Mr Milatos has consistently understated costs and overstated profits, he has overextended his companies financially and had difficulty managing debt.

[582] The defendant also claims an offset with respect to Unit 200 at Lake Bennett. Unit 200 was an area owned by City Developments on the eastern foreshore of Lake Bennett that remained able to be developed following the passage of the Lake Bennett (Land Title) Act, s 21 and Schedule 6.

[583] In June 2006, the liquidator of City Developments, with the authority of the creditors, sold Unit 200 to M & P, a company of which Michael Milatos is a director and shareholder. The purchase price was $260,000. The settlement sheet (Exhibit D264) shows that with adjustments, $294,327.36 was received. M & P also agreed to pay $50,000 two years later (Exhibit D212) - Unit 200 was subdivided into 15 lots.

[584] Michael Milatos gave evidence in March 2007 that 14 of the 15 lots had sold and that the land component of the ones that had sold will net M & P close to $1 million which is approximately triple the money he paid for it.

[585] San Industries Pty Ltd ("San Industries") is a company of which George Milatos is the sole shareholder. Michael Milatos gave evidence (tp 1477) that at the time of purchasing Unit 200 it was George Milatos and his solicitor Geoff James who negotiated with the ANZ Bank and with the liquidator in relation to the purchase. He gave evidence that it was George who looked after all the planning approval and titling processes in relation to the development of the land. It was George who was responsible for the design of the units that were to be constructed on the land. George Milatos engaged the architectural draftsperson and paid for his services, arranged for the engineering services that needed to be done for the development of the building. George also handled the sales by engaging Kristen's Conveyancing Services through his company San Industries.

[586] Mr Maurice QC, on behalf of the defendant, submits that there is an arrangement between George and Michael Milatos by which George will benefit from the unit development currently being undertaken at Unit 200 at Lake Bennett. The submission for the defendant is that neither George or Michael Milatos have given a candid account of the arrangement between them. The submission for the defence is that the value of the benefit to George Milatos will total $1,125,000 made up as follows:

[367]

[587] Under cross examination from Mr Grant QC, George Milatos stated that for him the arrangement he had with his brother Michael was not unusual. Counsel for the defendant is critical of the evidence given by George Milatos in a number of respects. It is argued on behalf of the defendant that George and Michael Milatos were not forthcoming about the actual arrangement between them, with respect to Unit 200. The case for the defence is that George Milatos understated his involvement with respect to the whole development, that it was not till his cross examination that George mentioned his involvement with the project was through his company San Industries and the subcontracting arrangements between it and M & P.

[588] It was further submitted, on behalf of the defence, that George Milatos had not been honest in his evidence about the way in which Unit 200 was acquired or the arrangement with his brother concerning the profits and had generally obfuscated about how the proceeds were to be shared. Similarly, counsel for the defendant criticises the evidence of Michael Milatos and pointed to a number of aspects of his evidence which the defence maintain demonstrates his arrangement with George did not entitle Michael to all the sales profits. Reference was made to the evidence of Michael Milatos (tp 1465) when he said he had paid $900,000 to San Industries in response to a question about payments to San Industries for the construction that had taken place. When asked about a series of cheque butts relating to payments to San Industries amounting to $600,000, Michael said he was also including the land content which was worth $300,000. Counsel for the defence assert this betrayed Michael Milatos' state of mind which was that $300,000 for the land content had been advanced to San Industries. Reference was also made to the number of times Michael Milatos used the word "we", for example, when he explained he had only a verbal contract with his brother George who was to build houses on the land purchased by M & P and gave the following answer (tp 1399-1400):

[369]

[589] It is the submission for the defendant that this last slip in particular is strong evidence Michael Milatos regarded himself and his brother George as co-adventurers in the purchase of the land.

[590] Counsel for the defendant also points to the initial evidence given by Michael Milatos in that he did not mention at that time his brother had approached him for a loan to purchase Unit 200 and only did this when it was put to him in cross examination. Michael Milatos gave evidence that he wanted to double his money on his investment in purchasing Unit 200 and that he had told George Milatos this. It is the submission for the defendant that the Court should not believe there had not been a further arrangement between the brothers for George to share in the profits.

[591] I do not accept that I should place the sinister connotations on the evidence of George and Michael Milatos as urged by counsel for the defence. I found George and Michael Milatos to be credible witnesses on this aspect. I did not consider either of them to be evasive or attempting to obfuscate. I accept the evidence each has given on this issue. I accept it is normal for them to do business with each other by way of verbal agreement. Michael Milatos went to considerable lengths to assist his brother George, however, he was always financially astute enough to ensure that he also was able to derive a benefit from the arrangement.

[592] I find that Michael Milatos, through his company M & P, purchased Unit 200 after having it drawn to his attention by his brother George that the ANZ Bank wanted City Developments (in liquidation) to sell Unit 200. He purchased it to provide work for George Milatos and George's son Nicholas, both of whom are builders. Michael Milatos was not prepared to loan the money to George to buy Unit 200. He was prepared to purchase the property himself. He and George Milatos then entered into a verbal agreement under which George was to effectively have total management of the building of units on 15 lots. Payments to George Milatos were limited to the construction and the builder's margin on units built. There was no agreement between them about sharing any excess profits although Michael Milatos indicated in his evidence that is something he would consider at a later time.

[593] In view of the relationship between George and Michael Milatos, and the way Michael has continued to assist his brother, I have concluded that in all probability, Michael will provide George with support to continue his vision for Lake Bennett whilst also providing financial guidance and restraint.

[594] I have concluded that his present occupation, which enables George Milatos to do what he does best, namely, building and running the resort at Lake Bennett but under the financial guidance of his brother, is his best opportunity for the future and may enable him to achieve his dream of developing Lake Bennett into a first class resort. He currently receives a salary and other benefits for running the resort. He receives a fee for constructing cabins on Unit 200 owned by Michael Milatos. He has future prospects of regaining the Lake Bennett property. George Milatos is not burdened with having to manage a debt as the property is owned by his brother Michael. The combination of the legislation being the Lake Bennett (Land Title) Act, that is now in force, and the assistance given by Michael, have put George into a better position than he could have achieved by any attempt to pursue alternative options.

[595] I make no allowance for the lost opportunity claim.

[370]

[596] The plaintiffs' claim damages because they assert they suffered significant loss to their reputations and credit standing as a result of the failure of the Lake Bennett project and the liquidation of City Developments.

[597] George Milatos gave evidence that he attempted to obtain finance to purchase Unit 200 of Lake Bennett in 2005. He was not successful. He stated in his evidence (tp 545) that he had approached the National Australia Bank, the Bank of South Australia and the Commonwealth Bank. It is his evidence that until the litigation was completed and his name was cleared they did not want to do business with him. Eventually his brother Michael raised the money to purchase the land. George Milatos had, prior to the liquidation of City Developments, been able to raise a considerable amount of finance from the ANZ Bank and Esanda for the Lake Bennett project.

[598] The defendant maintains that the liquidation of City Developments was caused by the imprudent financial risks taken by Mr Milatos and does not relate to the conduct of the defendant.

[599] I have previously dealt with this issue.

[600] The fact is, George Milatos has achieved the purchase of Unit 200 through his brother Michael and has been building and expanding the resort at Lake Bennett through his company San Industries. He has been able to do this without the financial burden of the repayment of a loan and has been able to earn an income. There is no evidence he has been impeded in his business activities. I would not award damages on the basis that he has had difficulties in obtaining credit.

[601] With respect to the claim for damage to reputation, there has been no evidence called that any persons think less of George Milatos or that his standing in the community has been lessened as a consequence of the Lake Bennett saga. Mr Matthewson, who is a director of a number of corporations, gave evidence. Mr Matthewson served as Deputy Chairman of the Darwin Port Authority for eight years and Deputy Chairman of the Trade Development Zone Authority for 18 years and Chairman for two years. He is currently the Director of Independent Building Products and FM Importers Pty Ltd. He has known Mr Milatos since 1974, including a period when he was in partnership with Mr Milatos in Territory Timber and Hardware. Mr Matthewson gave evidence he found Mr Milatos "very hard working, honest, entrepreneurial, a man of integrity and he didn't know the meaning of the word failure. He was a very consistent and hard working person." Mr Matthewson was a creditor and attended the creditor's meeting relating to Mr Milatos' involvement with the Harbour View Plaza. Mr Matthewson gave evidence concerning the creditor's meeting. He was then asked and responded as follows (tp 1752):

[398]

[616] On 15 October 2002, the ANZ Bank wrote letters to Colleen and George Milatos advising them that payments having been made in accordance with the executed Deed of Release dated 14 October 2002, they were released from all further liability under the guarantees they had given on 4 November 1996 in favour of City Developments (Exhibit D42).

[617] In his evidence under cross examination, Mr Milatos agreed (tp 799-800 and 1085) that he and his former wife had been released from their personal guarantees by the ANZ Bank on condition they pursue legal action against the Northern Territory and Clayton Utz.

[618] Mr Maurice QC submits that the result of the Deed of Release and the letters of release, is that the plaintiffs are no longer guarantors of City Developments' liability to the ANZ Bank and cannot recover damages as if they were. The argument for the defendant is that the only obligations the plaintiffs now have to the ANZ Bank are those defined by the Deed of Release. Counsel for the defendant did acknowledge the provisions of Clause 2.4.2 of the Deed of Release.

[619] With respect to the Deed of Release, the argument on behalf of the defendant is that the cause of action referred to in Clause 2.2.1 is a cause of action by City Developments, not any cause the plaintiffs might have - see also Clause 2.2.3. The submission for the defendant is that the use of the impersonal pronoun "it" gives further support to their interpretation that it is a cause of action by City Developments. Mr Maurice QC submits that it is highly unlikely, at the time the Deed of Release was entered into, that the ANZ Bank would have contemplated the plaintiffs would have pursued a cause of action, as opposed to the company with whom all the loan arrangements had been made and which carried out the development.

[620] It is the case for the defendant that the proceedings before this Court are brought solely to recover the damages for losses sustained by the plaintiffs in their own right and, as a result of the Deed of Release, cannot include the ANZ Bank debt. On this basis the defendant argued that clause 2.2.3 does not apply to money received in these proceedings, it only applies in respect of monies recovered as a result of claims, demands or causes of action taken by City Developments.

[621] Finally, it is the defendant's position that even if the ANZ Bank debt still exists, and the plaintiffs are responsible for paying it, the debt cannot be recovered from the defendant because the debt was not caused by the defendant's conduct. The defendant maintains the ANZ Bank debt was incurred to fund the development and operation of the resort which, for purely commercial reasons unrelated to any conduct of the defendant, failed. In addition the defendant's claim that the debt was not incurred in relation to the cabin development; that development was a success and increased the wealth of the company by $772,000.

[622] I am not persuaded the ANZ Bank debt no longer exists as against the plaintiffs, for the following reasons:

Mr Reginald Harrison is an associate director with the ANZ Bank in its division known as Property and Construction Finance, at 530 Collins Street, Melbourne. Mr Harrison has deposed in an affidavit sworn 16 March 2007 (Exhibit P210) that in the years 1996 to 2001, the ANZ Bank made a series of loans to City Developments. In his affidavit he states the company has not repaid the balance of the aggregate loan and the ANZ Bank has, at all times since the advance of the loan, levied and charged interest on the loan which is accruing monthly.

In par 9 of his affidavit, Mr Harrison states that as at 12 March 2007, the principal sum of the balance and the accumulated interest levied and charged on that principal sum was $2,970,636.76. A copy of the spread sheet being the ANZ Bank's record of the company's four loan accounts is annexed to the affidavit.

In par 10 of his affidavit, Mr Harrison states that from 12 March 2007 interest will continue to accrue on the balance outstanding at the daily rate of $862.71 per day calculated at the rate of the ANZ Bank's reference rate plus a margin of 1.5%.

Mr Harrison further deposes to the fact that the debts referred to in his affidavit, were the subject of a written agreement between the ANZ Bank and George and Colleen Milatos made on 14 October 2002. A copy of this deed, details of which have already been referred to, is annexed to the affidavit of Mr Harrison.

Mr Harrison gave evidence (tp 2145) that there had been no agreement by the ANZ Bank to forgive the debt in early 2006 or since then. He confirmed that the debt exists as per his proof in the affidavit.

In Clause 2.4.2 of the Deed of Release (Exhibit P12) the debt is confirmed. See also clause 5 of the Deed of Release (Exhibit P12).

[623] I agree with the submission made by Mr Reeves QC on behalf of the plaintiffs, that the debt could not be varied by an "offer" made in a report from the liquidator to the creditors and not confirmed in writing and signed by the ANZ Bank and the plaintiffs. I also accept the submission made on behalf of the plaintiffs that the ANZ Bank gave a proxy to the liquidator to vote on behalf of the ANZ Bank creditors at the meeting. It did not extend to authorising Mr Finch to enter into some agreement on its behalf.

[624] The defendant did not call Mr Finch, the liquidator who is the person the defendant maintains was instrumental in making this agreement on behalf of the ANZ Bank, to give evidence. There was no evidence that Mr Finch was not available to give evidence. This must give rise to an inference that Mr Finch would not have assisted the defendant's case on this aspect - Jones v Dunkel (supra).

[625] I accept that the plaintiffs have been released from their personal guarantees with respect to the loan to City Developments. However, under the Deed of Release (Exhibit P12) they still have obligations to the ANZ Bank to pursue the ANZ Bank's debt in these proceedings.

[626] I do not read the clauses in par 2 of the Deed of Release with the narrow interpretation given to it by the defendant, i.e. that it was only ever contemplated that it would be City Developments who would pursue a cause of action. The clauses are drawn in very broad terms to encompass a number of possibilities as to who would pursue the action and who would be the defendant. It is not confined to City Developments being the only entity to pursue a cause of action.

[627] I have construed clause 2.2.3 as placing an obligation on both the plaintiffs and City Developments.

[628] I agree with the submission made by Mr Reeves QC that the defendant's obligation to the plaintiffs is to pay the amount of the debt as ordered by the Court. Thereafter the Court should leave it to the plaintiffs, and the ANZ Bank, to determine how the clause operates.

[629] There is no evidence before me as to whether or not there was any negligence on the part of the legal advisers to the ANZ Bank. It does, on the face of it, appear somewhat amazing that the ANZ Bank would lend such substantial sums of money for the purpose of building and developing on land that was subject to recreational easements. However that is not a matter that requires resolution in these proceedings.

[630] I reject the argument on behalf of the defendant that the ANZ Bank debt was not caused by the defendant. It is a direct result of the plaintiffs' decision to commence building and to purchase the land, based on the defendant's breach.

[631] I would allow the claim made by the plaintiffs in respect of the debt to the ANZ Bank.

[632] It is the submission by Mr Maurice QC on behalf of the defendant, that the ANZ Bank debt is entirely offset by the plaintiffs equitable interest in the resort. There is no evidence the plaintiffs have an equitable interest in the resort. There is a private agreement between George and Michael Milatos that George may be able to purchase the Lake Bennett property from his brother Michael, provided George paid Michael what Michael had spent on it. This does not create any interests at law or in equity.

[633] Michael Milatos stated in evidence (tp 1487) that he had told George Milatos that due to the fact he had to borrow 100% on the resort, that if the matter did not clear within a reasonable time he would have to put the resort on the market and attempt to sell it. The private arrangement between the brothers that George Milatos can buy the resort back if he pays his brother the amount Michael Milatos has spent on it, does not give rise to an agreement because there is no consideration passing and no intention to create legal relations. Neither does it give rise to a trust because there has been no declaration of trust in writing - see The Law of Property Act 2000 (NT) s 10(1)(b). There is no evidence of an equitable interest because it has not been established that either of the plaintiffs have acted to their detriment based upon the arrangement.

[634] There is in any event no evidence of the value of the equitable interest even if it did exist.

[635] I have concluded that the plaintiffs are entitled to recover City Developments debt to the ANZ Bank.

[426]

[667] In this matter, the limitation period commences under the provisions of the Trade Practices Act from the date the plaintiffs actual personal losses first accrued - see Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 527. The date that occurred was when City Developments was placed in liquidation, that date being 21 November 2002. These proceedings were commenced on 23 December 2002. Whether the Limitation Act 1981 (NT) is applied, or the Trade Practices Act s 82 is applied, the proceedings were commenced well within time.

[668] The onus of establishing that the plaintiffs' claims under s 82 of the Trade Practices Act are statute barred, is upon the defendant - Murphy & Anor v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388 at [56].

[669] The plaintiffs claim there is no limitation period with respect to the breach of fiduciary duty.

[670] The submission on behalf of the defendant is that equity follows the law by analogy (s 21 Limitations Act) - see also Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th edition, Butterworths Australia, 2002 at p 1015 par 34-075. Section 12 of the Limitation Act, limits the time for bringing claims in torts and contract to three years from the date on which the cause of action first accrues to the plaintiffs. Section 13 imposes a similar time limit on actions for account. It is the defendant's position in respect of the 1996 breach of fiduciary duty, the Option A "lost opportunity claims" and the Option B "lost opportunity claims", that these claims are statute barred.

[671] With respect to the breach of fiduciary duty being what has been referred to as the "technical breach", Mr Maurice QC submits this claim is statute barred because the defendant advised the plaintiffs about this breach by letter dated 4 June 1999 (Exhibit P5 Vol 6 p1141). This breach relates to the fact that the defendant was in conflict when another practitioner at the firm of Clayton Utz had, unbeknown to Mr Riley, acted for the Scartons when they acquired their land and access easement from Mr and Mrs Shoobridge. I do not understand the plaintiffs to be pursuing any claim in respect of any such breach, so that the three year time limit from 4 June 1999, is irrelevant. The plaintiffs are pursing a claim for breach of fiduciary duty in respect of Mr Riley's failure to advise the plaintiffs as to the real effect of the easements after 7 April 1998.

[672] It is the defendant's position that the claim in respect of the three Bayview properties is statute barred. For reasons already stated, I have not allowed this claim.

[673] With respect to the unpaid labour component of the Option A claim, it is the submission for the defence that this claim is statute barred as the relevant date would be, at the latest March 1997, and no such claim was made within three years of that date. I do not accept this submission. I have found that the date when the plaintiffs' personal losses first accrued was when City Developments went into liquidation on 21 November 2002.

[674] With respect to the Option B claim, I have already set out reasons why I have preferred Option A combined with Option C. Therefore, the issue of a limitation period with respect to Option B is not relevant.

[675] The defendant has throughout their submissions maintained that the losses which accrued on 21 November 2002 when City Developments went into liquidation, were losses that were caused by the imprudent decisions made by the plaintiffs several years earlier. I have dealt with this submission earlier in these reasons for judgment.

[676] Whilst the defendant disputes a finding that the losses did occur on 21 November 2002, they accept that if this is the finding then the claim for them is not affected by the Limitation Act.

[677] If I am wrong, with respect to the arguments raised by the defendant on the issue of limitations, I would grant an extension of time to the plaintiffs to overcome the possibility of any claim being statute barred.

[678] In the circumstances, this Court would grant an extension of time to the date when the proceedings issued on 23 December 2002. This is on the basis that the ascertaining of the material fact was the date of liquidation of City Developments which was 21 November 2002.

[679] In the alternative, I agree with the submission made on behalf of the plaintiffs, that the conduct of the defendant, which was intended to string out the period of time before the plaintiffs issued any proceedings, would entitle the plaintiffs to an extension of time. I refer in particular to the memorandum of Mr Riley to Mr Mitaros dated 9 June 2000 (Exhibit P5 Vol 6 p1201) which read, inter alia:

[430]

[682] The plaintiffs claim damages from the defendant under s 82 and/or s 87 of the Trade Practices Act and s 91 and/or s 95 of the Consumer Affairs and Fair Trading Act for an alleged breach of s 52 of the Trade Practices Act and s 42 Consumer Affairs and Fair Trading Act respectively. There is a further claim for damages arising from a claim by the plaintiffs that the defendant breached their fiduciary duty to the plaintiffs.

[683] I have found that George Milatos consulted Nicholas Mitaros, who was then a partner in the firm of Clayton Utz, in March 1996. Mr Milatos requested a due diligence search in respect of their proposed purchase of Section 152 Hundred of Howard, now known as the Lake Bennett Wilderness Resort, and advised of his intentions to build cabins on the foreshore and develop the resort.

[684] In March 1996, the property was owned by Nazime Pty Ltd and was subject to recreational easements in favour of the surrounding blocks. These recreational easements were completely inconsistent with any building or development on the property the plaintiffs were seeking to purchase.

[685] Mr Mitaros prepared an option to purchase which he provided to Mr Milatos. Mr Mitaros did not advise the plaintiffs that the property was affected by recreational easements which were completely inconsistent with building on or developing the property. The plaintiffs commenced building to test the market for cabin sales. The plaintiffs, George and Colleen Milatos, proceeded to exercise the option through their company City Developments Pty Ltd. The buildings were provided by a company named Australian Transportable Homes owned by George Milatos. This company built transportable homes at its premises in Berrimah and transported these homes to other localities. The option to purchase was subsequently amended. Eventually a contract of sale was prepared. The plaintiffs have given evidence, which I accept, that had they been advised that the recreational easements were inconsistent with their rights to build and develop the land, they would not have purchased the property. I found that the failure, on the part of the defendant, to advise the plaintiffs about the effect of the recreational easements, amounted to misleading or deceptive conduct within the meaning of s 52 of the Trade Practices Act. The defendant committed a breach of s 52 of the Trade Practices Act for which the plaintiffs are entitled to damages under s 82 of the Trade Practices Act.

[686] In or about September 1996, Mr Mitaros handed over the plaintiffs' file to Guy Riley, who was another partner in the defendant's firm. Mr Riley assumed that Mr Mitaros had undertaken the necessary due diligence searches. Mr Riley was aware that easements existed but believed that the easements, which were referred to, only provided for access to the lake. This was the tenor of the advice he gave to Mr Milatos.

[687] The defendant acted for the plaintiffs on the exchange of contracts which occurred on 27 March 1997. A week before contracts were exchanged, solicitors for one of the easement holders, wrote to the defendant advising of their client's intention to assert their rights to use the area to the full extent permitted under the existing easement. This letter stated inter alia:

[432]

[688] The purchase of Section 152 could have been halted at this point and either the easement situation resolved with the vendors or the sale aborted. Neither of these things occurred. Mr Riley assured Mr Milatos he had nothing to worry about as long as his development on the land did not stop or prevent the easement holders access to the lake.

[689] On 16 April 1997, the settlement of the sale of Lake Bennett from Nazime Pty Ltd to City Developments Pty Ltd was effected. The sale price was $630,000 subject to a mortgage back to Nazime Pty Ltd for part of the purchase price. Mr Milatos continued to build cabins on the foreshore. Mr Riley acted on the sale of these cabins and provided legal advice on a range of aspects relating to the property now known as Lake Bennett Wilderness Resort. Other loans were organised to enable the purchase of the property to be completed and for further development of the property. Section 152 was split into Section 244 the foreshore and Section 245 which contained the lake and the resort.

[690] On 7 April 1998, there is a file note on the Clayton Utz file, to the effect that Mr Riley had come to the realisation that the easements were much broader than easements for access, they were in fact recreational easements which were inconsistent with any building on, or development of the property. Mr Riley further noted that it was now obvious Mr Milatos had not been advised about the real effect of the easements when he consulted Mr Mitaros and that Mr Riley had then falsely assumed checks had been done.

[691] By April 1998, Mr Milatos had already built and sold a number of cabins around the foreshore of the lake (Section 244) and was developing the resort (Section 245). Mr Riley did not clearly advise Mr Milatos, that as distinct from his earlier advice about the effect of the easements, he had come to the realisation that they were in fact recreational easements that were completely inconsistent with building on the land. Mr Riley did not advise Mr Milatos that the plaintiffs may have a cause of action against the defendant or that the plaintiffs should seek independent legal advice as to their situation before proceeding further. Mr Milatos continued building and developing the land into 1999. By failing to provide advice to the plaintiffs about the change in the defendant's understanding of the easements, this placed them in conflict with the interests of the plaintiffs, the defendant was in breach of their fiduciary duty.

[692] In August 1999, the plaintiffs decided to consult other solicitors and transferred their matters to another firm of solicitors. The plaintiffs undertook a Supreme Court challenge to the validity of the easements which action they lost. A decision of the Court of Appeal of the Supreme Court of the Northern Territory delivered on 29 August 2001 confirmed the easements were good in law.

[693] Late in 2000, the marital relationship between the plaintiffs broke down, the couple separated and subsequently divorced. Both plaintiffs have since remarried. Colleen Milatos is now known as Colleen Cambronero.

[694] The easements created a problem because the rights of the easement holders were inconsistent with any building or development. The recreational easements were also a problem in the sense that titles to the subdivided properties could not issue without the consent of the easement holders, which consent was not forthcoming. The development of the resort was thwarted until the passing of the Lake Bennett (Land Title) Act 2005 (NT), which came into force on 9 March 2005. The Act resolved the issues with respect to the easements and enabled development to continue.

[695] In the meantime, the company which had purchased the property, namely City Developments Pty Ltd, of which the plaintiffs were the sole directors, went into liquidation on 21 November 2002. The debts of the company exceeded $2.9 million. In May 2002, Michael Milatos, the brother of George Milatos, purchased the resort (Section 245) from City Developments Pty Ltd after extensive efforts to sell it on the open market had failed. The purchase was in the name of Lake Bennett Wilderness Resort Pty Ltd whose sole directors are Michael and Pauline Milatos.

[696] In May 2002, George Milatos was employed by his brother Michael through his company to manage the resort. George Milatos was paid a salary and other benefits. He also received financial assistance from Michael to expand the resort.

[697] In 2006, Michael Milatos purchased Unit 200 at Lake Bennett from City Developments Pty Ltd (in liquidation) at the request of the ANZ Bank. Since that time, George Milatos has been building cabins on the 15 lots that make up Unit 200 and receives a builder's margin for these constructions.

[698] The plaintiffs each worked extremely hard in developing the property at Lake Bennett between 1996 and 2002. George Milatos continued building cabins around the foreshore and marketing them. He also worked to build up the resort. Colleen Milatos built up the resort, attending to the gardens and physical appearance of the resort, establishing and running a restaurant as well as managing and marketing the resort. Her efforts were recognised by the presentation of a number of prestigious awards including a Brolga Award for Tourism Excellence for the resort. This award was presented in 2002. In December 2002, Colleen Milatos left Lake Bennett.

[699] I have concluded the plaintiffs are entitled to damages pursuant to s 82 of the Trade Practices Act for breach of s 52 of that Act. The award of damages includes damages for breach of fiduciary duty, being the defendant's failure to provide the appropriate advice, after coming to the realisation noted on 7 April 1998 that their previous advice had been incorrect. In addition to this, the defendant failed to advise the plaintiffs there was a conflict of interest and that the plaintiffs should seek independent legal advice.

[700] I have made an award of damages under the following heads of damage:

the plaintiffs' lost investment in City Developments Pty Ltd together with pre-judgment interest.

damages for wasted time and effort for both George and Colleen Milatos on the Lake Bennett project between 1996 and 2002 together with pre-judgment interest.

At a glance

Court

Decision date

Before

Source

Judgment (436 paragraphs)

Parties

Legislation Cited (26)

Cases Cited (28)