Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd [2020] NSWSC 130 | Case summary

Supreme Court of NSW|2020-02-12|Before: Hammerschlag J

Solicitors: Gillis Delaney Lawyers - Plaintiffs Wotton + Kearney - Defendant File Number(s): 2015/378374

What this case is about

HIS HONOUR: The plaintiffs are a company (Mistrina) and the Estate of the late Mr Elias Sikos. [1] Together, Mistrina and Mr Sikos owned land (the land) at 340 Bay Street, Brighton Le Sands, which is a southern suburb of Sydney. They determined to develop the land and build a 10 storey mixed development on it.
To this end, they borrowed $7,205,000 from Bankwest (the Bank) under a Facility Letter dated 8 September 2008 and, on 2 February 2009, they retained a builder, Jabbcorp (the builder), who agreed to build the development for $4,640,176. Mr Simon Jabbour (Jabbour) was the principal of the builder.
Under the Bank's General Terms for Business Lending, the loan was repayable 18 months from initial drawdown. Initial drawdown occurred on 2 February 2009, so that the loan was repayable on 2 August 2010. The General Terms of the loan included a provision that it would be an Event of Default entitling the Bank to demand immediate repayment if there was, in the Bank's reasonable opinion, a change in circumstances which materially adversely affected the borrowers' ability to observe their obligations or the value of any Security Property. [2] The general terms provided that if an Event of Default has occurred, the Bank may at any time give notice declaring the Total Outstanding Amount is either payable on demand or immediately due for payment. [3] The Facility Letter incorporated a condition that there be qualifying presales of proposed strata units in the development of at least $3 million. [4] This condition was met.
The security given by the plaintiffs to the Bank included a mortgage over the land and a personal guarantee by Mr Sikos, supported by a mortgage over a property at 24 Rowley Street, Brighton Le Sands (Rowley Street) owned by him. It also included a fixed and floating charge between the Bank and Mistrina.
In addition, on 3 February 2009, the Bank, Mistrina and the builder entered into a Builders Tripartite Deed which, amongst others, gave the Bank the right to assume Mistrina's obligations under the building contract after an Event of Default under any security interest held by the Bank. Such a right is commonly referred to as a "Step-In" right.
The design of the building incorporated a raft slab rather than traditional piled foundations. The builder, as one might expect, required a structural engineering certificate that the design complied with the Building Code of Australia and relevant Australian Standards.
The defendant (or ACE) is a structural engineer who designed the slab and who was retained by the builder, amongst others, to give the certificate. The defendant issued the certificate (the Certificate) on 28 April 2009. It was signed by Dr Anthony Hasham.
The builder relied on the Certificate in deciding to commence construction incorporating the raft slab and would not have commenced construction without it. Had it been disclosed that the slab was non-compliant, the builder would have sought an alternative design which did comply.
The raft slab did not meet the stated requirements. It is not in dispute that, in providing the Certificate, which certified that it did, the defendant, in trade or commerce, engaged in conduct that was misleading or deceptive or likely to mislead or deceive (the conduct complained of), in contravention of s 52 of the (now repealed) [5] Trade Practices Act 1974 (Cth) (the Act) which provided, relevantly: Misleading or deceptive conduct 52(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive. […]
Section 82(1) provided: Actions for damages 82(1) A person who suffers loss or damage by an act of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person.
By April 2010 construction was well advanced. Level 8 had been constructed. At this point, it emerged that the raft slab was non-compliant and, indeed, that it posed a risk to the integrity of a neighbour's structure by laterally transferring load to it. The defendant ordered that work be stopped. Work was suspended on 21 April 2010.
A redesign was needed.
The project was delayed.
The Bank officer apparently with day to day carriage of the matter was Mr Robert Veitch (Veitch), whose designation was Business Development Manager, Commercial Banking NSW. Jabbour called Veitch shortly before the builder stopped work and told him that it was highly likely that works would come to a stop because the engineer had told him that no further work could continue until the structural issues, which had been discovered, had been resolved.
At or about this time, the Bank retained Mr John Portelli (Portelli) of JPQS Quantity Surveyors (JPQS) to prepare an initial audit report for the project. The evidence does not reveal why the Bank took this step. The evidence suggests that Portelli had become involved from at least 19 April 2010, that is, before the stop work order.
On 28 April 2010, Jabbour wrote to Portelli, copied to Veitch, reporting that the owner of an adjoining property (on the western boundary), to which access was needed to install works on the western elevation of the building, had given permission to use the property for the duration of construction. He reported that the second issue being dealt with was a design fault by the structural engineer. He reported that a plan of rectification was being prepared and that construction had been suspended since 21 April 2010. He reported that the remainder of the superstructure was required to be built after the rectifications were complete, as the success of the rectification works depended on further structural loads occurring after they were done.
On 11 May 2010, Jabbour wrote to Portelli and Veitch to keep them up to date with the structural design issue. He reported that there had been contact with the solicitors of a neighbouring property which was affected by the structural problem, trying to come to some common ground on how to finalise the problem. He reported that both sides had accepted the engagement of an independent engineer to "overlook and determine the solution".
On 12 May 2010, the audit report (the JPQS Report) was produced.
The JPQS Report recorded that the builder had provided a schedule which had the project being completed by 15 July 2010. Portelli's opinion was that a more realistic completion date was 15 October 2010.
The JPQS Report referred to a number of problems with the project. It referred to the raft slab having become a structural defect, to the fact that construction had been suspended since 21 April 2010 and to the fact that a resolution to the issue was yet to be determined. It described the standard of documentation prepared by the architectural firm involved as of a basic standard and that the building contract allowed for provisional sums for "undocumented scopes of works". It referred to the fact that piling foundations for a next door property were found to be encroaching the land and to the fact that this was a matter yet to be satisfactorily finalised. It advised that the presales should be validated. It expressed the opinion that the quality of "fixtures and fitments" may not meet the market expectations as inclusions for the higher end of the market and that the Bank should obtain further advice from real estate agents to confirm the market expectation for the expected listed prices. It referred to the fact that there was a potential delay claim of $1.050 million which could be an avenue for an additional claim by the builder. It drew attention to the necessity to make an amendment to the strata plan to take account of an internal reconfiguration to comply with council requirements. It referred to the necessity for a prompt approval from the adjoining property owner, accepting the proposed rectification works which resulted from the inadequate design. It expressed the opinion that the project was lacking management to resolve outstanding issues which were affecting the progress and delivery of the project.
The JPQS Report summarised the problems referred to above under the heading Specific Project Risks, in a paragraph numbered 1.33. In the immediately succeeding paragraph under the heading Mitigation of Risks, the JPQS Report recommended to the Bank that there be no further drawdowns until the issues referred to in paragraph 1.33 were completely resolved before progressing the works any further.
The last progress payment to the builder had been made on 14 April 2010 and it included approved variations of $1.22 million.
On 18 May 2010, Veitch sent an email to Robert Macaulay (Mistrina's solicitor), Jabbour and Portelli. He referred to the following matters raised in the JPQS Report which required clarification from Mistrina and/or Jabbcorp: Cost to Complete Construction programme, in particular a proposed completion date of 15 July, 2010, especially given works were ceased 21 April 2010. Standard of fixture and finishes to achieve the anticipated sale price Resolution of issues relating to each encroachment, in particular, the Western Elevation Payment of delay costs
He identified documentation that had not been provided, including stage inspections, detailed drawings for a number of aspects, landscaping drawings, a full and complete marketing plan, written confirmation from the purchasers accepting an extension of the sunset date to 15 April 2011, and which may need to be extended due to the current stop work. He wrote, relevantly, that: Information relating to these issues has been sought on a number of occasions, from Mistrina and JABBCorp however are not clarified to the satisfaction of JPQS and therefore the Bank. … The foregoing is without prejudice to any of the rights, remedies and powers contained within the Bank's security and loan documents; which are expressly reserved.
He referred to a meeting to be held the following day. The meeting was held.
Mrs Helen Constantinou (Constantinou) who, at all material times, was a director of Mistrina, attended. Representatives of the Bank and Jabbour were present. Constantinou refers to the Bank representative as Robert Welch. She presumably means Veitch. She says that Jabbour told the Bank representative that rectification plans were yet to be completed by ACE and estimated that they would be completed within 3 weeks. She says that Jabbour also said that ACE wanted him to sign a document and would not give him the plans until he did so. She says the Bank was very upset.
On 20 May 2010, Jabbour reported to Veitch, copied to Portelli, that an updated construction program would be submitted as soon as the builder had definite instructions from its PI [6] Insurer and a date of recommencement.
On 26 May 2010, the Bank demanded (the Demand) immediate repayment of the entirety of the loan then outstanding, being $3,870,053. The Demand does not identify any event of Default relied upon to accelerate repayment (which was otherwise only due on 2 August 2010). The Demand does not say why it was given. It was signed by the solicitor for the Bank.
On 3 June 2010, the Bank appointed receivers (the Receivers) to the land and to the property covered by the Charge. The Deed of Appointment records relevantly, "The Bank, being entitled under the powers conferred by it by the Charge and the Mortgage appoints the Receivers…"
Constantinou says that on or about 7 June 2010, Mistrina and Sikos commenced legal proceedings "to stop the Bank from appointing receivers" but says that the proceedings were withdrawn on legal advice from her solicitor.
Remediation works were then undertaken. They took some 12 months to complete. A certificate of structural adequacy of the new foundations was issued by the defendant on 3 March 2011.
Eventually, on 14 July 2011, the Receivers sold the land for $4.975 million, leaving a net deficit owing by the plaintiffs to the Bank of $1.584 million. The building was sold in an incomplete state.
The Bank later obtained an order for possession of Rowley Street and sold it on 5 September 2012. The Bank accepted the amount received in full and final settlement of its claim against the plaintiffs.
The plaintiffs claim that: 1. the provision of the misleading Certificate induced the builder to commence and construct a defective structure which necessitated a redesign and caused delay and additional cost; 2. these circumstances were relied on by the Bank as an event of default and induced the Bank to make the Demand; 3. they were not in a position to meet the Demand, entitling the Bank to take possession; 4. when the Bank took possession, the plaintiffs' opportunity to make any profit was lost; 5. they lost Rowley Street, which would not have happened had they not lost the opportunity to make a profit.
The defendant denies that the conduct complained was the cause of any loss to the plaintiffs.
The defendant argues that: 1. the evidence which the plaintiffs have brought does not establish that the structural defect and delay caused by it played a material role in inducing the Bank to call up the loan and take possession; 2. the plaintiffs have not established that the Bank would otherwise have allowed them to take the development to completion. The defendant puts that the plaintiffs would inevitably have defaulted in repaying the loan when it fell due on 2 August 2010, because the project would not by then have been completed and they would not have been able to pay the Bank, whereupon the Bank would have taken the development away from them anyway.
The defendant argues that if the plaintiffs are held to have established the claim for the lost opportunity, a significant discount should be applied to its value because of other factors which could (and, the defendant says, would) have induced the Bank to take away the project anyway.
The defendant argues that the loss allegedly suffered by the plaintiffs is too remote from the conduct complained of to be considered as having been caused by it, because: 1. it was not reasonably foreseeable that the provision of a defective design would ultimately cause the development to be taken from the plaintiffs by the Bank in the manner it was; 2. the defendant's obligations were to provide a professional service to the plaintiffs, not a commercial opportunity.
The defendant also relies on the "contributory negligence" of the plaintiffs in having entered into a transaction under which they took upon themselves an obligation to repay the Bank by 2 August 2010 in circumstances where there was a high risk they would default. Sensibly, little time was devoted to this submission.

The legal principles

A brief statement of the relevant legal principles will suffice.
The plaintiffs bear the onus to establishing that they suffered loss or damage by the conduct complained of.
This reflects the common law notion of causation, a question which is to be approached in a practical or common sense manner: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514.
Sufficient causal connection between the conduct complained of and loss or damage will be present if the conduct materially contributed to the loss. It does not have to be the sole cause, merely sufficient cause: Henville v Walker (2001) 206 CLR 459.
The assessment of damages for a loss which depends on future chances or possibility of benefit may be fraught with difficulty and attended by uncertainty, but the mere fact that damages cannot be assessed without difficulty and uncertainty does not relieve a Court from the responsibility of attempting to assess them as best it can. Where there has been an actual loss of some sort the common law does not permit difficulties in estimating the loss in monetary terms to defeat an award of damages.
A lost commercial advantage or opportunity is a compensable loss even where there is a less than 50 per cent likelihood that the commercial advantage will be realised. Damages are to be assessed by reference to the probabilities or possibilities of what would have happened: Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332 at 349; The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 125.
Where future or hypothetical events must be taken account of in assessing damages and proof of them is necessarily unattainable, the Court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect that degree of probability: Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 at 643; Sellars v Adelaide Petroleum NL & Ors at 350.
Different standards apply to proof of damage from those that are involved in the assessment of damages. The general standard of proof applies with respect to the issue of causation and whether a party has suffered loss or damage: Tabet v Gett (2010) 240 CLR 537 at 585. In relation to the assessment of damages, "the hypothetical may be conjectured": Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 at 643. See also: Badenach v Calvert (2016) 257 CLR 440 at [38]-[41].
In Tabet v Gett (2010) 240 CLR 537 at 587, Kiefel J said, "[r]esort to the language of 'chance' cannot displace the analysis necessary for the determination of the issue of causation of damage".

Consideration

The parties are agreed that had the project been completed by the plaintiffs in September or October 2010, the plaintiffs would have made a profit of $2,665,360.
They are also agreed that, when Rowley Street was lost, it was worth $1.3 million.

Causation

The parties agreed that the lost profits claim is properly to be characterised as one for the loss of a commercial opportunity.
No opportunity was lost to the plaintiffs by the Bank simply making Demand. It was lost, at the earliest, when the Bank appointed the Receivers and, at the latest, when the land was sold. I do not think that anything turns on the precise time it was lost.
The burden is upon the plaintiffs to establish that the conduct complained of caused them to lose the opportunity. It is not a matter which can be left to conjecture. It is for the plaintiff to prove it on the balance of probabilities, by admissible evidence.
It is a matter which the defendant clearly put in issue from the outset and of which the plaintiffs have been cognisant. These proceedings were started in the Common Law Division in 2015. I transferred them to this Division and this List on 2 September 2016. The plaintiffs filed a Technology and Construction List Statement on 2 September 2016. In para 57 of that List Statement, they pleaded having suffered loss or damage as a result of the conduct complained of. In para 58, they articulated their loss of damage, in effect, as their loss of profit and the value of Rowley Street. In its Technology and Construction List Response filed on 25 October 2016, the defendant denied para 57 and expressly denied that the loss was caused by any act or omission on the part of the defendant. This has remained an issue since then. Additionally, the plaintiffs sought to rely on the expert evidence of Mr Mark Paton, a banking and finance specialist, from whom they wished to adduce evidence as to what a reasonable banker in the position of the Bank would have thought and done with a view to this establishing what the Bank actually thought and did. This evidence was inadmissible and I rejected it.
Proof that the conduct complained of played a, or sufficient, part in inducing the Bank to act requires evidence of the Bank's motivation.
In Ho v Powell (2001) 51 NSWLR 572, 576 [14]-[15], Hodgson JA said: There is a long-standing controversy whether the civil standard of proof requires a numerical probability in excess of 50 per cent (see Davies v. Taylor [1974] AC 207 at 219), or belief amounting to reasonable satisfaction (see Briginshaw v. Briginshaw (1938) 169 CLR 638 at 642-3). My own opinion is that the resolution of the controversy involves recognition that, in deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision. I discussed this in some detail in an article published at (1995) 69 ALJ 731. In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so: cf. 69 ALJ at 732-3, 736, 740. As stated by Lord Mansfield in Blatch v. Archer (1774) 1 Cowp. 63 at 65 (98 ER 969 at 970): All evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted.
The fundamental difficulty for the plaintiffs is that they have failed to adduce evidence sufficient to be a foundation for the Court reasonably to find as a fact that the structural defect and delay were a, or a material, factor in the Bank's decision to take the project away from the plaintiffs.
Which factors (if any) the Bank took into account, and the level of importance (absolute and relative) which it attributed to them, have been left as matters of conjecture. Just as it may be conjectured that the conduct complained of was material, it may be conjectured that it played no role at all or would have played no role had all the other concerns of the Bank, including concerns about things done and not done by the plaintiffs themselves, been allayed.
It is an assumption in the plaintiffs' case that the Bank was legally entitled to act as it did. However, the Bank may have got it entirely wrong. The Bank may not have acted lawfully. We will never know. If it acted unlawfully, there would be significant doubt that the conduct complained of could have caused the loss. It is to be recalled that the plaintiffs apparently initiated a challenge to the appointment of the Receivers.
If the Bank called up the loan relying on the Event of Default in clause 16.1(h), it would first have had to have formed a reasonable opinion of a material adverse change in circumstances. There is no evidence of the Bank having formed such an opinion. The evidence does not reveal who was the mind of the Bank for that purpose and for identifying the Event of Default upon which it was relying.
It borders on the inconceivable that there would not have been in existence Bank records throwing light on the Bank's motivations. It borders on the inconceivable that there would not have been in existence file notes recording the seeking of authorisation within the Bank to call a default or otherwise take enforcement steps. No such evidence has been placed before the Court.
No Bank records pertinent to this issue were subpoenaed by the plaintiffs, despite the fact that the plaintiffs (through previous solicitors acting for them) did issue a subpoena to the Bank (issued 8 June 2016) (the Subpoena) for documents.
The terms of the Subpoena plainly do not extend to the documents that would be relevant, if not critical, here. The Subpoena appears to be directed to the Bank's behaviour in completing the development and selling it. The Bank returned documents under the Subpoena, none of which throw any light on the issue.
Why a subpoena directed to capturing documents relevant to causation was not issued was not explained. The level of Veitch's authority was not established. He may not have played any part in the Bank coming to any relevant decision. His authority may not have extended to him doing so.
The Bank was represented by solicitors at the material time. The Demand gave a solicitor's name and telephone number for any inquiries. No reference was made during the hearing to any subpoena directed to the solicitors.
Not even the mortgage under which the Bank purported to appoint the Receivers is in evidence. The Court is not apprised of what terms would have permitted the Bank to appoint Receivers or under what provision or provisions the Bank purported to act.
The JPQS Report identified various problems with the development and clarifications and information which had not been given. It is a matter entirely for conjecture which of these factors (if any) ultimately motivated the Bank to act.
That:

the Bank may have been "very upset";
the structural defect, delay and stop work may have been of concern to Veitch or the Bank;
progress payments (including for variations) were made up to shortly before the Demand;
the Demand followed shortly after the JPQS Report provides no basis, let alone a solid or reasonable one, for the finding for which the plaintiffs need.

The plaintiffs have not established that the defendant caused them to lose their commercial opportunity and they have not established that it caused them to lose Rowley Street.
Their claim must fail.
In the circumstances, it is not strictly necessary to consider whether the Bank would have taken the development away in any event or to value the opportunity which the plaintiffs lost. Nevertheless, I propose to deal with these subjects, albeit briefly.

Valuation

It is common cause that the development, if left to the plaintiffs, would have been completed no later than mid to late September 2010. This is based on the expert testimony of Mr McIntyre, an engineer and programming expert. I think there is a reasonable possibility that the development could and would have been completed earlier. Jabbour gave evidence that it would have been completed in mid-July 2010. It must be accepted that there were reasonable prospects that the development would not have been completed by 2 August 2010, the deadline for repayment. But by 2 August 2010, the development would have been close to completion. The evidence does not provide a reasonable foundation to conclude that, had the plaintiffs got to 2 August 2010 but the development was not completed, the Bank would have taken it out of their hands at that time. Of course that possibility would have been present but the structural defect would have been remedied and completion would, other things being equal, have been only weeks away. I think that the chance of the Bank taking the development away is a question which goes to the value of the opportunity rather than its existence or loss. The state of the evidence makes it extremely difficult to approach the value of the opportunity in a sensible and rational fashion. There is, for example, no evidence about the Bank's view of the project as a whole, its lending policies, or its consideration from time to time of its prospects. Justice does not dictate that a figure be plucked out of thin air: Troulis v Vamvoukakis [1998] NSWCA 237 at 14. Termination was, of course, a possibility and the value of the opportunity should be discounted by the prospects of it.
Apart from the possibility of termination, there were of course other risks which could have impacted the plaintiffs' profit. If I were to have applied a discount, I would have applied a total of 15%.

Other matters

Very little was put by the defendant on the subjects of remoteness or contributory negligence. I do not propose to deal with these matters apart from saying that, in my view, it would have been sufficient for the plaintiffs to establish that the conduct complained of played a material part in the Bank's decision for it to have established causation. So far as contributory negligence may be relevant, I do not consider that the transaction with the Bank was so inherently risky that it could be considered to be negligent on the part of the plaintiffs to have entered into it. I do not consider that reasonable foreseeability has any meaningful role to play in the present context.

Conclusion

The proceedings are dismissed.
I provisionally order the plaintiffs to pay the defendant's costs of the proceedings. This order will solidify unless, within 7 days, a party notifies my Associate in writing that another order is sought and specifies briefly the reasons, in which event the costs order will not take effect and I will make directions for the resolution of any outstanding issue.
The exhibits are to be returned.

Endnotes

Mr Sikos passed away in March 2018.
Cl 16.1(h).
Cl 16.2(b).
Cl 12.
The Act, despite its replacement by the Australian Consumer Law (ACL), still applies to this case.
Professional Indemnity..

Amendments 26 February 2020 - Amended para 41 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 February 2020

Trade Practices Act 1974(Cth)

Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd

At a glance

Court

Decision date

Before

Source

Judgment (10 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (10)

Cited By (3)