Plaintiff v Defendant

CONTRACT - Repudiation - Where party erroneously alleged contract already terminated by mutual agreement or abandonment, or alternatively purported to terminate contract under specified clause - Whether party claiming contract terminated repudiated the contract - Whether repudiation accepted by counterparty - Contract repudiated.

CONTRACT - Assessment of damages - Where contract concerned sale of land, business and related assets - Where highest and best use of land would have required amendments to applicable planning scheme to allow for a more intense development, but approval of amendment to applicable planning scheme uncertain - Where expenses recorded in vendor's operating accounts not all clearly referable to activities of business being sold - Whether market value of land and assets equal to the price stipulated in the contract - Whether land to be valued assuming certainty of amendment of applicable planning scheme with a discount to reflect planning risk or vice versa - Whether discount applied by expert sufficient - Whether business to be valued by normalising its accounts - Damages awarded.

CONTRACT - Mitigation - Where open offer to complete sale of land and assets for a discounted price, but on different financing terms, made before trial - Where different financing terms involved removal of vendor finance - Whether plaintiff unreasonably failed to mitigate loss by not accepting such an offer - Whether removal of vendor finance altered the contract such that it was not an offer made on substantially the same terms as the contract - No failure to mitigate.

1 On 5 August 2019, the plaintiff (Next Stage) and the defendant (Ardmillan) entered into a Contract of Sale of Real Estate (Contract of Sale) in respect of land known as 11‑45 Derby Street, Monee Ponds (the Property),[1] an Asset Sale Agreement (the ASA) and a Call Option Deed. Next Stage was the purchaser under the Contract of Sale and the ASA. Ardmillan was the vendor. The Contract of Sale included provision for significant vendor financing. The ASA provided for the transfer of a retirement village business being conducted by Ardmillan (the Business) and related assets.

2 Deposits were paid and the Contract of Sale and the ASA were due to settle on 29 November 2019.[2] For reasons which are addressed in detail below, neither contract settled on the due date. Initially negotiations were directed to the terms of a Priority Deed involving Next Stage's mezzanine lender, but once the terms of the Priority Deed were resolved (which occurred relatively quickly), the negotiations were directed to changes Ardmillan considered necessary to accommodate Next Stage's nomination of itself in its trustee capacity as the purchaser. The negotiations were, in some respects, extensive; but failed to yield agreed revisions. Several weeks after the negotiations ended, Next Stage served Notices to Complete on Ardmillan, seeking to bring on completion under the original contracts. Ardmillan contended, in response, that the contracts were no longer on foot, or if they were, it was entitled to terminate them.

3 The parties are in dispute about many aspects of their failed transaction. The key points in dispute are:

(a) whether the Contract of Sale and the ASA were still on foot on 18 May 2020 (when Next Stage served its Notices to Complete) or had earlier been terminated by mutual agreement, or determined following repudiatory conduct by Next Stage, which was accepted by Ardmillan;

(b) whether, if the contracts were on foot at that time, Ardmillan was entitled to terminate the ASA (with the Contract of Sale automatically terminating due to the contracts being expressly interdependent);

(c) whether Ardmillan is entitled to retain the deposits paid by Next Stage under the Contract of Sale and the ASA;

(d) if, as Next Stage contends, Ardmillan repudiated the Contract of Sale and the ASA in May 2020 (which repudiation it says it accepted):

(i) whether Next Stage was itself ready willing and able to complete;

(ii) whether Next Stage suffered loss or damage;

(iii) the amount of Next Stage's loss or damage; and

(iv) whether Next Stage has, as Ardmillan contends, failed to mitigate its loss by not accepting offers made by Ardmillan to settle the transaction on particular terms.

4 Next Stage claims loss of bargain damages, which it calculates as the difference between what it contends to be the 'true value' of the Property and the purchase price under the Contract of Sale, and the difference between what it contends to be the true value of the assets it was to have acquired under the ASA, and the price payable under that contract. It advanced an alternative claim to reliance damages. Next Stage also claims repayment of the deposits.

5 In evidence, the parties painted on a wide canvas, traversing their interactions and correspondence in great detail. The chronology of events and interactions, while extensive, was largely uncontroversial. Those events are set out below. What was controversial was how these interactions are to be characterised, and the legal consequences that flow. In particular, a central point of controversy was whether the parties' dealings after the original date for completion resulted in an inferred agreement to terminate the original contracts, or were merely negotiations seeking amendments, which did not involve the termination of the original contracts or their repudiation.

6 By way of overview, for the reasons detailed below, I have reached the following conclusions on the principal issues (some terms are defined later in these reasons):

(a) the Contract of Sale and the ASA were still on foot on 18 May 2020;

(b) Ardmillan was not entitled to terminate the ASA (and consequently the Contract of Sale) under cl 2.4 of the ASA on 25 May 2020;

(c) Next Stage was ready, willing and able to complete under the Contract of Sale and the ASA pursuant to its Notices to Complete;

(d) the value of the Vacant Land was $26.87 million (being the value determined by the expert called by Next Stage, Ms Burnet, but subject to a downward adjustment to account for uncertainty regarding planning issues)[3];

(e) the value of the Balance of Level 3 was $4.36 million (being the value determined by the expert called by Ardmillan, Mr McAuliffe, but adopting the larger floor area of the two figures used by the experts);[4]

(f) the value of the Business was $8.7 million (being the sum of $3.74 million for the DMF component and $4.96 million for vacant stock, both figures adopting the opinions of the expert called by Ardmillan, Mr Meredith).

Background: the Property, Business and regulatory context

7 The site previously occupied by the Essendon and District Memorial Hospital comprised two titles and was sold by the Victorian Government in the early 2000s.[5] The hospital building was located on one of those titles (the Hospital Land). The other title (being the Property), which fronts Derby St to the north, and York St to the west, was mostly vacant land.

8 The southern boundary of the Property abuts the northern boundary of the Hospital Land. The hospital building fronted onto Holmes Rd, occupying the southern end of the Hospital Land.

9 Ardmillan originally acquired title to both the Hospital Land and the Property, but sold the Hospital Land to entities owned by Bain Capital Credit in 2017. Before it sold the Hospital Land, Ardmillan had developed that property to include an aged care facility, a child-minding centre and retirement village apartments. Ardmillan also developed some of the Property as retirement village units. Ardmillan sold the aged care business trading as 'Craigcare'[6] to the Bain entities along with the Hospital Land in 2017. Ardmillan did not sell the retirement village business (comprising both the independent living apartments (ILAs) and the independent living units (ILUs), trading as 'Ardmillan'), but retained its occupation of level 3 of the hospital building (Level 3) pursuant to a 99 year lease (the Head Lease). The Bain entity which was (at relevant times) the landlord under the Head Lease was Menzies Prop Co Pty Ltd (Menzies).

10 The Head Lease included provisions enabling Ardmillan to call for a strata subdivision to separate Level 3, and to purchase the title to that property for $1. That option had not been exercised by Ardmillan.

11 As a result of these transactions, as at 2019, Ardmillan conducted the Business on both the Hospital Land (specifically on part of Level 3, where there were ILAs) and part of the Property, where it had established ILUs towards the western side of the Property. The balance of the Property (ie, the portion not occupied by the retirement village units) remained vacant land. I refer to that portion of the Property as the Vacant Land. The portion of Level 3 that was not used for the Business was partly rented out and partly vacant. I refer to that portion of Level 3 as the Balance of Level 3.

12 The Business operated on the basis that Ardmillan would lease retirement village apartments or units to residents, and the residents would lend the operator the value or price of the apartment or unit, with that amount constituting a resident's 'refundable ingoing contribution' or 'RIC' in the industry shorthand. When a resident leaves the retirement village, that person's RIC is refunded, subject to agreed deductions. RICs are governed by the Retirement Villages Act 1986 (Vic) (the RV Act), which creates a statutory charge over the land on which the apartment or unit is situated, to secure repayment of the RIC to the resident.

13 While negotiations for the sale of the Property and the Business began in early 2018, it was not until 5 August 2019 that the Contract of Sale, ASA and Call Option Deed were executed.

14 When development is in prospect, planning constraints often loom large. This case is no exception. Issues concerning the existing planning constraints, the likelihood of those constraints being amended to permit more intensive development, and the extent to which a purchaser of the Property would pay a price reflecting that potential, were significant issues informing the differing views of the land valuation experts. While the points of difference between the experts on these matters are addressed further below, some aspects of the controls may be noted by way of general background.

15 The Property is subject to the Moonee Valley Planning Scheme. The parties both addressed the value of that land, and the planning constraints affecting it, as at 1 June 2020. At that time, the Property was zoned 'Mixed Use Zone' (MUZ). The Hospital Land was also zoned MUZ and, together with the Property, was surrounded by land zoned 'General Residential'.

16 The Property is subject to an Incorporated Plan Overlay (the IPO). Schedule 7 to the IPO (IPO 7) included provisions specific to the 'former Essendon and District Memorial Hospital'.

17 Clause 43.03-1 of the IPO provided, inter alia, that:

A permit granted must:

· Be generally in accordance with the incorporated plan, unless a schedule to this overlay specifies otherwise.

· Include any conditions or requirements specified in a schedule to this overlay.

18 Clause 1 of IPO 7 provided that a 'permit may be granted for the use of land that is not generally in accordance with the Incorporated Plan'. Clause 2 set out applicable 'Decision guidelines', which required the responsible authority to consider various matters before deciding an application which was 'not generally in accordance with the incorporated plan'. Those matters included:

The consistency of the application with the objectives of the Incorporated Plan.

and

The effect on the amenity of the area as a result of the bulk, height, building setbacks, proposed hours of operation, traffic generation, carparking, lighting, overlooking, overshadowing and noise.

19 The 'Incorporated Plan' referred to in IPO 7 included a 'Development Concept Plan'. The Development Concept Plan included statements as to the purpose of the Incorporated Plan. Those statements of purpose are of some significance in the dispute, so are set out in full:

Purpose

· To facilitate the use and development of the land for aged care, private hospital, medical and health facilities (including radiology and pathology) and medical centre purposes and associated uses, facilities and activities generally in accordance with the Incorporated Plan.

· To provide a range of retirement accommodation (including serviced apartments, dwellings, self-contained apartments, hostel accommodation, a nursing home, acute care and palliative care) in an attractive and comprehensively planned environment.

· To provide an appropriate mixed-use development including office, commercial, educational and recreational facilities and services related to the primary use of the site being health/retirement/aged-care and medical services.

· To provide appropriate communal facilities and services and facilities associated with the hospital and retirement accommodation uses.

· To provide a pleasant and safe environment for residents, patients and their visitors.

· To achieve appropriate standards of private open space, daylight, visual and acoustic privacy for residents of retirement housing.

· To minimise the visual impact of car parking, loading and other site facilities on the streetscape.

· To avoid any unreasonable adverse amenity impacts on surrounding residential properties.

20 As will be apparent, the stated Purpose of the Incorporated Plan focused on the provision of accommodation and related services to the aged, as well as general health/medical services.

21 The Incorporated Plan also included detailed statements concerning the proposed development of land to the north of the site (essentially the vacant land and the portion of the Property on which the ILUs were subsequently constructed). Those statements included provisions about total numbers of dwellings, building heights and the locations within the site for more or less intensive development, as follows (emphasis added):

Proposed Development

Land to the north of the former Essendon Hospital's main building may be developed with a maximum of 70 dwellings, of which not more than 20 percent may be two storey, generally in accordance with the Development Concept Plan (Figure 1). Any two storey dwellings must be located generally within the centre of the site and must not have abuttal to either Chester, York or Derby Streets or be adjacent the laneway on the eastern site boundary.

The existing five-storey hospital building may be extended upwards to a height no higher than the existing plant room structures, which is equivalent to two storeys in height, with the new plant room and lift motor room not exceeding an additional 6 metres in height and to the satisfaction of the responsible authority. Every effort will be made to reduce the visual impact of the plant room and lift motor room.

The additional two storeys may be set back from the perimeter of the existing hospital building to the satisfaction of the responsible authority. The building may be used for the following purposes:

· Aged care facility

· Private hospital

· Hostel and nursing home

· Medical centre and specialist consulting suites

· Independent living units

· Office and ·conference facilities related to health, medical and aged care uses.

· Pharmacy

· Associated communal, educational and re creational facilities

· Retail premises and service facilities ancillary to the use of the building for health/medical/aged care uses.

· Car parking

· Childminding

22 Figure 1, to which reference was made in the Incorporated Plan's statements concerning proposed development, is copied below:

23 The term 'Independent Living Units', used in Figure 1, was not defined.

24 The MUZ zoning and IPO were applied by Amendment C8, approved in August 2000. In 2012, the local council, Moonee Valley City Council (Council), prepared and exhibited proposed Amendment C115. That amendment sought to replace Schedule to the IPO with a new Schedule 8. The proposal was explained in the Explanatory Report that accompanied the exhibition of Amendment C115:

Amendment C8 was approved in August 2000 which rezoned the land to Mixed Use Zone and applied the Incorporated Plan Overlay (IPO7) within the Moonee Valley Planning Scheme. The original concept plan was implemented to facilitate the redevelopment of the former Essendon and District Memorial Hospital for aged care, health and medical facilities together with residential accommodation.

There have been many updates in State Policy since Amendment C8 was approved that has led to increased pressure for medium and higher density housing in already established areas with good access to public transport.

Development outcomes for the site are now different from when Amendment C8 was approved 11 years ago. Due to the increase in residential development proposed on the site and the land is in single ownership, a Development Plan Overlay is now considered the most appropriate tool to guide the future development of the land.

25 The revised Development Plan proposed in 2012 would (in addition to addressing the upwards extension of the hospital building) have provided for more intensive development of the Property, including:

(a) one to two storey dwellings to the north of the hospital building;

(b) not more than four dwellings along Derby St and York St to be three storeys; and

(c) a four storey building for residential purposes to the north-east of the hospital building.

26 After the exhibition of the proposed amendment drew 55 submissions, 53 of which were objections, the Council abandoned the amendment rather than referring to an Independent Panel.

The Contract of Sale, ASA and Call Option Deed: Key terms

27 The Contract of Sale included Particulars of Sale, Special Conditions (SC) and General Conditions (GC),[7] in that order of priority.

28 Pursuant to the Contract of Sale, Ardmillan was to convey title to the Property to Next Stage at settlement (GC 10). The conveyance was to be undertaken as an electronic conveyance (SC 2). The Settlement Date was set as the 'date and time of Completion under the [ASA]' (SC 1.1 (defined terms), Particulars of Sale). Pursuant to cl 6.1 of the ASA, Completion was to take place at 11:00am on the Scheduled Completion Date at MinterEllison's offices 'or at any other place or time as the parties agree'. The Scheduled Completion Date was defined by cl 1.1 of the ASA as 29 November 2019 'or such earlier date as agreed between the Vendor and the Purchaser in writing'.

29 Pursuant to GC 16.1, time was of the essence under the Contract of Sale.

30 The Contract of Sale provided for the payment of a deposit of $2,605,000 on the Day of Sale (being the day the Contract of Sale was executed) (GC 11.1, Particulars of Sale, SC 7.1). The total Price was $26,050,000, inclusive of GST. Allowing for the Deposit, the balance was to be funded by the payment by Next Stage of the Settlement Payment of $1,445,000, and the provision of a vendor loan by Ardmillan of $22,000,000 (GC 11, Particulars of Sale, SC 9, SC 14.2).

31 The Contract of Sale provided for who would be entitled to the Deposit in the event that the Contract of Sale was terminated before Completion. That provision was tied up in the clauses establishing the interdependence of the ASA and the Contract of Sale, as follows (SC 4):

4.1 Interdependence and termination

(a) This contract is interdependent with the Asset Sale Agreement until the Purchaser completes settlement of the Property under this contract contemporaneously with Completion and the Vendor is not obliged to transfer the Property under this contract unless Completion occurs contemporaneously.

(b) Prior to Completion, any default by a party under this contract of sale or the Asset Sale Agreement (the Documents) will also constitute a default under the other Document.

(c) Where a party validly terminates and with immediate effect, but subject to Special Condition 4.2:

(i) the Asset Sale Agreement, this contract will also terminate; and

(ii) this contract, the Asset Sale Agreement will also terminate.

4.2 Consequences of termination before Completion

On termination of this contract under special condition 4.1(c):

(a) the accrued rights and remedies of a party are not affected;

(b) if:

(i) the Asset Sale Agreement is terminated in accordance with clause 2.4 of that agreement and the Purchaser is not in breach of this contract or the Asset Sale Agreement, the Deposit is to be released to the Purchaser with any accrued interest; or

(ii) subject to Special Condition 4.2(b)(i), this contract is terminated for any reason other than the Vendor's default, the Deposit is to be forfeited to the Vendor with any accrued interest; and

(c) subject to special conditions 4.2(a) and 4.2(b), the parties are released from further performing their obligations under this contract.

32 General Condition 18 provided that Next Stage 'may' nominate a substitute or additional transferee, but 'the named purchaser remains personally liable for the due performance of all the purchaser's obligations under this contract'. The effect of this clause was modified by SC 8, which provided as follows:

8.1 No assignment by Purchaser

The Purchaser must not assign or otherwise deal with this contract or any right under this contract without the prior written consent of the Vendor.

8.2 Nomination by Purchaser

(a) Subject to a subsequent purchaser being a related entity of the Purchaser and approved by the Vendor, the Purchaser may nominate a substitute purchaser under general condition 18.

(b) If the Purchaser nominates a subsequent purchaser in accordance with Special Condition 8.2(a), the Purchaser agrees it will nominate the same entity under the Asset Sale Agreement.

33 The Contract of Sale also made provision for the performance of Next Stage's obligations to be supported by guarantees. General Condition 20 permitted (but did not require) Ardmillan to require 'one or more directors of the purchaser to guarantee the purchaser's performance of this contract if the purchaser is [as Next Stage was] a proprietary limited company'. The effect of GC 20 was largely, if not entirely, overtaken by SC 6 which:

(a) required (by SC 6.1) each person signing the contract on behalf of Next Stage to ensure that the Ultimate Holding Company (as defined), and all directors and shareholders of the Purchaser (as defined) and the Ultimate Holding Company, executed the Guarantee; and

(b) stipulated (by SC 6.2) that the Guarantee, defined as a guarantee in the form set out in Annexure A to the Contract of Sale, was to be delivered to Ardmillan or its lawyers on the Day of Sale, which was the day the Contract of Sale was executed (ie, 5 August 2019).

34 The form of Guarantee annexed to the Contract of Sale named Daniel Milentijevic, Joshua Balsim, Next Stage Living Group Pty Ltd, Deca Designs Pty Ltd and Trivett Property Partners Pty Ltd (Trivett) as the Guarantors. It is fair to describe the terms of the Guarantee as heavily weighted in Ardmillan's favour. Amongst other terms, it provided that the guarantee and indemnity given thereunder would continue until Ardmillan had been paid all amounts owing under, or as a result of, the Contract of Sale (cl 6). It did not provide any exit, as of right, consequent upon any change in the ownership of Next Stage. Nor did it provide any exit, as of right, relieving the then-current directors of their obligations should they cease to be directors of Next Stage. Nor did the Contract of Sale include any provision requiring Next Stage to provide, or permitting Ardmillan to call for, any fresh or replacement guarantees to Ardmillan in the event that the ownership or control of Next Stage changed after the Day of Sale. The suite of contracts executed by the parties on 5 August 2019 did not contain any provision otherwise restraining the shareholders of Next Stage from selling their shares, or replacing the directors.

35 The Contract of Sale provided for procedures for the service of notices of default. The provisions of GC 27 (which were in the standard form) were disapplied (by SC 12.1(a)) to certain categories of breaches, with a different notice of default procedure then set out in SC 12.1(b)-(d) permitting Ardmillan to terminate the Contract of Sale if the default was not rectified within the Relevant Period (being no less than five, but no more than 15, business days). The clauses and obligations in respect of which breach would attract the bespoke termination regime set out in the balance of SC 12.1 were stipulated in SC 12.1(a) as follows:

(a) SC 6.2 (which concerned delivery of the Guarantee on the Day of Sale);

(b) SC 7.1 (concerning payment of the Deposit);

(c) SC 9 (concerning payment, not only of the Purchase Price, but also repayment of the vendor finance, linked to SC 10.2 and Sch 3);

(d) SC 25 (concerning the proposed development works, which are referred to further below);

(e) SC 26 (limiting the extent to which Next Stage could deal with the Property without Ardmillan's consent while any amount remained owing to Ardmillan under the vendor finance);

(f) from the Settlement Date, a material obligation under the RV Act, or under the Contract of Sale itself; and

(g) the occurrence of an Insolvency Event (as defined).

36 Where there was a breach falling within any of these categories, Ardmillan could terminate the Contract of Sale in accordance with the provisions of SC 12.1(b)-(d), which were in the following terms:

12.1 Particular Obligations

...

(b) The Vendor may serve on the Purchaser a notice of default in writing (Notice of Default). The Notice of Default must:

(i) specify the breach or Insolvency Event;

(ii) specify the steps required of the Purchaser to rectify the breach or Insolvency Event, including:

(A) where applicable, stating the amount owing in relation to the breach; and

(B) stating the amount that the Purchaser must pay to achieve settlement were settlement to occur on the final day of the Relevant Period; and

(iii) give the Purchaser a reasonable time to rectify the breach or Insolvency Event, but such time must be no less than 5 Business Days and no more than 15 Business Days (Relevant Period).

(c) If the Vendor has complied with Special Conditions 12.1(a) and 12.1(b) and the Purchaser has not remedied the breach or Insolvency Event to the reasonable satisfaction of the Vendor within the Relevant Period, the Vendor may terminate this contract.

(d) For the purposes of this Special Condition 12, the nominated contact details for the Purchaser and the NSL Lender are contained in the Particulars of Sale.

37 Special Condition 12 also included further provisions concerning default as follows:

12.2 If Vendor terminates

If the Vendor terminates this contract under Special Condition 12.1, General Condition 12.2 and General Condition 28.4 will apply as if the Vendor had given notice under General Condition 27 and this contract had been terminated by notice under General Condition 28.2.

...

12.5 Other rights unaffected

Nothing in this Special Condition 12 limits the rights of the Vendor if the Purchaser defaults under this contract.

38 In respect of breaches not covered by SC 12.1(a), GC 27 and 28 set out a regime requiring service of a notice of default, and providing for the consequences to follow if the contract ends following service of a notice of default by either party.

39 Special Condition 10 made provision for the vendor financing. Pursuant to that suite of provisions, if Next Stage wished to settle by funding the Balance Payment (defined to be $22,000,000) by using the vendor finance, it was required to grant a mortgage to Ardmillan in the form set out in Annexure B: SC 10.1(a). Next Stage acknowledged that the mortgage, Call Option Deed and the Priority Deed[8] were all required to secure payment of the Balance Payment and performance: SC 10.1(b).

40 The vendor finance was for an initial period of 24 months from the Settlement Date, but Next Stage could request an extension to 36 months from the Settlement Date if (among other conditions) it had repaid at least $5,000,000 of the Balance Payment: SC 10.2.

41 The vendor finance was interest-free for the first 12 months after the Settlement Date, attracted an interest rate of 6.5% in the second year and, if the term were extended, 8.5% in the third year (adjusted in accordance with any changes in the benchmark bank bill swap rate): SC 10.3.

42 Next Stage was permitted to pay out the vendor finance early, but otherwise was obliged to make payments as required under Sch 3: SC 10.4.

43 Schedule 3 required Next Stage to repay the vendor finance by making payments to Ardmillan whenever it sold (by loan/lease) any of the new ILAs (the Marimar apartments, which were then being constructed on Level 3), entered into any new residence/loan agreement for an ILU or ILA, or sold any part of the Property as vacant land. The amounts required to be paid were specified as a percentage of the amount payable to Next Stage.

44 Until such time as no part of the vendor finance remained outstanding, Next Stage was required to comply with SC 25 and SC 26. Pursuant to those provisions, Next Stage could carry out Specified Development Works - being works substantially consistent with the Development Diagram set out in Sch 5 - without needing to seek further approval from Ardmillan (but did have to obtain Ardmillan's approval before accepting any conditions imposed by the Council): SC 25(d) and (j). Next Stage was, however, required to obtain Ardmillan's approval for any development works outside the Specified Development Works (such works being Proposed Development Works) with the same condition also applying before agreeing to any conditions required by the Council: SC 25(c) and (j). Ardmillan was required to consent to Proposed Development Works if Next Stage demonstrated that completion of the Proposed Development Works would not cause the value of the Property to decrease: SC 25(f)(ii).

45 While the vendor finance remained outstanding, Ardmillan also had the further protections afforded by SC 26, which prevented Next Stage charging, encumbering, leasing, licensing or otherwise parting with possession of the Property without Ardmillan's consent (other than in respect of land lots facing Derby Street, with some conditions): SC 26(b) and (c)(ii).

46 The bespoke termination regime contained in SC 12 also applied in respect of the vendor finance repayment obligations, as well as the obligations contained in SC 25 and 26: SC 12.1(a)(i)(C)-(E).

47 Given the importance that Next Stage's nomination - of itself in a trustee capacity - in combination with the existence of the vendor finance, it is worth pausing to list the protections in Ardmillan's favour under the Contract of Sale while the vendor finance remained on foot:

(a) the Vendor's Mortgage, the Call Option Deed[9] and, 'if applicable', the Priority Deed;

(b) the bespoke termination regime under SC 12.1;

(c) the repayment obligations established by Sch 3; and

(d) controls on Next Stage's ability to develop outside the parameters of Specified Development Works embodied in Sch 5.

48 The ASA was entered into alongside the Contract of Sale, on 5 August 2019. By the ASA, Ardmillan undertook to sell, and Next Stage undertook to buy, specified 'Assets' (the Assets). The Assets comprised listed assets (other than Excluded Assets, as defined) associated with the conduct of the Business, being the retirement village business conducted by Ardmillan from the Property and certain leased land under the name 'Ardmillan Retirement Living'. Two of the listed assets are of particular relevance to the present dispute:

(a) the Marimar Contract, being a development services agreement between Ardmillan and Marimar Projects Pty Ltd (Marimar); and

(b) the Leases, defined as meaning the Head Lease and the Property Subleases where:

(i) the Head Lease was a lease between Ardmillan Apartments Management Pty Ltd (Ardmillan Apartments) and Menzies as Head Landlord and the registered proprietor of the 'Menzies Land', which included Level 3 of the hospital building; and

(ii) the Property Subleases comprised two 99 year leases between Ardmillan and Ardmillan Apartments (referred to as the 'Level 3 Commercial Sublease' and the 'Level 3 RV Sublease').

49 Certain conditions precedent are of central importance to the proceeding. Clause 2 provided as follows:

2.1 Conditions

The sale of the Assets contemplated by this agreement and Completion is conditional on the satisfaction or waiver (in accordance with clause 2.2) of the following conditions:

Each of the following documents is duly executed by all parties to it:

(a) the Property Sale Contract;

(b) the Call Option Deed and the Power of Attorney;

(c) the Priority Deed;

(d) the Level 3 Commercial Sublease Deed of Assignment;

(e) the Level 3 RV Sublease Deed of Assignment; and

(f) the Marimar Deed of Novation.

The Purchaser providing to the Vendor a signed Notice to Residents in respect of each Village Resident as at the Completion Date together with the Purchaser's authority that such notice may be sent to each Village Resident by the Vendor immediately following Completion.

The Purchaser obtains and delivers to the Vendor on or before Completion a signed and completed deed of release in a form approved by the Vendor in respect of all Security Interests over the assets of the Purchaser or its Related Bodies Corporate signed by the holders of the relevant Security Interests (other than Permitted Security Interests).

2.2 Waiver of Conditions

A Condition may only be waived in writing by a party entitled to the benefit of that Condition (as set out in the table in clause 2.1) and will be effective only to the extent specifically set out in that waiver.

2.3 Conduct of the parties

Each party must use all reasonable endeavours within its own capacity to ensure that each Condition is satisfied as soon as reasonably practicable after execution of this agreement and in any event before 5.00pm on the Sunset Date.

[The Sunset Date was defined as 'the date that is nine calendar months after the date of this agreement'.]

2.4 Failure of Condition

If a party has complied with its obligations under clause 2.3, it may terminate this agreement by giving notice in writing to the other parties if:

(a) a Condition is or becomes incapable of being satisfied; or

(b) each Condition is not satisfied, or waived in accordance with clause 2.2 by each party entitled to the benefit of that Condition, before 5.00pm on the Sunset Date.

2.5 Effect of termination

On termination of this agreement under clause 2.4:

(a) clauses 15 and 16 continue to apply;

(b) accrued rights and remedies of a party are not affected; and

(c) subject to clauses 2.5(a) and 2.5(b), the parties are released from further performing their obligations under this agreement.

50 Pursuant to cl 4.1, the Purchase Price for the Assets under the ASA was the sum of five amounts:

(a) the Holding Fee, which was $30,000 paid to Ardmillan by Next Stage prior to entry into the ASA;

(b) the Deposit, which was $365,000 (pursuant to cl 4.5, payable on the date of the ASA);

(c) the Completion Amount, which was $3,555,000 (payable on Completion, in accordance with cl 6.3(a)(i));

(d) the Vacant Stock Adjustment Amount (calculated under cl 4.2(a) and payable on Completion, in accordance with cl 6.3(a)(ii)); and

(e) the Marimar Adjustment Amount (calculated under cl 4.2(b) and payable on Completion, in accordance with cl 6.3(a)(iii)).

51 Each component amount of the Purchase Price was inclusive of GST: cl 14.2.

52 The two adjustment components, both payable on Completion, are relevant to the issues in dispute. They were addressed in cl 4.2 as follows:

4.2 Adjustment of the Purchase Price

(a) The Vacant Stock Adjustment Amount is the amount equal to the aggregate Market Value of all Vacant Stock as at the Completion Date, as notified to the Purchaser pursuant to clause 5.6(a); and

(b) The Marimar Adjustment Amount is the amount equal to the aggregate amount of all payments made by the Vendor to Marimar in connection with the Marimar Contract in respect of:

(i) services provided and works carried out in the period prior to Completion; and

(ii) monthly progress payments paid by the Vendor before Completion in respect of services to be provided or works to be carried out in the period on or after Completion, as notified to the Purchaser pursuant to clause 5.6(b).

(c) The Estimated Marimar Contract Payments are provided as an estimate only of future payments to be made in connection with the Marimar Contract.

53 Pursuant to cl 6.1, Completion was to occur on the 'Scheduled Completion Date', defined as '29 November 2019 or such earlier date as agreed between the Vendor and the Purchaser in writing'. While the potential for Completion on an earlier date was accommodated by the definition of 'Scheduled Completion Date', the potential for a later Completion was addressed by cls 6.6 and 6.7:

6.6 Scheduled Completion Date

The date on which Completion is required to take place in accordance with clause 6.1 is referred to in clause 6.7 as the 'Scheduled Completion Date', which expression includes any later date set for Completion in accordance with clause 6.7.

6.7 Completion obligations breached

If on the Scheduled Completion Date the Purchaser has not complied in any material respect with any of its obligations under clause 6.3, the Vendor is entitled, at its discretion:

(a) to defer Completion to any subsequent Business Day falling not more than 10 Business Days after the Scheduled Completion Date or any later date set for Completion in accordance with this clause (in such event, this clause will apply to the Scheduled Completion Date so deferred);

(b) if applicable, to waive the requirement for the Purchaser to fulfil those obligations, in whole or in part, and following such waiver to complete the sale and purchase of the Assets;

(c) so far as practicable, to complete the sale and purchase of the Assets; or

(d) to serve a Notice of Default on the Purchaser under clause 16.

54 As would be expected, both Ardmillan and Next Stage were obliged to deliver various items at Completion. The items Ardmillan was to deliver included the following (cl 6.2):

(a) all of the Assets by leaving them at the Property or the properties the subject of the Leases;

(b) a Priority Deed duly executed by the Purchaser and NSL Lender if the Purchaser has entered into any financing or security arrangement with an NSL Lender;

(c) the original Level 3 Commercial Sublease Deed of Assignment and Level 3 RV Sublease Deed of Assignment;

(d) to the extent obtained before Completion, the original Head Lease Variation Deed and Head Lease Assignment Deed duly executed by Ardmillan Apartments Management and any third party signatories;

(e) the original Marimar Contract and the Marimar Deed of Novation, duly executed by the Vendor and any third party signatories; ...

55 At Completion, Next Stage was obliged to pay Ardmillan the Completion Amount and the two adjustment amounts referred to above (cl 6.3(a)). In addition, Next Stage was also obliged to deliver to Ardmillan, at or before Completion (cl 6.3(b)):

(i) copies of any counterpart, document, confirmation, evidence, consents and waivers required to be duly executed or provided by the Purchaser, its Related Bodies Corporate and NSL Lender under clause 2; and

(ii) counterparts of any document to be delivered by the Vendor at Completion to which the Purchaser or any of its Related Bodies Corporate is a party, duly executed by the Purchaser and and/or any of its Related Bodies Corporate.

56 As may be seen, the combination of cl 6.2(b) and 6.3(b)(ii) obliged Next Stage to deliver, at or prior to Completion, a duly executed copy of the Priority Deed if it had entered into 'any financing or security arrangement with an NSL Lender'. The term 'NSL Lender' was defined to have the meaning given to it in the Call Option Deed. That deed defined the term as follows:

NSL Lender means any third party:

(a) approved by Ardmillan in writing to:

(i) lend funds to NSL for the purpose of funding payments to Ardmillan under the ASA and Property Sale Contract or in respect of the Proposed Development Works; or

(ii) whom NSL wishes to grant security over NSL's assets; and

(b) who has executed a Priority Deed as a Second Creditor (as that term is defined in the form of Priority Deed).

57 The interdependence between the Contract of Sale and the ASA was addressed by cl 6.5, in the following terms:

6.5 Interdependence

(a) This agreement is interdependent with the Property Sale Contract until the Purchaser takes possession of the Property under the Property Sale Contract contemporaneously with Completion and the Vendor is not obliged to grant and the Purchaser is not obliged to accept possession of the Property under the Property Sale Contract unless Completion occurs contemporaneously.

(b) Prior to Completion, any default by a party under this agreement or the Property Sale Contract (the Documents) will also constitute a default under the other Document.

(c) Where a party validly terminates the Property Sale Contract, this agreement will also terminate with immediate effect.

58 As is apparent from the extract above, cl 6.7 specified that, if on the Scheduled Completion Date, Next Stage had not complied in any material respect with any of its obligations under cl 6.3, Ardmillan could:

(a) defer Completion;

(b) waive the requirement on Next Stage to fulfil those obligations in whole or in part;

(c) complete the sale and purchase of the Assets as far as practicable; or

(d) serve a Notice of Default under cl 16.

59 It follows from this provision that a failure by Next Stage to deliver a conforming Priority Deed (assuming there was an NSL Lender) would mean a condition to Completion would not have been fulfilled, and Next Stage would have been in breach of cl 6.3, enlivening Ardmillan's range of options under cl 6.7. If Ardmillan were to elect to serve a Notice of Default, the regime established under cl 16 provided for the notice to allow a minimum of five business days (and a maximum of 15 business days) to rectify the breach.

60 Following execution of the ASA, Ardmillan was also obliged to take steps to procure the variation and assignment of the Head Lease between Menzies, the owner of the hospital building and Ardmillan Apartments, Ardmillan's related entity. Specifically, Ardmillan was obliged to, inter alia, use 'commercially reasonable efforts' to (cl 7.1):

(a) procure Ardmillan Apartments to negotiate and finalise the Head Lease Assignment Deed and the Head Lease Variation Deed with the Head Landlord (being Menzies);

(b) deliver to the Purchaser executed versions of those deeds; and

(c) deliver to the Purchaser the originals of those deeds, executed by Menzies and Ardmillan Apartments.

61 The two deeds were, in substance, deeds varying and assigning the Head Lease between Ardmillan Apartments and Menzies, pursuant to which Ardmillan occupied Level 3 of the hospital building.[10] Until these deeds were executed by all parties, Next Stage was precluded (by cl 7.2(b)) from engaging with Menzies without Ardmillan's consent.

62 Ardmillan's obligations in respect of the Head Lease Assignment Deed and the Head Lease Variation Deed were to be complied with by the 'Sunset Date or such other date agreed in writing by the parties' (cl 7.4). The Sunset Date was nine months from the date of the ASA, but the parties included a clause to address what was to occur if the obligations were not satisfied by the Sunset Date. Clause 7.5 provided that:

7.5 Obligations continuing

If the obligations of the parties under this clause 7 are not satisfied by the Sunset Date, the parties acknowledge and agree that the obligations in clause 10 continue to apply and the parties must negotiate in good faith for a period of 20 Business Days the basis on which the Purchaser can enjoy the benefit of the land the subject of the Head Lease, which may include the subdivision and sale of the Head Lease Premises.

63 Clause 10 established mechanisms by which Next Stage could assume the benefits under various 'Assumed Contracts' from Completion. The Assumed Contracts included:

(a) the 'Village Contracts', being the contracts between Ardmillan and the retirement village residents; and

(b) the Head Lease, to the extent that the Head Lease Assignment Deed and/or the Head Lease Variation Deed were not delivered at Completion.

64 As is apparent, by cls 7 and 10, the parties to the ASA contemplated that matters associated with amending and assigning the Head Lease may not have been finalised by Completion, such that arrangements were put in place to permit Next Stage to have the benefit of the Head Lease (and Village Contracts) following Completion.

65 Pursuant to cl 11.1 and Sch 2, warranty 2, Ardmillan warranted that the Accounts (defined as the audited outgoings of the Business as at 30 June 2018)[11] gave a materially accurate view of the outgoings of the Business and the Assets as at 30 June 2018, and the outgoings of the Business for the 12 months ended on 30 June 2018.

66 The third contract in the suite executed on 5 August 2019 was the Call Option Deed. Whereas only Ardmillan and Next Stage were parties to the Contract of Sale and the ASA, the persons named in Sch 5 of the Call Option Deed - the 'Guarantors' - were also parties to the Call Option Deed. The Guarantors were the then directors of Next Stage, Daniel Milentijevic and Joshua Balsim,[12] and the entities which held (directly or indirectly) shares in Next Stage, namely Next Stage Living Group Pty Ltd, Deca Design Pty Ltd and Trivett.

67 Under the Call Option Deed, Ardmillan had the right to step in and repurchase the Assets from Next Stage for the 'Call Option Price' at any time during the Option Period. The Option Period was triggered if there was an Event of Default, and, if triggered, only ended when all amounts had been repaid to Ardmillan under the Contract of Sale, including the vendor finance: cl 3.1 and defined terms referred to therein.

68 An Event of Default occurred under the Call Option Deed if Next Stage, or any NSL Lender, failed to satisfy various obligations including those under SC 12 and 25 of the Contract of Sale: cl 1.1.

69 The Call Option Deed annexed the form of the Priority Deed between the Vendor, Purchaser and 'any NSL Lender' (Annexure D). I have already set out the definition of NSL Lender in the Call Option Deed at paragraph 56 above. It should be recalled that the due execution of the Priority Deed was among the conditions precedent set out in cl 2.1 of the ASA.

70 Clause 9.9 of the Call Option Deed anticipated that a third party lender to Next Stage may not be entirely content with the form of the Priority Deed annexed to that deed, and that the form of the Priority Deed might be amended prior to its execution, but only if Ardmillan agreed. Clause 9.9 was in the following terms (emphasis added):

NSL Lender

NSL must procure that any third party lender, including for the purpose of funding payments to Ardmillan under the ASA and Property Sale Contract or in respect of the Proposed Development Works, enters into and delivers to Ardmillan a duly executed Priority Deed (subject only to any amendments acceptable to Ardmillan in its sole discretion) and where NSL delivers a duly executed Priority Deed to Ardmillan, Ardmillan must execute and return to NSL two duly executed counterparts of the Priority Deed as soon as practicable after delivery of the Priority Deed by NSL.

71 Under the form of the Priority Deed annexed to the Call Option Deed, Ardmillan, as 'First Creditor', had priority over the 'Second Creditor' (being the potential third party lender to Next Stage) both in respect of its security interests, and in respect of the order of repayment from moneys and proceeds received from the disposal, or other dealing with, 'Secured Property' (cls 2.2-2.3). The priority accorded to Ardmillan was reinforced by cl 2.8, which subordinated the 'Second Debt' (being the debt owed to the Second Creditor) while any part of the 'First Debt' (being the debt owed to Ardmillan) remained outstanding.

72 Under the annexed form of the Priority Deed, the Second Creditor was required to release its security to the extent necessary to permit Ardmillan to procure the sale or transfer of Secured Property following enforcement of a 'Security', or the exercise by Ardmillan of the 'Call Option', whether or not that would fail to discharge the debt owed to the Second Creditor (cl 4.8).

73 Clause 9.3 of the Call Option Deed is also relevant, as Next Stage pointed to it in support of its argument that the basis upon which it would have obtained funding to settle, having served the Notices to Complete on 25 May 2020, did not involve an 'NSL Lender', meaning that no Priority Deed was required. Clause 9.3 imposed a number of constraints on Next Stage and its 'Related Bodies Corporate', and on the Guarantors and their Related Bodies Corporate. Those constraints were stated to apply from execution of the ASA to the 'PSC Settlement' (essentially when all monies owing to Ardmillan under the Contract of Sale, including the vendor finance, had been paid).

Without limiting clause 9.2 but subject to clause 9.4, NSL and its Related Bodies Corporate must not (and the Guarantors and their respective Related Bodies Corporate must not) from the ASA Completion Date until PSC Settlement:

(a) grant or agree to grant any Security Interest over any Asset or the Property including as a result of:

(i) entering into any new debt arrangement, incurring additional borrowing, granting any loan or advancing or entering into any off balance sheet financing or assume, guarantee or endorse the obligations of any person in connection with the Business; or

(ii) granting any step-in rights or a right to oversee or manage the Business of any kind to any third party;

(b) dispose of all or any part of the Assets or the Business;

(c) amend, vary or fail to enforce the terms of the Lease (other than as required to effect the variation and assignment of the Head Lease pursuant to the ASA and as contemplated by the Head Lease Assignment Deed and the Head Lease Variation Deed);

(d) pay any dividend or transfer any Cash out of the Business including, for the avoidance of doubt, any loan or interest repayments to any NSL Lender before the completion of Stage 1 (as that term is defined in Schedule 3 - Payment Schedule to the Property Sale Contract);

...

(j) appoint, or grant a licence to, any new person or contractor to manage the Business or any part of the Business; or ...

75 Clause 9.3 was subject to cl 9.4. Amongst other things, cl 9.4 provided that cl 9.3 did not:

(a) prevent any action expressly contemplated by, inter alia, the Priority Deed; or

(b) prevent Next Stage from paying a dividend following completion of Stage 1 (as set out in Sch 3 of the Contract of Sale),[13] as long as there was no subsisting Event of Default.

76 Next Stage called four lay witnesses: Mr James Maitland, Mr Anatoly (Tony) Balsim (Mr Balsim), Mr Anthony Elzain and Mr Mario Salvo. Ardmillan called two lay witnesses: Mrs Marina Darling and Mr Alex Booth. All of the lay witnesses were cross-examined.

77 Mr Maitland is the General Manager of the Salvo Property Group and, following the Salvo Property Group's investment in Next Stage in November 2019 (through Trivett), had carriage of the conduct of the transaction on behalf of Next Stage. He gave evidence-in-chief through three witness statements, dated 31 August 2020 (Maitland), 11 November 2020 (Further Maitland) and 8 June 2021 (Reply Maitland). Among other things, his evidence addressed the corporate structure of Next Stage and the Salvo Property Group's investment in it, the parties' interactions in the lead up to the anticipated settlement date of 29 November 2019, the subsequent negotiations concerning potential amendments following Next Stage's nominations, the procurement of interim stamping from the State Revenue Office, interactions with Ardmillan following circulation of the last set of draft amendments, Next Stage's financing arrangements (including how it would have financed settlement had it proceeded on 1 June 2020), the reasons why Next Stage did not accept Ardmillan's April 2021 offer and the costs incurred by Next Stage in purported reliance on the original contracts.

78 Mr Balsim is the representative of Balsim Family Holdings Pty Ltd. That company held one third of the shares in Trivett, which was the majority shareholder in Next Stage. He gave evidence-in-chief through three witness statements, dated 2 September 2020 (Balsim), 6 November 2020 (Further Balsim) and 8 June 2021 (Reply Balsim). His evidence addressed the parties' pre-contractual negotiations, the ability of Next Stage to fund settlement on 1 June 2020 and the reasons why Next Stage did not accept Ardmillan's April 2021 offer.

79 Mr Elzain is the sole director of Maxcon Constructions Pty Ltd. Mr Elzain gave evidence-in-chief through two witness statements, dated 21 September 2020 (Elzain) and 6 September 2021 (Further Elzain). His evidence addressed the context of the loan agreement he entered into with Trivett, including his relationship and interactions with Mr Balsim, the terms of the loan agreement and his ability to provide finance for the 1 June 2020 settlement if required.

80 Mr Salvo is the ultimate owner and founder of the Salvo Property Group and, following the Salvo Property Group's investment in Next Stage in November 2019 (through Trivett), a director of Next Stage. He gave evidence-in-chief through three witness statements, dated 31 August 2020 (Salvo), 8 June 2021 (Reply Salvo) and 17 September 2021 (Further Reply Salvo). His evidence addressed the background to the Salvo Property Group's investment in Next Stage, its financing arrangements including his willingness to fund settlement on 1 June 2020 and the reasons why Next Stage did not accept Ardmillan's 1 April 2021 offer.

81 Mrs Darling is the sole director of Ardmillan. She gave evidence-in-chief through two witness statements, dated 15 October 2020 (Darling) and 15 April 2021 (Further Darling). Her evidence addressed the history and nature of the subject land and retirement village business, including the likely cost of amending IPO 7, the background to the transaction, the entry into the original contracts, the parties' interactions in the lead up to the anticipated settlement date of 29 November 2019, her attendance at Ardmillan's solicitor's office for settlement on 29 November 2019, the subsequent negotiations concerning the potential amendments following Next Stage's nomination of itself in its trustee capacity, her interactions with the Head Landlord, her interactions with Mr Maitland through the course of negotiations and following circulation of the last version of the draft amending documents in March 2020.

82 Mr Booth has been the Development Manager for various entities associated with Mrs Darling, including Ardmillan. He gave evidence-in-chief through a witness statement dated 15 October 2020 (Booth). His evidence addressed pre-contractual communications with Next Stage in relation to the deposits, the parties' interactions in the lead up to the anticipated settlement date of 29 November 2019, his attendance at Ardmillan's solicitor's office for settlement on 29 November 2019, his interactions with the Head Landlord and various other interactions with Next Stage.

83 Next Stage called four expert witnesses: Mr Michael Barlow on planning, Mr Veki Brdjanin on financing, Ms Laila Burnet on business and property valuation and Dr Kwabena Mintah on valuation approaches. Ardmillan called three expert witnesses: Mr Robert Milner on planning, Mr Greg Meredith on business valuation and Mr Brett McAuliffe on property valuation.

84 Mr Barlow is a Director of Urbis Pty Ltd, a planning consultancy firm. Mr Barlow has nearly 40 years' experience as a town planner and has a Diploma of Applied Science (Town Planning) from Royal Melbourne Institute of Technology. He gave evidence-in-chief through an expert report dated 14 October 2020 (Barlow Report). He opined on the development potential of the vacant land, including its zoning and planning context, its highest and best use under various scenarios and the prospects of obtaining any permit or change in planning regulation necessary to achieve a higher or better use than permitted at the date of his report. Mr Barlow was cross-examined but there was no conclave or concurrent evidence involving the planning experts.

85 Ms Burnet is a National Director of Health, Aged Care and Seniors Living at M3property (Vic) Pty Ltd, a property valuation firm. She has been a qualified valuer for 15 years and holds a Bachelor of Business (Property) from the University of South Australia. She gave evidence-in-chief through two expert reports dated 2 November 2020 and 9 September 2021 (Burnet First Report and Burnet Supplementary Report), as well as through a joint expert report dated 10 September 2021 (the Joint Expert Report). Ms Burnet participated in concurrent evidence with Mr Meredith on business valuation topics and with Mr McAuliffe as well as Dr Mintah on property valuation topics. Ms Burnet also provided a supplementary document dated 1 October 2021 during trial, at the Court's request, detailing her opinions of the value of the Business based on certain audited accounts. She opined on the value of the Business (by reference to the components representing the fee-related income streams and the vacant stock), the value of the Balance of Level 3 and the value of the Vacant Land.

86 Dr Mintah is a Lecturer in the School of Property, Construction and Project Management at RMIT University. He holds a Master of Science (Real Estate Economics) from Aalto University (Finland) and a Doctor of Philosophy (Built Environment) from RMIT University, among other qualifications. He gave evidence-in-chief through an expert report dated 22 June 2020 (Mintah Report), as well as through the Joint Expert Report. He also participated in concurrent evidence with Ms Burnet and Mr McAuliffe. He opined on the instructions provided to Mr McAuliffe, as well as the assumptions adopted and the methods used by Mr McAuliffe in the preparation of Mr McAuliffe's expert reports, including whether those matters were in accordance with sound valuation principle and practice.

87 Mr Brdjanin is a Director of UNIQ Finance Australia Pty Ltd, a finance company operating in the residential and commercial mortgage industry. He has held that role for approximately 18 years and holds a Bachelor of Commerce, Accounting and Finance from Victoria University. He gave evidence-in-chief through an expert report dated 22 June 2020 (Brdjanin Report). His evidence addressed the funding arrangements that would have been likely to be available from a bank or non-bank lender to fund $22 million of the settlement amount, or part thereof, and the likely applicable interest rate and other fees. Mr Brdjanin was cross-examined, but, with no opposing expert being called by Ardmillan, did not participate in any conclave or concurrent evidence.

88 Ardmillan tendered a report of Mr Milner, a Principal of Kinetica, a planning consultancy firm. Mr Milner has practiced in planning for over 40 years, and holds a Diploma in Town and Country Planning from Liverpool Polytechnic. He gave evidence-in-chief through an expert report dated 17 March 2021 (Milner Report). He opined on Mr Barlow's report, the extent of development and use permitted on the vacant land at 1 June 2020 and the process for amending IPO7. Mr Milner was not cross-examined.

89 Mr Meredith is a Partner of KPMG, specialising in business valuation. He has practised as a forensic accountant for over 30 years and held a Bachelor of Economics from the University of Sydney, among other qualifications. He gave evidence-in-chief through an expert report dated 26 March 2021 (Meredith Report), as well as through the Joint Expert Report. Mr Meredith participated in concurrent evidence with Ms Burnet. He also provided a supplementary letter dated 28 September 2021 (Meredith Letter Report) addressing Ms Burnet's supplementary report as well as four supplementary documents, each dated 1 October 2021, during trial identifying the financial value of certain differences in his and Ms Burnet's approaches, and his opinions on the value of the Business having regard to certain audited accounts. Mr Meredith opined on Ms Burnet's expert reports, and the value of the two components of the Business (the fee-related income streams and the vacant stock).

90 Mr McAuliffe is a Partner of KPMG, specialising in property valuation, among other things. He worked in the real estate industry, including as a valuer, for over 25 years and holds a Bachelor of Applied Science (Property Economics) from the Queensland University of Technology and a Master of Urban and Regional Planning from the University of Queensland, among other qualifications. He provided evidence-in-chief through two expert reports, dated 23 March 2021 (McAuliffe First Report) and 22 April 2021 (McAuliffe Supplementary Report), as well as through the Joint Expert Report. Mr McAuliffe participated in concurrent evidence with Ms Burnet and Dr Mintah. He also provided a supplementary bundle of documents during trial, responding to some comparable properties identified by Ms Burnet, and related matters. Mr McAuliffe opined on Ms Burnet's expert reports, the value of the Balance of Level 3 and the value of the Vacant Land under various development assumptions.

The facts: what occurred between 26 November 2019 and 1 June 2020?

91 The following record of the facts and relevant correspondence exchanged is based on the chronology submitted by the parties,[14] amplified by reference to the evidence adduced at trial. While the factual narrative is extensive, it reflects the basis of Ardmillan's case, which lay in the accumulation of facts concerning the parties' actions and interactions over an extended period, as well as the ambit of the evidence adduced by both parties.

Events leading up to the scheduled completion date of 29 November 2019

92 The contracts were executed on 5 August 2019, the deposits under the Contract of Sale and the ASA having already been paid directly to Ardmillan on 2 August 2019.[15] The Contract of Sale, the ASA and the Call Option Deed were executed following a period of negotiations stretching back to February 2018. Prior to the introduction of the Salvo interests in November 2019, Mr Milentijevic had carriage of the negotiations leading to execution of the contracts. After the Salvo interests became involved, Mr Maitland took carriage of dealings with Ardmillan on behalf of Next Stage. Dealings between Ardmillan took place between solicitors (Madgwicks for Next Stage, and MinterEllison for Ardmillan) and directly between the principals (Mr Maitland for Next Stage, and Mrs Darling for Ardmillan).

93 While the parties had initially intended to settle on 2 September 2021, in late August 2019 it became apparent that settlement on that date would not be possible.[16] Around the same time, some complexity with stamp duty arose and,[17] in mid-September 2019, PwC were briefed to prepare a stamp duty submission to the State Revenue Office (SRO).[18]

94 At the end of October 2019, Mr Milentijevic emailed Mrs Darling, confirming an earlier conversation advising that Next Stage proposed to obtain finance from Newground Moonee Ponds Pty Ltd (Newground) (which had accepted the Priority Deed in its current form), setting out terms of the proposed Newground loan, indicating Next Stage's intention to refinance the project in mid-2020, and advising that Trivett had invited Salvo to become a shareholder.[19]

95 Between 11 and 14 November 2019, there was correspondence between Next Stage's solicitors and the SRO in which the SRO requested an extension of time for settlement, to assess stamp duty. The SRO's request for more time to conduct its stamp duty assessment was communicated to Next Stage and to Ardmillan.

96 In mid-November 2019 Mr Maitland provided an assessment of the project to Mr Salvo.[20] The feasibility projected total liabilities of $41,788,830 and net realisations of $50,246,000, using valuation figures from a valuation report prepared by m3.[21] The sources of funds were identified as comprising the vendor loan ($22,000,000), the Newground loan ($11,750,00) and what was termed 'equity' of $5,038,830 (although the expression 'equity' in the document appeared to record sums to be sourced other than from the vendor loan or the Newground loan).

97 Given the SRO's delay in assessing duty, on 19 November 2019 Madgwicks raised the possibility of paper settlement with the SRO.[22] The solicitor also called the SRO on 25 November 2019, raising concerns over delay,[23] and, the same day, called Land Use Victoria, requesting a paper transaction (in lieu of having to use the electronic PEXA system).[24] She also emailed Victorian Land Registry Services, requesting a paper transaction, forwarding that request to MinterEllison.[25] The request for a paper settlement was ultimately refused on 27 November 2019.[26]

98 Newground was a mezzanine lender. Next Stage executed an initial terms sheet on 16 November 2019.[27] Alongside pressing the SRO and attempting to obtain approval for a paper settlement, Madgwicks sought changes to the Priority Deed.

99 At 2:56pm on 21 November 2019 Madgwicks emailed MinterEllison, requesting the Priority Deed be amended on request of Newground to include a clause concerning repayments to be made to Ardmillan (referred to as the 'First Creditor' in the Priority Deed).[28] After some correspondence between the solicitors, this matter came to a head when a proposed amended form of the Priority Deed was provided to MinterEllison under cover of an email from Madgwicks at 2:11pm on 26 November 2019.[29]

26 November 2019: restructure within Next Stage and the nominations

100 The 26 November 2019 email marked an important turning point in the parties' preparations for settlement, scheduled for on 29 November 2019. It was by this email that Next Stage first advised Ardmillan that it proposed to nominate so that it would complete in its trustee capacity. Next Stage's desire to nominate itself, but in its capacity as trustee, came about following a restructure finalised on 26 November 2019. That restructure involved the establishment of a unit trust structure, following the investment of the Salvo interests. Mr Maitland's evidence was that settling through the nominations would only provide a 'limited' financial advantage, and that the nominations 'made no difference' in economic terms.[30]

(a) 450 of 460 shares in Next Stage were held by Trivett;

(b) the shares in Trivett were held in equal parts by Leo Trivett Pty Ltd (the vehicle of one investor, Raffaele Aiello), Balsim Family Holdings Pty Ltd (the vehicle of the Balsim family) and Distinctive FX Pty Ltd (a Salvo company, majority owned by another Salvo company, Distinctive FX2 Pty Ltd);

(c) the other 10 shares in Next Stage were held by Next Stage Living Group Pty Ltd, the majority of the shares in that company being held by Trivett; and

(d) the directors of Next Stage were Joshua Balsim (son of Mr Balsim), Mr Milentijevic and Mr Salvo.

102 Next Stage was made the trustee of the newly created NSL Moonee Ponds Trust. The corporate structure of Next Stage was mirrored by the unit trust structure of the NSL Moonee Ponds Trust. Specifically, Trivett held 450 of 460 units. Trivett also became the trustee of the Trivett Property Partners Trust, with the units in that trust held equally by Le Trivett Pty Ltd, Balsim Family Holdings Pty Ltd and Distinctive FX Pty Ltd.

103 On 26 November 2019 Benthos Investments Pty Ltd (Benthos), as lender, and Trivett as trustee for Trivett Partners Property Trust, as borrower, executed a facility agreement for the purpose of Trivett on-lending to Next Stage to finance the transaction.[31] The facility provided for two tranches:

(a) Tranche A (up to $1.5 million) to be used for the purpose of repaying any existing loans owed to the shareholders in Trivett, to equalise the loans relative to the shareholders' proportionate holdings in Trivett; and

(b) Tranche B (up to $4 million) for the purpose of on-lending the advance to affiliates and/or other group companies by way of intercompany loans and/or equity injection to finance the Acquisition where 'Acquisition' was defined in terms linking it to the development of 'a Property' as defined by the Umbrella Agreement Participation Agreement (Umbrella Agreement).

104 The Umbrella Agreement was another agreement entered into on 26 November 2019. All the persons, natural and corporate, who were shareholders, unitholders and directors of the shareholders and unitholders in the Next Stage and NSL Moonee Ponds Trust structure were parties. It is not necessary to set out the terms of this agreement at any great length, save to note that:

(a) it provided for the parties to establish a business, to be known as 'Next Stage Living', with each property to be acquired, developed and owned by a special purpose unit trust; and

(b) it was a long and detailed commercial agreement drafted by lawyers, which provided for many aspects of the anticipated business including funding, management and priority of payments from special purpose unit trusts to funders and investors.

105 The Umbrella Agreement anticipated that 'Funders' (being Trivett and any third party investors) would provide equity funds and receive class B units in the relevant trust. The agreement also provided for the Funders to advance loan funds and for Trivett to arrange further loan financing from a bank or other 'Financier'.

106 The email sent by Madgwicks to MinterEllison on 26 November 2019 at 2:11pm triggered the negotiations which lie at the heart of the parties' dispute. The email attached a draft of the Priority Deed, and stated in part (emphasis added):

As discussed with you earlier today, NSL and the NSL Lender would like the purchaser to be able to make payments to the NSL Lender from those development proceeds in Stage 1 which will be retained by and used in the Business (ie not those development proceeds that will be used to pay to Ardmillan the balance under the Contract of Sale as per Schedule 3).

Following the discussion that Jen Severn and I had with you this morning, we understand that Marina and Ardmillan do not feel that they have a solid grasp of the purchaser's cash flow projections. Perhaps, if NSL showed those cash flow projections to Marina and satisfied her that there was likely to be sufficient funds held by the purchaser to make some payments to the NSL Lender (without putting repayments to Ardmillan or the progress of the development at risk) Ardmillan might amenable [sic] to agreeing to allow payments to the NSL Lender during Stage 1. The purchaser would welcome the opportunity to meet with Marina as soon as possible to take her through its cash flow projections. The NSL representatives who would attend that meeting are Tony Balsim and James Maitland.

As discussed with you, the purchaser intends to nominate so that instead of purchasing the property and the Business in its own right it will do so as the trustee of a unit trust. We are preparing the necessary nomination forms and will send them to you as soon as we have them executed by the purchaser and the nominee. The nomination will allow Salvo Property Group to take up equity in the purchaser and the Next Stage Living Group. The Salvo Property Group is a substantial property developer. If we can arrange a meeting with Marina to take her through the cash flow projections for NSL's development of the Property, James Maitland, who is also the General Manager of the Salvo Property Group, will take her through the financial statements of the Salvo Property Group so that she can see that Salvo has a strong financial base.

We would be happy, once Marina is satisfied with the projected cash flow for the development of the Property, to hold a meeting between the vendor, the purchaser and their respective lawyers to agree and then document any amendments agreed between them.

We received a copy of the Priority Deed at 11.15pm yesterday with amendments requested by the NSL Lender marked up on it. I have attached a copy of that amended Priority Deed for your information.

I look forward to receiving confirmation of a time and place for the proposed meeting to review the financial issues.

107 As may be seen, the email introduced two significant matters:

(a) the amendments sought by the mezzanine lender to the Priority Deed; and

(b) the nomination of Next Stage in its trustee capacity as the purchaser.

108 The next morning, at 9:47am on 27 November 2019, MinterEllison advised Madgwicks that the proposed amendments to the Priority Deed were not accepted. The email stated in part:

Further to our note below, we are instructed that our client was advised on 31 October 2019 that the Priority Deed had been accepted by the incoming NSL Lender in the agreed form. The amendments now proposed to the agreed form Priority Deed fundamentally cut across the agreed position that our client would be repaid in priority to any NSL Lender and are not accepted by our client.

Our client is willing to sign the Priority Deed in the agreed form if required on Completion.

We look forward to seeing your team at 10.30am for the completion dry run.

109 Just before the dry run meeting on the 27th, Madgwicks advised Mr Maitland that Land Use Victoria would not allow settlement as a paper transaction, but that an equitable settlement might be possible. This possibility was raised at the 'dry run' meeting on 27 November 2019. Madgwicks' file note of the meeting records the following:

Told them can't do settlement on the papers LTO [Land Titles Office] won't permit.

If we do prelim settlement on Friday - would need Minters to hold as escrow agent - will do.

Currently - changes to Priority Deed not agreed. No point in holding a further meeting. Will not budge on this.

...

Discussed issues re informal pre-lim settlement. Haven't told Newground [the mezzanine lender] yet. Doesn't know it won't get a reg'd 2nd mortgage @ settlement.

110 There was some conflict in the evidence of Mr Maitland and Mr Booth concerning the dry run meeting. Mr Maitland's evidence was that the quote from the file note being:

Currently - changes to Priority Deed not agreed. No point in holding a further meeting. Will not budge on this.

was a reference to the changes to the Priority Deed not having been agreed by the mezzanine lender, so that there was no point holding a further settlement meeting on Friday, and the purchaser would not budge on that.

111 Mr Booth's evidence was that the note referred to Ardmillan's firm rejection of the changes to the Priority Deed and Next Stage's offer to discuss further in a separate meeting. Given that, in view of the SRO's delays, the transaction clearly could not settle on the Friday (unless an equitable settlement were agreed), the conflict between the evidence Mr Booth and Mr Maitland on this point is not material. However, if it were necessary to do so, I would accept Mr Booth's account on this point as Mr Maitland's evidence on this aspect of the file note was argumentative and, ultimately, difficult to reconcile with the surrounding correspondence. Mr Booth's account is consistent with the preceding email correspondence, in particular the Madgwicks email of 26 November 2019 and the MinterEllison email sent shortly prior to the dry run meeting, which was read by a Madgwicks solicitor during the meeting.

112 There was also a conflict (or at least a difference in emphasis) in their evidence concerning the prospect of equitable settlement occurring. Mr Maitland's evidence was that, at the meeting, he conveyed that the prospect of equitable settlement had only just been raised and he was happy to consider it but needed time to understand it and discuss it with Next Stage's solicitors and lenders. In his further witness statement, Mr Maitland stated that a lawyer from MinterEllison indicated the firm did not usually act as escrow agents and advice would have to be sought. On Mr Maitland's account, it was not until a draft escrow agreement was received on 12 December 2019, that it was clear to him that the firm would act in that capacity. In relation to the section of the file note which stated:

Discussed issues re informal pre-lim settlement. Haven't told Newground [the mezzanine lender] yet. Doesn't know it won't get a reg'd 2nd mortgage @ settlement.

Mr Maitland highlighted that Newground's offer to advance funds was conditional on taking a second-ranking mortgage, and it was only after learning that MinterEllison would be willing to act as escrow agent on 12 December 2019 that he approached Newground concerning the possibility of an equitable settlement. Newground rejected this prospect.[32]

113 Mr Booth's evidence was that Madgwicks raised the possibility of equitable settlement at the dry run meeting and asked if Ardmillan would be open to it, to which he responded that it would.[33] He also summarised the meeting saying that:

No one in the meeting ever expressed any objection to the idea of an equitable settlement, nor did anyone say that they would only agree if certain other commercial terms were agreed.[34]

In cross-examination, junior counsel for Next Stage put various propositions to Mr Booth concerning his knowledge that settlement would not proceed on 29 November 2019. While Mr Booth rejected the proposition that he knew the SRO had not completed its assessment after the dry run meeting,[35] he accepted that he was told the Land Titles Office had rejected a paper settlement,[36] and that there was no escrow arrangement in place at, or immediately after, the dry run meeting, although Ardmillan would be open to the idea of an equitable settlement.[37]

114 Clearly, proceeding by way of equitable settlement would have had significant consequences, particularly for Next Stage, as it would involve it paying the amounts due at settlement, without receiving title. The prospect of Newground refusing to advance funds for settlement without receiving a mortgage on title was also obvious (and, not surprisingly, Newground was not willing to proceed on that basis). Mrs Darling was not present at the meeting, but Mr Booth operated on the basis that decisions were made by Mrs Darling. Further, Mr Booth did not claim in his evidence to have committed Ardmillan to an equitable settlement. Accordingly, I am satisfied that the prospect of equitable settlement was discussed at the dry run meeting on the basis that it was something that the parties would explore with a view to settling the transaction ahead of the timetable which the SRO had indicated,[38] and that the meeting was not left on the basis that equitable settlement would occur on the scheduled completion date.

115 The final aspect of the dry run meeting where there was a conflict in the evidence concerned whether or not a 'Notice to Residents' under the ASA was signed by Next Stage at that meeting. The provision of a signed Notice to Residents in respect of each village resident as at the Completion Date was one of the conditions to sale of the Assets under the ASA, stipulated in cl 2.1 (item 2) of the ASA.[39] A form of the Notice to Residents was annexed to the ASA.[40] It was in the form of a letter to be addressed to each resident advising of the change in ownership of the retirement village,[41] giving various assurances about the resident's rights and the operation of the village, and also incorporating an agreement on the part of Next Stage to observe and perform the obligations of Ardmillan set out in the Village Contract. The letter also advised of a meeting to be held 'this afternoon' for the owners to meet the residents and answer questions.

116 Mr Maitland's evidence was that a Notice to Residents was produced at the meeting, reviewed by him and then signed by Joshua Balsim and Mr Milentijevic, with Mr Booth taking the original.[42] Mr Maitland maintained this evidence under cross-examination,[43] but was also clear that only one letter was signed.[44] Mr Booth's evidence was that no Notice to Residents was signed and provided, but that Mr Milentijevic said he wanted to send an updated version.[45] I accept Mr Booth's evidence, which is consistent with the documentary record.[46] The signing of a single Notice to Residents at the dry run meeting would also be a strange thing to do given that the Notice to Residents was a letter to be addressed to each resident of the village at the date of completion; it is not clear to whom the single Notice to Residents Mr Maitland says was signed was addressed.

117 Returning to the narrative, after the dry run meeting, at 1:11pm on 27 November 2019, Madgwicks sent MinterEllison the anticipated nomination forms nominating Next Stage in its capacity as trustee of the NSL Moonee Ponds Trust as 'substitute purchaser' under the ASA and the Contract of Sale. Both nomination forms contained an acknowledgement by the purchaser (Next Stage in its corporate capacity) and the Nominee (Next Stage in its trustee capacity) that they would be jointly and severally liable for the performance of the purchaser's obligations under both contracts.[47]

118 Mr Maitland and Mrs Darling discussed by telephone the change in management of Next Stage, Mr Maitland having taken over Mr Milentijevic's role in running the transaction on behalf of Next Stage. They also discussed Newground's new issues with the draft Priority Deed and its potential consequences for the repayment of the vendor loan.[48]

119 Following that conversation, Mr Maitland emailed Mr Booth and Mrs Darling, stating (in part, emphasis added):

Thanks for your time just now, as discussed I want to clarify the commercial concept that we discussed and generally agreed using your simple example would be acceptable.

I acknowledge you need to get advice from your lawyer in relation to this and we need to provide you with the proposed marked up deed, which we will do, however given that time is of the essence I want to make sure that I have correctly understood our discussion before wasting your time reviewing the proposed wording.

This history/current situation:

1. We intend to have a mezz lender who will provide $10M to part fund the completion payment including adjustments for vacant stock etc, who will be taking a 2nd ranking mortgage & charge over the project and as a consequence entering into the priority deed.

2. The mezz lender has made the offer to provide their loan on the basis that they were advised, prior to my involvement, that your repayments were in accordance with schedule 3 of the contract of sale and that any surplus funds would be available to make a part repayment of their loan

3. The mezz lenders legal advice is that the current draft of the priority deed does not contemplate point 2 above (which I acknowledge your stated position that this was never the case the surplus funds were to remain "in the project" to fund development costs) and that if we use "equity" to make interest payments to the mezz lender or part repayments of the mezz lender principle they would be obligated under the subordination clause (2.8) to pass these amounts to you as the senior lender

Our discussion/your example

4. We discussed and agreed that we are free and should be free to use any "investors equity" to make payments of interest or principle to the mezz lender at any time and the subordination clause in the priority deed should not apply. Your view was that the priority deed already adequately covered this, I advised that the mezz lenders lawyer disagreed, and I proposed that notwithstanding your view, we provide amended wording to cover this point so that the mezz lender felt good and it had no material effect on you, such that it reflects our commercial agreement/example. You said that if we sent this through you would seek advice from your lawyers and that if it did not affect your rights as you see they should be then you would be open to agreeing to the amendment

5. We confirmed that the repayments due to you were as defined in the contract of sale schedule 3, and that any remaining proceeds must remain "in the business"

6. You asked if I would cover your reasonable legal costs for reviewing the proposed amendment to the priority deed. I confirm that we will agree to pay your reasonable costs for reviewing this proposed amendment when we send it through capped at $5,000 at this stage (if you believe that it will cost more then please advise and we can consider as the case may be increasing the cap as and when required).

Further attached is the ownership structure, a copy of which was circulated at this morning's meeting. I have also attached a copy of a short overview of our company to give you some context to our experience as managers & builders of real estate assets.

Lastly please call me directly anytime if you wish to discuss any of this as at this stage I have full control of trying to get everything together to get the deal settled and you paid.[49]

120 By this point, it appears that it was accepted on Next Stage's side that any repayments to Newground, before Ardmillan was paid out, would have to come from what was loosely termed 'investors equity', as opposed to coming from sales as the development project was progressed. As point 4 of Mr Maitland's email indicates, the position had boiled down to a disagreement about whether the existing form of the Priority Deed did allow for payments to be made to Newground from investor equity; Ardmillan took the view that the Priority Deed already allowed for this, but Newground's solicitors disagreed and Mrs Darling agreed to consider amendments that may be put forward to give Newground comfort on that point. Mr Booth followed up with an email on the evening of 27 November 2019, again taking the position that the Priority Deed in its current form did not prevent the mezzanine lender being paid from 'external 'new' funds, not from the development asset/proceeds' but asking for a draft of the amendments sought.[50]

121 At 9:10am on 28 November 2019 Madgwicks emailed Mr Maitland, advising the current proposed settlement date in PEXA was 2 January 2020.[51]

122 At 7:27pm on 28 November 2019 MinterEllison emailed Madgwicks, responding to the email attaching the nomination forms the previous day. The email stated in part:

Given that completion and settlement of the transaction is scheduled for tomorrow, our client has inadequate time to properly assess the necessary changes to the executed asset sale agreement, call option deed, property sale contract, priority deed and existing guarantees which would be necessitated by the proposed nominations (including the material impact of NSL's proposed revised corporate structure in relation to GST treatment, its security position and the call option deed restrictions). Our client is also unwilling to incur further, material additional costs in assessing such changes and agreeing any associated amendments to the transaction documents at this late stage and wishes to proceed to completion on the basis of the current transaction documentation.

Accordingly, in accordance with the ASA and CoS, we are instructed that our client neither consents to, nor approves, the proposed nominations contained in the nomination forms.

Separately, it is noted that one of the existing guarantors, being Trivett Property Partners Pty Ltd, is now the trustee of a trust and our client has not been provided with a replacement guarantor. Can you please let us know what is proposed in this regard and whether the Trivett trust will be acceding to the terms of the guarantee?[52]

123 It was accepted at trial that Ardmillan had no ability to require the provision of further or different guarantees following a change in the ownership or management of Next Stage.[53]

Events on 29 November 2019, the scheduled completion day

124 29 November 2019 was to have been the settlement day. A number of things occurred on that day. Newground made the $10 million available by depositing $10 million into its solicitor's trust account.[54] That morning, Mr Milentijevic had a conversation with Mr Booth in which he told Mr Booth it was Next Stage's belief that it could nominate an alternative purchaser.[55] Mr Booth and Mrs Darling attended MinterEllison's offices at the scheduled time for completion, being 11:00am on 29 November 2019. Next Stage did not attend MinterEllison's offices and, after a while, enquiries were made of Next Stage about its failure to attend.[56]

125 It is not immediately apparent why Ardmillan attended MinterEllison's offices when there had been no indication that the position of the SRO had suddenly changed such that an electronic settlement could proceed, it was known to all concerned that the Land Titles Office had not approved a paper settlement, and the prospect of equitable settlement had not been progressed, let alone finalised, following the dry run meeting. In updating the Head Landlord later on 29 November 2019, Mr Booth explained that settlement was delayed due to the SRO.[57] It may be that Ardmillan was being conservative, to avoid any suggestion it had failed to attend. Nevertheless, Ardmillan's assiduous attendance at 'settlement' and its enquiries about Next Stage's non-attendance have the air of contrivance.

126 Mr Maitland was not anticipating that the settlement meeting would be proceeding. He responded to Mrs Darling's email to him enquiring as to Next Stage's whereabouts, stating in part:

I just tried to call you and left a message.

I am sorry I was of the understanding that there was not going to be a settlement today as neither sides lawyers were clear on the pathway forward given SRO/LTO/PEXA issues.

Please call me anytime to discuss further.

PS. I am chasing our lender for their mark-up priority deed and will let you know as soon as I get something.[58]

127 At 12:26pm on 29 November 2019 Madgwicks emailed MinterEllison an attached letter. The letter stated in part (emphasis added):

It is clear that there will be no equitable settlement today. For an equitable settlement to occur an escrow agreement must be put in place. Although Minter Ellison have agreed in principle to acting as escrow agent we have not received a draft Escrow Deed for review and approval by the purchaser and the NSL Lender. There is clearly insufficient time now for such a deed to be prepared and negotiated.

The Purchaser recognises that the Vendor will be reluctant to incur the cost of preparing and negotiating an Escrow Deed until it is clear that the NSL Lender will be prepared to proceed with the equitable settlement we have talked of. Although under no obligation to do so, the Purchaser is, at this stage, willing to proceed with an equitable settlement provided that the NSL Lender is comfortable to do so. One issue of concern for the NSL Lender has been the terms of the Priority Deed and those terms are still being finalised. The Purchaser advised the Vendor by email late yesterday evening that the NSL Lender believes it has arrived at a proposal that will give the NSL Lender the comfort that it seeks and at the same time satisfy the Vendor. We expect to be able to forward a proposed mark-up of the Priority Deed incorporating the NSL Lender's proposal for your review later today.

We are puzzled by the comments in Max's email to the effect that the vendor does not consent to nor approves the proposed nominations. The transaction documents permit the purchaser to nominate provided that the subsequent purchaser is a related entity of the Purchaser and approved by the Vendor. Therefore, although the Vendor has the right to approve the nominee it does not have the right to withhold consent to nomination per se. We understand that the Vendor has held discussions with James Maitland, the general manager of the new equity holder, Salvo Property Group and has not expressed any objection to the proposed nominee.

Nor can we see that there is any basis on which the Vendor could reasonably do so. The Purchaser does not accept that the Vendor may unreasonably refuse approval of a related entity nominee.

The transaction documents do not give the Vendor any right to require amendments to any of the transaction documents as a consequence of a nomination. As far as the Contract of Sale and the Asset Sale Agreement are concerned no amendment should be necessary because the Purchaser and its guarantors remain liable under those contracts.

Although the Purchaser is under no obligation to do so it recognises that, because the Call Option Deed continues in place until the mortgage to the Vendor is paid out in full, the Vendor might wish to seek some amendments to that document and possibly also to the Priority Deed. For this reason, the Purchaser has indicated its willingness to negotiate regarding any amendments that the Vendor might wish to make and has invited the Vendor to submit marked up copies of those documents for the Purchaser's consideration.

In the circumstances, we consider that it would be sensible for the parties to cooperate with each other in an effort to get an equitable settlement concluded as quickly as possible. As a consequence of such an equitable settlement, Minter Ellison will hold control of the title and the mortgage documents as escrow agent pending the legal PEXA settlement in due course.[59]

128 MinterEllison replied to Madgwicks at 3:45pm on 29 November 2019, stating in part (emphasis added):

We do not consider it necessary to formalise the escrow arrangements under an escrow deed to effect an equitable settlement and completion and this was not confirmed following discussion on Tuesday. Nevertheless, if it would give your client comfort that the completion documents are held in escrow pending PEXA recordal under the terms of a formal escrow deed, we are happy to prepare this and will provide a draft for your review shortly.

However, we consider this a secondary issue. Our client has received no indication from NSL that it has the ability, nor is ready, to achieve settlement and completion today. Despite your client stating that the priority deed was agreed in its current form with the proposed lender and then subsequent indications that an acceptable position has been reached with the proposed lender, no priority deed has been provided for review and we have little confidence that your client has secured funds from the proposed lender to achieve settlement and completion today.

Accordingly, our client requests that a priority deed in a form acceptable to our client is signed by both the purchaser and its proposed lender today. We are happy to hold this in escrow, along with the other documentation required to effect completion. We can also provide a separate escrow deed for this once we are agreed on approach.

Both the nomination provision in the contract for sale of land and the assignment restrictions under the asset sale agreement entitle the vendor to withhold approval or consent to a nomination. However, once the priority deed and other documentation noted above are held in escrow by us, our client is willing to work with your client to agree variations acceptable to our client to the transaction documents which would be required to facilitate your client's intended purchaser structure under the nomination request forms and any ancillary changes.

We look forward to receiving the revised priority deed from your client's proposed lender as soon as possible.[60]

129 In between Madgwicks writing to MinterEllison and the latter firm replying, Mr Booth emailed Mr Maitland referring to the Madgwicks letter, stating (in part):

Whilst Marina and you have not yet discussed a nomination directly, although our advice is that we are not obliged to, we are prepared to consider your proposed nomination and what changes to the documents may be required.[61]

130 Following the exchange of correspondence between the solicitors, Next Stage took the position that:

(a) it had the right to nominate under the contracts, and Ardmillan could not 'withhold consent to the nomination per se'; and

(b) while Ardmillan did not have the right to require changes to the transaction documents as a consequence of the nomination, it was willing to consider such amendments to the Call Option Deed and the Priority Deed as Ardmillan might propose.

(a) it did not consider an escrow deed was required; and

(b) it was entitled to withhold approval or consent to a nomination, but would work with Next Stage on 'variations' to facilitate the nomination, but only once the Priority Deed was finalised and signed, along with other documentation required for completion.

132 At 5:08pm on 29 November 2019, Mr Maitland emailed Mr Booth and Mrs Darling attaching a draft Priority Deed, said to reflect the common understanding concerning repayments of the mezzanine lender from 'our equity'.[62] Mrs Darling was not content with the form of Priority Deed proposed on the basis that the changes would have allowed Next Stage to repay the mezzanine lender at any stage. Mrs Darling also stated in her response (11:15am on 1 December 2019) that:

We are ready and able to complete the transaction and are prepared to do so on the basis of an equitable settlement or otherwise. Please provide evidence of the purchaser's ability to complete by way of a signed priority deed in acceptable form, as it is clear that the purchaser currently doesn't have sufficient funding in place to satisfy its payment obligations under the agreements.[63]

133 Further correspondence was exchanged between Mr Maitland and Mrs Darling on 2 December 2019 (12:11am)[64] and 3 December 2019 (12:18pm).[65] Their exchange of correspondence discussed the proposed changes to the Priority Deed. Mr Maitland also addressed the position on settlement as follows (to which Mrs Darling made no direct response in her email):

As far as your comment "We are ready and able to complete the transaction and are prepared to do so on the basis of an equitable settlement or otherwise" respectfully as I understand the SRO has proposed a settlement date of no earlier than 2 January 2020 and this settlement can only be done on PEXA. Therefore if there is to be a closing prior to the time that the SRO is ready, this will require the agreement and co-operation of all parties- yourself as the vendor and financier, ourselves as the purchaser and our mezz lender.

Once the priority deed is resolved and agreed we are more than happy to get all the parties together to discuss an acceptable arrangement for everyone that can bring the settlement date forward prior to the date that the SRO has specified. Just as we tried to do on Wednesday last week.

Lastly for your information our mezz lender had made their funding available for a settlement on Friday, and are expecting us to pay interest from that date so if we are not able to resolve the priority deed issue asap then we will have to let them go, while it doesn't affect our ability to be able to settle, doing this will reduce our willingness to agree to an alternative to a standard settlement.

134 A further version of the Priority Deed was provided by Mr Maitland to Mrs Darling at 4:05pm on 3 December 2019. They then discussed the proposed amendments to the draft Priority Deed and Ardmillan's concerns over its priority of repayment; and Ardmillan's preference to settle the transaction 'as originally documented and immediately'.[66] In her email at 12:18pm on 3 December 2019, Mrs Darling stated (in part, emphasis added):

At the outset, we make the observation that while we have been prepared to consider changes to the Priority Deed, our preference is to complete this transaction on the basis of the Priority Deed which we negotiated and agreed at the time of these contracts. Our willingness to entertain your proposed changes needs to be understood from our perspective which is that we are not prepared to agree to any changes which puts us in a worse position that [sic] what we previously negotiated. If you want to complete this transaction on a different basis to the documents we agreed, the onus is on you to come up with a proposal which is acceptable to us.

...

Given that we are in no way obliged to accept any changes to the agreed version of the Priority Deed, which was attached to the Call Option Deed; and that our legal and other costs continue to mount as a result of the purchaser being unable to deliver a signed priority deed and make the settlement payments as due on Friday. If there is to be any further discussion on the Priority Deed, we require an undertaking from you to reimburse us for any legal costs incurred as a result of considering any changes to the agreed Priority Deed.

Subject to your agreement to the above, we are willing to discuss the attached markup with all parties and their respective lawyers via teleconference at any time today or tomorrow.

...

The payment of stamp duty and any dealings with the SRO are the responsibility of the purchaser. We are ready and able to complete the transaction on the basis of an equitable settlement, as was proposed by Madgwicks on Wednesday last week, as we were last Friday when settlement was due to occur.[67]

135 Mrs Darling then sent a further revised version of the Priority Deed to Mr Maitland and on 5 December 2019 Mrs Darling as well as Mr Maitland confirmed it had been agreed by Newground.[68]

136 The next day, MinterEllison asked Madgwicks to have Next Stage and its financier execute the Priority Deed. The form of the Priority Deed having been agreed, MinterEllison returned to the issue of the nominations:

As you know, as things stand, Ardmillan has not consented to NSL's proposed nomination and is therefore working on the basis that NSL will (as was the case when the transaction document were original executed [sic]) will be both the beneficial and legal owner of all assets and property the subject of this transaction. If this is not accurate, please let us know. Of course, if an approved nomination occurs (to date it has not), some adjustment to this document will be necessary to reflect the structure of the ultimate purchaser under the Contract and Asset Sale Agreement.

However, that needs to be considered in the context of the nomination as amendments throughout documents will need to be consistent.

An estimate of costs for considering the nomination and agreeing and making the amendments is being prepared and will be provided once the executed priority deed is received.

What do you see your timing on execution and return of the executed priority deeds looking like?[69]

137 At 5:43pm on 10 December 2019, Madgwicks emailed MinterEllison attaching a letter and a partially-executed Priority Deed (executed by Next Stage in its capacity as trustee for the NSL Moonee Ponds Trust, and not executed by Newground). The letter stated in part:

We understand from your email of 10.35am today that over the 13-day period since the notices of Nomination were delivered to Minter Ellison, you have not given any consideration to those notices other than to determine which transaction documents you think the Vendor might wish to have amended in light of the Nominations and to estimate your costs to review and advise on those possible amendments.

It is common for a Purchaser to nominate a trust as transferee under a contract of sale without need for the contract of sale to be amended in any way. We doubt that any of the documents, other than those which continue to operate post completion will need to be amended but we await your considered views on this point.

As you are aware, the Vendor is not entitled to include in a contract of sale a provision entitling the Vendor to recover costs in relation to nomination under that contract. In the interests of advancing settlement as quickly as possible, however, the Purchaser agrees to make an ex-gratia payment to the Vendor capped at $5,000 inclusive of GST. This includes the costs for your firm to draw its recommended amendments to the transaction documents.

One of the documents you anticipate may require further amendment is the Priority Deed which the parties have just spent two weeks negotiating. The Priority Deed has been amended to refer to the nominated purchaser and a copy signed by our client is attached for your reference. We expect the mezzanine lender will execute the document (incorporating our amendment) in the coming days, following which a copy will be provided to you.

We were advised yesterday that Mrs Darling, who makes all final decisions for the Vendor had left by aeroplane for Canada and would be out of contact for nearly a day. The Purchaser has been in close contact with Ms Darling over the past two weeks and yet she had not mentioned her imminent departure. Can you tell us when Ms Darling expects to return to Australia? If the Vendor seeks amendments to the transaction documents as a condition of granting approval of the Nominations, can you tell us what arrangements are in place for execution of those documents on behalf of the Vendor while Ms Darling is overseas?

We have notified the State Revenue Office of the proposed Nominations and been advised that the Nominations can be considered in conjunction with their assessment of duty under the existing transaction documents.[70]

138 At 7:28am on 12 December 2019 Mr Maitland emailed Newground, requesting Newground consider equitable settlement. Mr Maitland was subsequently told by Newground that it would not entertain equitable settlement.[71]

139 At 7:50am on 12 December 2019 MinterEllison emailed Madgwicks. The email attached a copy of a draft escrow deed, and stated in part (emphasis added):

We refer to your letter of late Tuesday.

...

For reasons still unclear to us, the SRO requested extra time to consider the Purchaser's duty application. An equitable settlement was proposed by the Purchaser and it was agreed by both parties that it would be an acceptable workaround if need be.

...

We confirm the Vendor remains ready and able to complete as per the agreed transaction documents.

Secondly, in relation to other comments made in your letter:

4. The Vendor never insisted on negotiating any amendments to the Priority Deed. The Purchaser wanted to negotiate amendments, which the Vendor allowed. The Purchaser and its financier confirmed on 5 December that the revised document was acceptable to both the Purchaser and its financier.

5. We confirm receipt of a Priority Deed signed the [sic] Purchaser and note that it has been amended to show the nominated purchaser. As such, it does not comply with the contract or with the confirmation provided on 5 December.

6. To state that nomination has not been considered over a 13 day period is not correct. It was considered as soon as it was received (two days before settlement) and was not accepted.

7. To say that it is common practice not to address trust provisions in a transaction of this nature and complexity is not correct. The Purchaser should note that this is effectively a terms contract where provisions of this type are very important.

8. As the Purchaser was told would be the case months ago, Marina is now overseas. She is contactable by email at all times, via telephone between 6am and 3pm Melbourne time daily at a minimum. Mr Booth remains fully contactable at all times. We confirm that the Vendor can execute any documents via power of attorney, which has been given to us, or electronically.

In interests of time, and to avoid unnecessary back and forth and additional costs to our respective clients:

9. On the basis of your client's acceptance of costs, detailed review of the documents is underway and we shall advise our client on the amendments required to accommodate the proposed nominations by the end of the week.

10. In the meantime and as soon as possible, please email us a scanned copy of the Priority Deed executed by the financier and send us the original via express post.

11. We had prepared the attached escrow deed at your request in case it was needed. Please review and confirm, noting that it remains subject to confirmation of the PEXA date. It is also subject to final client approval and final approval by the MinterEllison corporate counsel.

We await your response.

We remain keen to approach the Commissioner on the PEXA delays.[72]

140 On 13 December 2019 Newground and Next Stage executed a conditional facility agreement.[73]

141 At 8:16am on 13 December 2019, Madgwicks emailed MinterEllison. The email stated in part:

We understand that you are considering amendments that your client would request to the transaction documents as a condition of approval of the nominee and while the purchaser does not accept that the vendor is entitled to impose such a condition, the purchaser is willing to consider any request for such amendments in the interests of progressing the transaction as quickly as possible.[74]

142 At 6:12pm on 13 December 2019 MinterEllison emailed Madgwicks. The email stated in part (emphasis added):

We have reviewed the transaction documents between Ardmillan, NSL and Menzies as requested and note that the attached list outlines the amendments to those transaction documents required to facilitate your client's requested nomination.

Please confirm that your client wishes to proceed with the nomination, noting that our fees in undertaking this work are set out below.

We are in a position to provide revised drafts of the transaction documentation reflecting the proposed amendments in the attached document by the end of next week, 20 December 2019. If you would like us to do so, please arrange for your client to transfer the following amount to our trust account by Monday, 16 December 2019 and we confirm we will commence work:

• the agreed amount of $5,000 (plus GST) in respect of the amendments to the priority deed;
• the agreed amount of $5,000 (plus GST) to consider the transaction documentation and prepare the attached list; and
• a prepayment of $29,500 (plus GST) in respect of the below fee estimate.

The email then set out an itemised fee estimate and assumptions for the proposed redrafting work.[75]

143 At 10:15am on 16 December 2019 Mr Milentijevic emailed Mr Booth a revised Notice to Residents.[76] Those changes were confirmed by Mr Booth a few days later.[77]

144 At 10:09am on 17 December 2019, Next Stage provided an executed Priority Deed (executed by Next Stage in its capacity as trustee for the NSL Moonee Ponds Trust).[78]

145 At 10:20am on 17 December 2019 Mr Maitland, Mrs Darling, and Mr Booth discussed amendments to the transaction documents.[79] MinterEllison and Madgwicks thereafter corresponded about the extent of the additional documents and amendments that would be prepared to address the nomination.[80] Madgwicks' email of 18 December 2019 noted that Next Stage was not seeking any trust limitation of liability clauses as the trustee did not conduct any business or own any assets in its own right.[81] It emerged from that correspondence that MinterEllison considered a much more extensive suite of documentation would be required than did Madgwicks. Ardmillan's position was put by MinterEllison as follows in an email at 7:12am on 20 December 2019 stating (in part, emphasis added):

It seems the parties are far apart on what is required to accommodate the nomination in terms of both scope and cost.

Our email of Friday last week outlined the changes the vendor considers necessary to ensure that the vendor's position following the nomination would be as secure as it currently is without. This is not a matter for negotiation and the vendor is not prepared to add further delay to a transaction which was due to complete on 29 November.

If the purchaser would like further clarification on why each of the changes listed is required, the purchaser should contact Mrs Darling.

If the purchaser is not prepared to make the changes, the vendor cannot approve the requested nomination.

[after referring to delays arising from the SRO] We cannot accept the inordinate delay here in the absence of an explanation, and our client reserves its rights in this regard.[82]

146 While objecting to the extent of the costs being required to be paid for MinterEllison to prepare the further documentation, Madgwicks emailed MinterEllison to confirm that the costs would be paid to allow the matter to settle on 3 or 6 January 2020. Madgwicks' email stated (in part):

Given the above, and as previously communicated to you, our client objects to the quantum of costs being claimed. However, in order to allow the matter to proceed to settle on 3 January 2020 (or at the latest Monday, 6 January 2020) our client will pay the costs of $29,500 under protest and reserving all its rights.[83]

147 MinterEllison replied on 22 December 2019, emphasising that more was required than simply 'flipping over names', confirming the nature of the amendments required and the timetable for their preparation leading to a proposed 30 January exchange and settlement. MinterEllison also reiterated Ardmillan's willingness to settle as follows (emphasis added):

Whilst the Vendor remains ready to settle with the named purchaser in the contract as per the contract, for this nomination to occur it will take some time to properly consider and document.[84]

148 For its part, Madgwicks continued to take issue with the premise of MinterEllison's position, namely that the purchaser entity was fundamentally changing. Madgwicks noted that the named purchaser would remain personally liable in the event that the 'subsequent purchaser' were unable to complete.[85] It also sought a more expeditious timeline, but nevertheless confirmed Next Stage would transfer the required $39,500 to MinterEllison and requested the proposed amendments be provided for review.[86] Ultimately, the significance or otherwise of the nomination was not resolved. MinterEllison's response stated on that issue, '[i]n relation to the change in purchaser entity we agree to differ.'[87]

149 While paying the required funds for MinterEllison to draft the documentation it considered was required in order for Ardmillan to accept the nominations, Mr Maitland was concerned that Ardmillan might be using the nominations to change the deal. He raised those concerns in an email to Mrs Darling on 24 December 2019. The email stated in part:

The fact that you now want another 5.5 weeks to pass before you will be ready to settle makes no sense to me unless there are some ulterior motives. I have been open and transparent with you since coming into the deal 5 weeks ago and I believe that we have both generally agreed on a set of principles each time we encountered an issue and have been able to resolve the issues in a fair and reasonable manner for each other.

Therefore before we go any further I would appreciate you confirming that you are ready to settle the transaction and that the scope for the work that Minter Ellison wants to do to the transaction documents is limited to only dealing with the nomination and not an attempt to change the contract terms.

Despite what our respective legal teams might advise the nomination is simple and is not the big issue that Minter Ellison seem to believe it is.

...

Therefore I respectfully ask you to confirm that you still want the transaction settled asap and have not instructed Minter Ellison to use the nomination as way to try to change the contract terms. If you confirm this and advise that you must have 5.5 weeks before you will be able to settle then I will reluctantly respect your wishes and make the payment demanded by Minter Ellison below.

If this is not the case then please advise what the issues are so that we don't waste each other's time and money if there are still threshold issues to overcome before you are willing to settle.[88]

150 Next Stage paid $43,450 (including GST) to MinterEllison's trust account on 24 December 2019,[89] which payment was acknowledged on 7 January 2020.[90]

151 It was not until Boxing Day that Mrs Darling replied to Mr Maitland's email of 24 December 2019. Her email stated in part (emphasis added):

To confirm and clarify as requested:

1. The changes proposed by Minter Ellison on 13 December are in response to your request to nominate. However, as we have previously explained, the changes we require in order to approve the proposed nomination extend beyond simply changing the purchaser's name. As previously indicated, there are commercial implications that also need to be addressed in the documentation before a nomination will be approved.

2. The timetable that was proposed (and that already has not been met) was not an attempt to delay, but rather an attempt to ensure we set a date that would allow no excuses from anyone to further delay settlement. Our lawyers need reasonable time to make the changes and we both will need reasonable time to review and approve them, noting that today is Christmas and that Minter Ellison's office is now closed until 6 January.[91]

...

I see Madgwicks has advised that funds have been transferred into Minter Ellison's account. When funds clear (which unfortunately Minter Ellison confirmed had not occurred as at COB on 24 December 2019), Minter Ellison will commence drafting the changes when they reopen.[92]

152 Before moving to the events of 2020, it should be noted that interim stamping approval was obtained (with PwC's assistance) on 18 December 2019, and the interim duty was paid on 19 December 2019.[93] This cleared the stamp duty hurdle, which had earlier prevented electronic settlement proceeding through PEXA.

153 MinterEllison circulated a revised set of documents at 5:04pm on 16 January 2020. MinterEllison's covering email stated, in part (emphasis added):

Please note that rather than incorporating certain provisions (such as the trust warranties) into each document at this stage, we have prepared a standalone document which includes the pro forma amendments required to be made across the various documentation. For efficiency, we propose agreeing the form of these provisions with you first and then populating the agreed form of these provisions into the transaction documentation (with any ancillary tailoring as may be required for context in each document). Note also in relation to the Variation of the Contract of Sale we are proposing a new document to effect the variation - accordingly, there are tracked changes to the provisions of the existing Guarantee that is attached to the deed but otherwise the variations to the contract set out in the schedule are in clean as this is a new document. Deed of variation for the asset sale agreement and the call option deed to attach the marked up versions of these transaction documents are still to be prepared.

In preparing the revised documentation, we have sought to:

• adapt the existing provisions of the transaction documentation to reflect the proposed nomination of the purchaser to the NSL Trust and to reflect other changes to the broader NSL group structure, including amending the warranties, the guarantees provided by the guarantor entities and the security provisions;

• incorporate amendments necessary to recognise the passage of time since the transaction documentation was signed on 5 August with an anticipated settlement date of 2 September, and to update the completion /settlement date and various other date references accordingly; and

• incorporate matters discussed with NSL since the transaction documentation was signed on 5 August.[94]

154 The suite of documents circulated by MinterEllison included:

(a) a Deed of Variation of Contract;

(b) a revised version of the Call Option Deed; and

(c) a revised version of the ASA.[95]

155 The Background section of the Deed of Variation of Contract recorded as follows:

A The Vendor and the Purchaser have entered into the Contract.

B The Guarantor guarantees the Purchaser's obligations under the Contract pursuant to the Guarantee.

C At the request of the Purchaser, the Vendor and the Purchaser have agreed to vary the Contract as set out in the Schedule.

D The Guarantor consents to the variations and has provided the Amended Guarantee.[96]

156 Importantly, clause 2 addressed the variation of the Contract of Sale in the following terms:

2. Variation of Contract

2.1 Variation

With effect from the Variation Date, the Contract is varied as set out in the Schedule.

2.2 Contract otherwise unchanged

Except as varied under clause 2.1:

(a) the Contract remains unchanged; and

(b) the parties confirm the terms of the Contract as varied by this deed.

2.3 Ramifications if new contract is created

If, at law, this deed or any previous variation constitutes the termination of the Contract and/or the creation of a new contract, the parties agree that any right, obligation or liability which accrued on or before the date of this deed or any previous variation (as the case may be) will continue in full force and effect as if it was a right, obligation, or liability accruing under the new contract.[97]

157 The Deed of Variation of Contract included a schedule, specifying amendments to the General Conditions and Special Conditions of the Contract of Sale (inter alia).[98]

158 The revised version of the ASA attached to MinterEllison's email of 16 January 2020 was in markup. The changes to that document included the deletion of the Marimar Adjustment Amount mechanism, with the eight new apartments being included in the Vacant Stock provisions at market value. It was not in issue that the effect of this change would have been to require Next Stage to pay for the eight new apartments on Level 3 at their market value, as compared with paying for their construction at cost pursuant to the Marimar Adjustment Amount mechanism in the ASA as originally agreed. Mr Maitland considered this change would require Next Stage to pay an additional $2.6m.[99]

159 The commercial background to the change sought by Ardmillan regarding the new apartments was that, due to settlement not having occurred on 29 November 2019, the construction of the Marimar apartments had been completed. The completion of the Marimar apartments also had GST implications, the detail of which was not satisfactorily explained at trial, save that Ardmillan accepted that, to the extent that the completion of those apartments meant that additional GST was payable by it, that merely made the ASA as signed less advantageous as the price was stated to be GST-inclusive.[100]

160 As noted in MinterEllison's 16 January email, a Deed of Variation for the ASA and the Call Option Deed, equivalent to that prepared for the Contract of Sale, had not yet been prepared. There was nothing in the MinterEllison correspondence to indicate a different approach was to be taken in relation to the amendment of the ASA and the Call Option Deed than was taken by cl 2 of the Deed of Variation of Contract.

161 Following a discussion with Mrs Darling, Mr Maitland recapped his view of the course of the transaction and also raised his objection to the changed approach to the Marimar apartments in an email to Mrs Darling on 18 January 2020.[101] In responding to his email on 20 January 2020, Mrs Darling took issue with Mr Maitland's version of the history of the transaction, but concluded saying she suggested Mr Maitland prepare any changes and that they then have a commercial discussion, following which the lawyers could be brought in.[102]

Next Stage's rejection of the 23 January 2020 suite of amendments and calling for settlement

162 Next Stage's rejection of the January package of documents was conveyed by a letter from Madgwicks emailed at 12:25pm on 23 January 2020 stating in part:

We have been instructed by our client it does not accept the amendments to the transaction documents included in your email of 16 January 2020.

Given the prolonged negotiations and delays with documentation regarding this transaction, our client is ready willing and able to settle its purchase pursuant to the terms of the Contract of Sale dated 5 August 2019.

As per the PEXA workspace ID204067475 we confirm that settlement of the Contract of Sale will proceed on 28 January 2020 at 11am.[103]

163 Mr Maitland's evidence in relation to calling on settlement, as Next Stage had done, was that Next Stage and its stakeholders had determined to proceed without the benefit of the nominations as they 'did no more than mirror the change in shareholdings of the plaintiff that had been effected on 26 November 2019' and the shareholders were prepared to rely instead upon their shareholdings to hold their respective economic interests.[104]

164 On 23 January 2020 PEXA recorded the identification of the purchaser in PEXA workspace ID204067475 as 'NEXT STAGE LIVING MOONEE PONDS PTY LTD, ACN 629 891 765 - Trustee of a trust, NSL Moonee Ponds Trust'.[105]

165 Following Madgwicks' 23 January 2020 letter, Mr Maitland had a discussion with Mrs Darling.[106] Mr Booth was also present and made a note of the call, which he forwarded to Mrs Darling.[107] One of the points raised by Mrs Darling was whether it would be simpler to proceed with a 'straight settlement' (ie, a sale without vendor finance). Mrs Darling also raised impediments to settling on the original contracts in a short timeframe (which Mr Maitland said they agreed to disagree about). Two parts of Mr Booth's file note should be noted given counsel for Ardmillan's cross-examination of Mr Maitland:

6. JM: It appeared to NSL that the revised documents attempt not only to accommodate a nomination but also to change the deal. In re-reading correspondence of late 2019 in which Minters said the vendor was ready and able to settle on the basis of the original documents, NSL thought that reverting to the original documents would be the most efficient way forward. NSL will continue to pay interest and incur costs until the transaction completes. This was the logic behind the Madgwicks response.

7. MD: This transaction is not capable of being settled sensibly on Tuesday or on the basis of the original documents because (for example):

... [the note records a number of points being made]

8. MD: We are unclear on the basis on which NSL proposes to settle: as company in its own right or as trustee for trust? JM didn't answer this question.

166 Mr Maitland was cross-examined on the basis on which Next Stage would have settled in January 2020. While it was put to Mr Maitland that Next Stage had not clearly stated it intended to settle in its corporate (as opposed to its trustee) capacity, he disputed that, pointing to the second paragraph of the 23 January 2020 email.[108] Whether or not point 8 of Mr Booth's note is accurate - Mr Maitland's evidence was that he had discussed the capacity in which Next Stage would settle with Mrs Darling many times and could not recall how that topic was addressed in this particular discussion - in my view it would have been sufficiently clear to Ardmillan that the proposal advanced on 23 January 2020 was to settle without recourse to the nominations.

167 That would have been sufficiently clear because, after the revised wording of the Priority Deed was agreed in early December 2019, the changes Ardmillan considered necessary in order to agree to the nominations were the only reason that the parties were still negotiating. In addition, the 23 January 2020 email rejected the January suite of changes proposed by Ardmillan to agree to the nominations and explicitly sought to settle pursuant to the original contract terms. The same point was made by Mr Maitland in the conversation, according to point 6 of Mr Booth's note. In the context of the basis upon which the parties had been dealing with each other, stating that Next Stage wanted to settle on the basis of the original contracts could, in my view, only sensibly be understood as expressing a desire to proceed without the nominations, which had spawned the negotiations leading to the January suite of proposed documents.

168 Although, as was highlighted in the cross-examination of Mr Maitland,[109] the PEXA booking for 28 January 2020 referred to Next Stage in its trustee capacity, there was insufficient evidence regarding the way in which that booking came about, and the operations of the PEXA system, for me to find that the trustee reference in the PEXA booking was inconsistent with, or would have precluded, Next Stage settling in its corporate capacity. I also accept Mr Maitland's evidence that,[110] although the interim stamp duty was paid to the SRO at a time when it was anticipated Next Stage would settle as trustee, he would have had PwC or Next Stage's lawyers make whatever arrangement were necessary to credit the duty paid to the transaction if it were to be completed without recourse to the nominations. There was no evidence to suggest this was not possible, or would have been difficult or time-consuming.

169 The conversation between the principals on 23 January 2020 was left on the basis that they would think things over during the weekend. MinterEllison stated in an email to Madgwicks on 24 January 2020 that (in part):

As you probably already know your client is considering matters over the weekend and there is to be a further discussion on Monday afternoon or Tuesday and settlement will not be proceeding on that day.[111]

170 While Mr Maitland's evidence was that he agreed to think about things over the weekend, he did not agree at that point that settlement was not to proceed.[112]

171 At 8:13am on 25 January 2020 Mr Balsim emailed Mr Maitland, suggesting that Rick Goldberg email MinterEllison and say Next Stage still plans to settle as scheduled.[113] That did not occur. Rather, at 1:37pm on 28 January 2020 Madgwicks emailed MinterEllison stating in part:

We confirm that our respective clients have had discussions over the weekend regarding this matter.

Would you please provide the Vacant Stock Adjustment amount and Marimar Adjustment amount to assist with preparation of the statement of adjustments.[114]

After the Australia Day long weekend, the principals negotiate other options

172 On 28 January 2020 Mr Maitland and Mrs Darling spoke on the phone, discussing different options to progress the transaction, including a sale without vendor finance, and agreeing that Next Stage and Ardmillan would work in good faith towards agreeing a commercial position that would be acceptable to both Next Stage and Ardmillan.[115] Mr Maitland sent an email the next morning, recording the substance of the conversation on 29 January 2020. The email stated in part (emphasis added):

Thanks for the call yesterday regarding how we get this deal completed as simply as possible.

The points we discussed were:

1. Completing under the current contract- you advised that you believed this was not possible, I confirmed that our legal advice was that we could and should complete this contract asap

2. Proposed amendments to the current contract- we discussed these generally and I stated that the proposed changes were changing the contract terms rather than just limited to trustee provisions etc

3. New deal- you suggested that a way forward may be to enter into a new contract, the key term for you being that you would not be providing funding for the settlement and that would allow all of the complex documents/conditions to drop away which you felt could be a pathway to "simplify" the transaction

After discussing with my partners, our preference is and remains to settle the transaction asap as per our lawyers current correspondence as we are ready and able to settle.

However after some thought if we were to consider option C above, the simple, non-lawyer, non-exhaustive terms would need to be along the lines of:

... [the email list a number of terms]

If you believe that the above is acceptable to you then in-order to progress we would need to have this wrapped up within days as the continued delays in completing the current contract is costing us significant monies that is unsustainable.

Until such time as we have an unconditional agreement on an alternative to the current executed contract we will continue to proceed with completing this contract.[116]

173 At 5:19pm on 29 January 2020 Mrs Darling responded to Mr Maitland. The email stated in part (emphasis added):

As we discussed on the phone, we do not believe completion can sensibly occur under the existing contracts at the moment. At the very least:

1. NSL has not confirmed the capacity in which it is buying the assets:

1. If beneficial owner: Query whether stamp duty application needs to be re-submitted in correct form.

2. If not beneficial owner (trustee of a trust): Contracts need to be amended in line with Minter Ellison's re-drafts.

2. Priority deed needs to be re-executed in correct form one way or another.

3. The owners of NSL P/L have changed and we need to update guarantees etc.

4. The contract assumes the new apartments would be sold as a work-in-progress and that the Marimar Contract will be novated to NSL. This now can't happen.

5. GST position has changed and needs to be accounted for.

6. You say that you have 'binned' the development plans and started again from scratch, in which case the reference document for development approvals and repayment of our loan is obsolete and needs to be replaced with an approved alternative.

7. Need to update completion date, which has come and gone. Need to allow for pre-completion process (adjustments, GST notice, preparation of tax invoice, business name transfers, updated disclosure letter, resident meetings organised, notices to residents prepared by NSL etc. etc.).

8. Need to update vendor's head lease and RV obligations to account for:

1. The head landlord had agreed to execute the assignment and variation documents on the basis of NSL as it was and a 29 November assignment date.

2. The number of non-compliant contracts, which need to be rectified, has increased significantly.

Under a straight sale without vendor finance, at a high level:

9. ... [the email lists several points in relation to a 'straight sale' without vendor finance]

...

Proceeding in good faith there appears to be a valid basis for exploring this option further.

Happy to discuss when convenient. Please let me know when that might be.[117]

174 Mrs Darling was cross-examined extensively on this email. In relation to point 1(a) concerning stamp duty, she confirmed that the point she was raising was simply whether there would be a delay associated with stamp duty having previously been paid on the basis that the transaction would settle with Next Stage as trustee.[118] In relation to point 2 concerning the Priority Deeds, Mrs Darling accepted that if the nomination was being dropped, it would be a simple matter to re-sign the Priority Deed in the previously agreed form.[119] In relation to point 3, Mrs Darling said she had not known at the time that Ardmillan had no right to require new guarantees following the change of ownership of Next Stage.[120] In relation to point 5, Mrs Darling was not able to comment further on the legal question of whether the Marimar contract could still have been novated even though the apartments had been completed.[121] On the GST issue (point 5), Mrs Darling's evidence was that Mr Maitland told her he was going to get advice and she believed the GST accounting issue was an impediment to settlement in January.[122] Cross-examination on point 6 involved Mrs Darling being questioned on the terms of the ASA concerning the requirement for Next Stage to seek Ardmillan's approval to depart from the annexed development plans.[123] To the extent point 7 was explored in cross-examination, Mrs Darling did not raise matters that would have been an impediment to settlement (as opposed to procedural matters), but cross-examination did not explore that paragraph in full.[124] Likewise, cross-examination on point 8 wound up at the point that it was a legal question whether the risk that the Head Lease would not be resolved prior to completion lay with the purchaser, which question Mrs Darling was not able to address.[125]

175 It was put to Mrs Darling in cross-examination that she was not willing to settle the August contracts come January 2020:

MR EHRLICH: What I suggest to you, Mrs Darling, and consistent to what you've said is, as of 16 January, you were not willing to settle the August contracts, correct?---I didn't think it was possible to do so.

So the answer to my question is yes?---Yes. I said that I didn't think it was possible to do so. That's what I said verbally and that's what I said in e-mail.[126]

176 By 24 January 2020, Ardmillan's position was that completion could not sensibly occur based on the original contracts, whereas Next Stage's position was that there was no impediment to settlement under the original contracts. This difference in views was adverted to by Mr Maitland in the email he sent to Mrs Darling at 6:10pm on 30 January 2020. In that email Mr Maitland requested a meeting to discuss possible alternative transaction structures.[127] His email stated, in part:

As discussed, notwithstanding our differing advices/opinions with regards to closing the current executed contracts asap, we want to discuss the alternatives you have proposed in good faith asap, as we have been and continue to incur substantial costs, in particular our mezz funder interest which have been running since the contracted closing date of end of November 2019.

Therefore we need to collectively resolve the way forward to get the contract closed asap.

177 At 1:00pm on 31 January 2020 Mr Maitland and Mrs Darling, and the parties' respective lawyers, spoke on the phone, and discussed alternative options to progressing the transaction. Before that meeting took place, Mr Maitland sent an email to Mrs Darling on 31 January 2020, in which he said (in part):

Subject to any thoughts from you I think the most efficient way for this call would be to focus on the nomination documents & new deal options only as I think at this stage we should just "agree to disagree" on the current executed contract option.[128]

178 Mr Maitland's evidence was that,[129] 'on the subject of proceeding with current documents: we agreed to park this to facilitate a discussion on the other options' and that, on the subject of a new deal without vendor finance, Next Stage was not interested in pursuing it. His evidence was that the parties then worked through the existing proposed variations, document by document, and Mrs Darling agreed to rework the Vacant Stock Adjustment Amount for the Marimar apartments so that they would have values equivalent to the previously agreed Marimar Adjustment Amount figures.

179 Mrs Darling's evidence was that, on the 31 January 2020 call, she pressed for a straight sale (ie, a sale with no vendor finance), but Mr Maitland said Next Stage was keen to proceed on the basis of revised documents using the vendor finance structure.[130]

180 At 5:15pm on 31 January 2020 Mr Maitland provided copies of the trust deeds and unit holder registers for Next Stage Living Moonee Ponds Pty Ltd Trust, Next Stage Living Group Pty Ltd Trust, and the Trivett Property Partners Pty Ltd Trust to Ardmillan's solicitors.[131] The provision of these documents reflected the discussion on 31 January 2020, by which the option of settling based on the nominations, with varied documentation, was being pursued.

181 At 2:50pm on 1 February 2020, Mr Maitland emailed Mrs Darling and Mr Booth. The email stated in part:

As we talked yesterday I think the quickest and simplest way forward for the deal is to execute the current amendment documents circulated by ME for the purposes of the nomination to a unit trust and get the transaction settled asap.

To recap the main points we discussed by document and my understanding on our general agreement/clarification was:

1. Pro forma amendments to transaction documents- this document generally seemed acceptable

2. Deed of variation of contract:

• ...[Mr Maitland made various points regarding the detail of the provisions]

3. Security deed poll- this document generally seemed acceptable

4. Asset sale agreement:

• ...[Mr Maitland made various points regarding the detail of the provisions]

5. Call option deed:

• ...[Maitland made various points regarding the detail of the provisions]

6. [...Mr Maitland went on to list other documents and provisions]

Subject to any comments you have in relation to the above then I propose that to move forward the following occurs:

1. I will provide you the feasibility/cash flow Monday

2. We will accept changes & add comments if need to the amendment documents by COB Monday

3. ME can review the above and incorporate the "pro forma amendments" in the documents and any schedules/items that you needed to update- target Wednesday for these to be circulated

4. Documents agreed in final & execution format Thursday/Friday

5. You suggested that you needed circa 10 business days to be ready for settlement, once the above is done we can lock in a settlement date and I can make my team available to you and Alex to work through anything that needs to be done for settlement.[132]

182 One of the documents provided by Mr Maitland to Mrs Darling to give her reassurances concerning the project was a feasibility and business plan document. Mr Maitland provided that by email on 4 February 2020.[133] That document detailed the funds required in addition to the $22m vendor finance, and how it was anticipated they would be met:[134]

Total Equity Requirements

The total equity requirements for the Property are:

To be funded:

• $3,690,729 cash equity

•$10,000,000 funded with mezz debt

To be funded:

• $848,459 additional cash equity required over first 12 months from settlement

• $6,085,649 funded from surplus cash flow from sales/lease proceeds, net of selling costs and GST

183 Mr Maitland explained in his evidence that the investors in Next Stage had borrowed the funds to make the deposit (but that Next Stage itself had not borrowed those funds), that the 'cash equity' referred to in relation to acquisition closing was to have come from Mr Salvo (presumably referring to the 26 November 2019 Benthos Investments Pty Ltd facility (Benthos Facility)) and that the development costs in the first 12 months would have been sourced from Mr Salvo (again presumably a reference to the Benthos Facility) and capital calls on the shareholders.[135]

184 At 4:24pm on 5 February 2020 Mrs Darling emailed Mr Maitland, forwarding MinterEllison's comments on Next Stage's proposed trust structure.[136] MinterEllison identified a great many concerns relating to the trust structure. Notwithstanding those concerns, efforts continued to advance the transaction. Mr Maitland provided a copy of a feasibility and business plan on 6 February 2020,[137] and attended a meeting on site on 7 February 2020 with Mrs Darling and Mr Booth.[138]

185 Mr Maitland and Mrs Darling continued their commercial discussions through this period. One of the points they discussed was Mrs Darling's desire to have some project milestones built in for the vendor loan repayments.[139] Mr Maitland proposed some milestones in an email to Mrs Darling and Mr Booth on 11 February 2020.[140] He later proposed a series of 'amortisation' payments for paying down the vendor loan with specific tranches on specific dates, by email on 17 February 2020.[141] Mr Maitland explained in his evidence that Mrs Darling had not liked the development milestones with the buffers he had proposed, and wanted to bring it back to the payment of specific amounts.[142]

186 There was a meeting with the Head Landlord on 12 February 2020. It is not necessary to recount the detail of this meeting or everything arising from it, save to note that the Head Landlord was apparently unsettled by Mr Milentijevic no longer being involved and was not happy with Next Stage. The Head Landlord went on to request a great deal of information about the company, its finances, experience and interested persons. Next Stage provided information to Ardmillan, to pass on to the Head Landlord.[143]

187 After the meeting with the Head Landlord on 12 February 2019, Mr Maitland and Mrs Darling discussed how the meeting went and also discussed the interest Mrs Darling wanted paid to Ardmillan in respect of the delayed settlement.[144] Mr Maitland's evidence was that he said to Mrs Darling that if she instructed MinterEllison to turn around a set of amendment documents that she was happy within about one week, and agreed to settlement within 14 days of signing, he would accept the interest charge she proposed.[145]

188 Mr Maitland and Madgwicks both made enquiries as to the progress of the documentation at different times and looked to book in settlement.[146]

189 Draft amended transaction documents were provided on 24 February 2020.[147] Comments were made by Mr Maitland to Mrs Darling by email,[148] and by Madgwicks by way of marked up versions on 25 February 2020.[149] MinterEllison's covering email stated (in part):

Please find the following attached transaction documents for review (which remain subject to the vendor's instructions):

1. Revised ASA - in markup to Madgwicks' 7/2/20 version;

2. Revised COD - in markup to Madgwicks' 7/2/20 version;

3. Revised Priority Deed - in markup to Madgwicks' 7/2/20 version;

4. Draft Deed of Variation of ASA;

5. Draft Deed of Variation of COD; and

6. Revised Variation of Contract of Sale showing tracked changes.

190 Not all of the documents referred to were in evidence, but the Deed of Variation of Asset Sale Agreement was in evidence and included the following 'Background' and amending clauses:[150]

Background

1. The Vendor and Purchaser are parties to an asset sale agreement dated 5 August 2019 (Asset Sale Agreement).

2. The Vendor and Purchaser have agreed to vary the terms of the Asset Sale Agreement in accordance with this deed and the parties agree to be bound by the terms of the varied and restated Asset Sale Agreement.

...

2. Variation of Asset Sale Agreement

(a) The parties agree that on and from the date of this deed, the Asset Sale Agreement is varied by:

(i) inserting all clauses and words that are underlined; and

(ii) deleting all clauses and words that are struck out or crossed through,

in the copy of the document that forms Annexure A to this deed.

(b) Each party agrees that it is bound by the Asset Sale Agreement as varied in accordance with this clause 2 in the capacity in which this deed is executed and as set out in Annexure A to this deed.

(c) The final form of the Asset Sale Agreement as varied under this clause 2 is set out in Annexure B to this deed.

3. Continued force and effect of Asset Sale Agreement

(a) Except as varied under clause 2 of this deed, the Asset Sale Agreement continues in full force and effect.

(b) Each of the Vendor and Purchaser agrees that it is bound by the Asset Sale Agreement as varied and restated by this deed.

191 At 12:18pm on 26 February 2020 Madgwicks emailed MinterEllison, asking to be advised when Next Stage would receive execution copies of the documents sent to Ardmillan on 25 February 2020.[151] At 11:30pm on 27 February 2020 MinterEllison emailed Madgwicks, attaching draft transaction documents with the covering email stating that the documents were 'provided subject to instructions in the interests of time'.[152]

192 At 2:43pm on 28 February 2020 KCL Law, solicitors for Newground, emailed Mr Maitland a further amendment letter, in respect of the Newground facility.[153] At this point, the Newground facility was still on foot and was later renewed on 11 March 2020 (although it was later cancelled at the end of March).[154]

193 Mr Maitland continued, in this period, to express concern at what was taking MinterEllison so long, and to push forward as soon as possible. As the commercial negotiations had evolved such that Next Stage would be committing to concrete repayment dates, and paying Ardmillan interest from the originally due completion date (as well as continuing to have to pay interest to Newground for its facility), the slippage of time was not only expensive to Next Stage, but raised the risks to it of not being able to meet the milestones.

194 Mr Maitland raised his concerns in an email to Mrs Darling on 29 February 2020, stating in part:

Do we have any certainty or visibility into what is taking ME so long?

You and I agreed on everything well over a week ago and we have gotten the documents through in dribs and drabs but nothing in execution copy yet.

We have agreed on tight deadlines for us to deliver the project and importantly make part repayments to you and we can't fairly achieve these with our hands tied behind our backs.

When we were negotiating the changes you wanted to the structure of the deal earlier this month we had soft circled the end of Feb for settlement, but now given you said you need circa 14 days to get ready for settlement and this starts after the documents are signed we are going to be in the back half of March at this rate.

Whilst I appreciate you have been working hard with us, given we have agreed to pay you interest which is circa $1,780/day ($10M x 6.5%) I don't feel it's very fair to us that ME appear to be very slow in turning things around.

I know you said it was like trying to herd cats...perhaps we need to send in a lion to hurry them up.

We do value our reputation and our word, and we have very little left of that now with our Mezz funder as we have been unable to tell them anything, other than "soon" and "here is another cheque for another months interest"

Can you please let us know what we can do to get this moving, perhaps a conference call with ME on Monday to see if they need help we can do some of the documents for them?[155]

Negotiations leading to the March 2020 suite of documents

195 In March 2020 Mr Balsim had discussions with Mr Maitland and Raffaele Aiello about funding settlement. They decided that Trivett Property Partners should seek alternative sources of funding, in case the Newground facility was not renewed.[156]

196 At 5:03pm on 2 March 2020 Mr Booth emailed Mr Maitland, summarising Ardmillan's understanding of the payments due under the various agreements in a spreadsheet. The settlement amounts assumed the revised transaction documents would be signed on 5 March 2020 and settlement would occur 14 days later.[157]

197 While the toing and froing between the solicitors and the principals continued in early March 2020, the Head Landlord continued to raise issues and concerns about Next Stage as the proposed assignee of the Head Lease and requested additional information. On 4 March 2020 Cavan Reid of the Head Landlord called Mrs Darling with concerns about Next Stage as the proposed assignee, and wrote to request additional information, which was provided.[158] Despite this, it became apparent on 11 March 2020 that approval from the Head Landlord would be, at a minimum, weeks away.[159]

198 At 3:11pm on 5 March 2020 Mr Maitland emailed Mrs Darling and Mr Booth, saying Newground had confirmed the final Priority Deed was acceptable and would be executed.[160] This was later signed by Next Stage in its personal capacity and in its capacity as trustee for the NSL Moonee Ponds Trust.[161]

199 Between 10:11am and 5:13pm on 13 March 2020 Mr Booth, Mrs Darling, and Mr Maitland exchanged emails about position of the Head Landlord. Mr Booth provided Mr Maitland with an update from the representative of the Head Landlord. Mr Maitland asked when Next Stage would receive execution versions of the documents.[162] This request was renewed, through Madgwicks, on 17 March 2020.[163] At 11:04am on 17 March 2020 Madgwicks emailed MinterEllison, requesting final executable transaction documents for reviewing and signing.

200 At 8:56pm on 26 March 2020, MinterEllison emailed Madgwicks, a revised suite of transaction documents in execution form. MinterEllison requested an update on when the letter from Next Stage to Ardmillan and the Head Landlord would be available in relation to sources of debt and equity finance, which letter had been requested.[164]

201 The documents attached to MinterEllison's email included:

(a) a Deed of Variation of Contract in respect of the Call Option Deed (and revised Call Option Deed);

(b) a Deed of Variation of Contract in respect of the Contract of Sale; and

(c) a Deed of Variation of Contract in respect of the ASA (and revised ASA).

202 Clause 2 of the Deed of Variation of Contract in respect of the Contract of Sale remained in the form referred to in paragraph 156 above.

203 Relevantly, cls 2-3 of the Deed of Variation of Contract in respect of the ASA provided as follows:

2. Variation of Asset Sale Agreement

(a) The parties agree that on and from the date of this deed, the Asset Sale Agreement is varied by:

(i) inserting all clauses and words that are underlined; and

(ii) deleting all clauses and words that are struck out or crossed through,

in the copy of the document that forms Annexure A to this deed.

(b) Each party agrees that it is bound by the Asset Sale Agreement as varied in accordance with this clause 2 in the capacity in which this deed is executed and as set out in Annexure A to this deed.

(c) The final form of the Asset Sale Agreement as varied under this clause 2 is set out in Annexure B to this deed.

3. Continued force and effect of Asset Sale Agreement

(a) Except as varied under clause 2 of this deed, the Asset Sale Agreement continues in full force and effect.

(b) Each of the Vendor and Purchaser agrees that it is bound by the Asset Sale Agreement as varied and restated by this deed.

204 Clause 2 of the Deed of Variation of Contract in respect of the Call Option Deed was in similar terms.[165]

205 In providing the package of documents, MinterEllison reiterated the caveat expressed in an email sent a few days earlier (on 23 March 2020) that 'delivery of the documents does not represent that there is final agreement or that the Vendor will execute the documents in the form submitted'.[166] Mr Maitland commented on his disappointment at these caveats in cross-examination.[167]

206 Madgwicks acknowledged receipt and said they would review the documents and 'come back to you as soon as practicable given the current world environment and all parties working remotely'.[168]

207 On 31 March 2020 the Newground facility lapsed and was not renewed by Next Stage.[169] There was some cross-examination at trial directed to whether the facility lapsed at Next Stage's instigation (in deciding not to renew it), or was cancelled by the lender.[170]

208 In April 2020, Next Stage progressed securing alternate sources of finance. Tony Balsim and Mr Elzain discussed Mr Elzain funding settlement.[171]

209 In April 2020 Mr Maitland discussed the proposed amendments with Mr Salvo, Joshua Balsim, and Mr Balsim. They determined that the amendments were not acceptable to Next Stage or its shareholders, due to changes in the vendor finance terms.[172] Mr Maitland's evidence on this point was as follows:[173]

359. A key part of this transaction as agreed in August 2019 was the vendor finance with an initial term of 2 years, with interest of 0% for the first year and 6.5% for the second year, and it could be extended for a 3rd year at 8.5% if a minimum of $5M had been repaid.

360. The major issue with the amended documents was that the terms of the vendor finance were materially inferior. Expiry of the initial 2 year term was now a fixed date of November 2021, so by this stage we had lost 5 months (21%) of the term, and importantly the interest free term was now only 7 months.

361. Mandatory repayments starting in circa 4 months and then every 6 months, provided zero flexibility, particularly given that the consequence of a default had the potential to cause significant financial harm through the call option to take the property back via the Call Option Deed.

362. The amended terms to which I refer to above were to be achieved by clauses 7 to 19 of the Deed of variation of Contract. Also particularly troubling to me was proposed Special Condition 10.6, by which payment of the whole of the vendor finance could be accelerated.

363. I was instructed by Tony Balsim, Joshua Balsim and Mr Salvo that they would not accept the amendments.

210 On 6 April 2020 Mr Maitland and Mrs Darling spoke on the phone. Mrs Darling's evidence was as follows:

James said that the Salvo Group had been very busy dealing with the effects of COVID-19. He said that the revenue from their accommodation business had dropped from $25m to essentially $1, and that he hadn't had a chance to review the documents due to more pressing issues. He said that he apologised for the delay, particularly given that the Plaintiff had been the one chasing us for the execution versions of the documents, but that he had hoped to attend to them during the week and that he was confident they were fine but just wanted to read them through. He said to the effect: "I haven't looked at them. I'm sure they'll be OK, but I should just check them'. I didn't hear from him again and so asked Minter Ellison to follow up with Madgwicks.[174]

211 Mr Maitland did not make reference to the 6 April 2020 call in his witness statements, but did not dispute that it occurred when cross-examined. Although he did not accept Mrs Darling's version in the exact terms in which she recounted the conversation, and although his evidence on what did occur during that call was not clear, Mr Maitland did not dispute that he would have conveyed an apology for the delay in reviewing the documents.[175] He did, however, dispute that his comment about the impact of the COVID-19 pandemic on the Salvo business occurred in the second April conversation,[176] as part of what he described as 'healthy discussions' about the impact of the pandemic on their respective businesses.[177] That said, it was also Mr Maitland's evidence (consistent with his witness statement) that the impact on the accommodation business was not material to the overall financial health of the Salvo business interests, including because the ultimate profit on the $25 million revenue on the serviced accommodation business was 'minimal'.[178] Mr Salvo also gave evidence in cross-examination and re-examination on the serviced apartments business being a minor part of his business with minimal profit.[179]

212 At 5:07pm on 9 April 2020 MinterEllison emailed Madgwicks, asking for an update on Next Stage's position on the execution documents.[180]

213 On 15 April 2020 Mr Maitland and Mrs Darling spoke on the phone about the impacts of COVID-19 and the future of transaction.[181] Ardmillan contended that Next Stage repudiated the contracts in this conversation, if they were still on foot. Each of Mrs Darling and Mr Maitland addressed the 15 April 2020 conversation in their witness statements. Given the conversation is critical to Ardmillan's repudiation argument in particular, I set out the accounts in their witness statements in full.

On 15 April 2020 I spoke with James Maitland on the phone. I asked was he happy with the agreements and ready to settle? James said 'Look, the documents are fine, but the world has changed and it makes no sense for either one of us to settle.' He said they could no longer commit to the time frames they had set for themselves in the revised documentation in this new environment. He said 'let's put everything on hold for a couple of months and then see how things stand'. I said that there was no appetite at this end for any further delay. He asked 'what could we do to keep the transaction on foot, but not tie them to a timetable they didn't think they could meet?' I told him that the only solution was what we had previously discussed which was a straight sale with settlement in 12 months but no vendor financing. He asked me whether we were under any pressure as a result of the COVID situation and whether there was anything they could do to help us? I told him that we were OK. He asked me again about whether there was any other solution that I could think of to keep the transaction alive. I said I didn't think so but I would discuss it internally and let him know if we could think of anything.[182]

215 In cross-examination, Mrs Darling confirmed that the only agreements she had been discussing with Mr Maitland during their call on 15 April 2020 were the March versions:

MR EHRLICH: And what he said to you, I suggest, is - and this was a discussion about the March agreements, wasn't it?---Ah yes, that's right.

Was only about the March agreements, wasn't it?---They were the only agreements we were discussing, yes.

Yes, 'They were the only agreements we were discussing.' And when Mr - you say that Mr Maitland said he could no longer commit to timeframes they had set for themselves in the revised documentation in this new environment, what he was referring to was the milestones that I just showed you?---Yes.

In the March agreement, correct?---Correct.[183]

352. On Wednesday 15 April 2020, I had a telephone conversation with Marina Darling.

...

354. The substance of that conversation was as follows:

(a) I apologised to Marina for the delay in coming back to her.

(b) We talked about the impact that coronavirus was having on both of us personally and business-wise. I explained to her that our "accommodation" (hotel/serviced apartments) business had been hit the hardest since all interstate/international travel bans and bans on events meant that there was no demand for people to book hotel rooms in Melbourne.

(c) I pause to note: the business I was referring to as "accommodation" is a very small part of Salvo's profits and has little consequence to our balance sheet, but was a great example of a business that had its turnover destroyed by the coronavirus. I also note that Salvo does not own the underlying freehold for the apartments/rooms, it just lets them out as agent for the owners of the apartments and takes management fees from these owners. So, whilst the turnover in bookings dropped from $24M to next to nothing in a short period, the revenue fall to us was minimal in the overall scheme of Salvo's finances.

(d) In relation to the draft documents I said that some of the proposed changes were not acceptable to us and that the coronavirus had made these even more obviously unacceptable. I specifically referred to mandatory amortisation payments of the vendor loan that were discussed when a 1 March 2020 settlement was to occur. These were important as the amended documents were drafted so that the initial 2 year term of the vendor finance effectively started back on 29 November 2019 so every day the vendor delayed settlement was a day less we had before needing to repay the vendor loan.

(e) In addition the proposed amortisation payments were now fixed dates, so again every day longer it took to complete these got closer and closer and they were becoming impractical to meet given the delayed settlement and the inevitable reduction in cashflow from the sale of existing apartments/villas to retirees in light of the coronavirus (and where the government has advised all people over 70 not to leave their homes).

(f) The Contract of Sale and Asset Sale Agreement executed 5 August 2019 provided for no mandatory amortisation until the end of the 2nd year, whereas the amendments provided for multiple payments every quarter/6 months.

(g) I told Marina that we had not been at fault for the delayed settlement, that we had been ready to settle since interim stamping had been paid, and that she was being fully compensated for the delay in settlement by the agreed interest payments to which I have referred to above. I told her that by trying to squeeze us on the other side (by changing amortisation and repayment dates) she was placing NSL at commercial risk given the terms of the call option.

(h) Marina Darling said that in that case we should reconsider amending the current contract to remove the vendor finance and allow for a settlement at the end of the year.

(i) Marina Darling said that she wanted to talk to her investors.[184]

217 Mr Maitland was cross-examined on Mrs Darling's account of the 15 April 2020 conversation and disputed key aspects of her account:

MR WILLIS: And did you say in the second conversation something like the world has changed and it makes no sense for us to settle at this time when we can't - or makes no sense for us to settle at this time?---No.

Did you say that you couldn't commit to timeframes that had been set - that you had set in the revised documentation because of the new environment?---Not in those words, no.

No. Did you use words though addressing that topic?---About the vendor finance?

Well, what did you say?---I told her that the documents were not acceptable.

Why? Did you explain why - state to her why?---I don't think that I went into complete detail um, but as I mentioned previously, one of the biggest issues for us was this addition of milestones and now mandatory repayments and then they moved from as you took me through the document from a - a reference to a settlement date or completion date to becoming fixed dates and you know, that was done back in February, we're now two months later still dragging out. Um, and that that was a key part of the transaction that effectively by the time it may under this format have settled, those dates are thrown completely out - out of whack because they were referenced to um, you know, certain activities occurring.

What I'm asking is did you say that to Ms Darling on 15 April?---Did I say what? Sorry, I'm confused, what - what - what you just said or?

No, what you've just said?---I said to her that the documents weren't acceptable, and I think it was a relatively short conversation if - if you recall we'd obviously been discussing all of these points for a long time so I perhaps didn't have the preamble, but I'm sure I would have said that your mandatory repayments with fixed dates have become un - completely unworkable.

So, you couldn't commit to them because of the new environment?---No, because of the passage of time.

Did you say let's put things on hold or everything on hold for a couple of months and then see how things stand?---No.

So, Ms Darling says that you did and that you said in response that she had no appetite for further delay; did she say that to you?---That she had no appetite for further delay?

Yes?---No, what I recall is she talked about again, it being a strong preference and one of her options that she proposed um, at various occasions to not provide the vendor finance and she said well, I - I still think that should be an option and I wanna go and talk with my investors about it and I'll come back to you.

She says that she discussed that or raised that in answer to a question that you asked her, what could we, that is NSL, do to keep the transaction on foot but not tie you to a timetable that you couldn't meet; did you say something of that kind to her?---No. Ah, I - as I said to you before, I talked about those dates um, I may have said something like you need to readjust those dates for mandatory repayments to - to be back to what we talked about before, but at no point would I talk about keeping a - I don't - I don't talk like that, keeping on foot and - and (indistinct), not my language.

Well, did you say is there - - - ?---What I just said to you before is what I would've said.

...

And Ms Darling says that you then having had that conversation and she recalls that part of the conversation in not dissimilar terms, not materially different terms, she said you then asked again whether there was any other solution that Ms Darling could think of that would keep the deal alive - keep the deal. So, I think the words she uses, the formal words she uses, not your words, but the effect of the words is, was there any other solution that Ms Darling could think of to keep the transaction alive. Now again, don't get hung up about the precise words, the effect of that, did you ask her again what can I do, what can we do, is there anything we can do?---No.

You didn't ask her that?---No.[185]

218 On Mr Maitland's evidence, the conversation was left on the basis that Mrs Darling was to talk to her 'investors' - Mrs Darling referred to her family as her 'investors'[186] - and come back to Mr Maitland in a couple of days; but Mr Maitland did not hear back from Mrs Darling prior to her email sent on 17 April 2020.[187] In any event, the important point to note is that Mrs Darling was clear in her evidence that she and Mr Maitland were discussing the March versions of the proposed amendments, not the original contracts.

219 Ardmillan's thesis, which was explored in counsel's cross-examination of Mr Maitland was that, with the impact of the COVID-19 pandemic, the Salvo interests (and therefore Next Stage) lost its enthusiasm for the transaction and adopted a 'go slow' position. While Mr Maitland resisted suggestions to that effect in cross-examination - explaining his frustration with the increasing demands and changes to the deal required by Ardmillan, all while there was no firm settlement date in prospect[188] - the suggestion that Next Stage adopted a go slow position does gain support from an account issued by Madgwicks which stated:

26/03/20 Perusing and considering email from client regarding go slow with Minters and attendance on J Severn

...

26/03/20 Phone call with James Maitland, instructing us to hold on file. Phone call with Tony Balsim[189]

220 When this account was put to him, Mr Maitland did not accept that Madgwicks was instructed to 'go slow' or put a hold on the file. His answers focused on the fact that the words recorded in the bills were written by others, that putting a hold on the file 'doesn't sound like anything I would say', and that he could not say what the 'hold on file' comment related to in isolation.[190] I do not accept Mr Maitland's evidence, to the extent he disputed that Next Stage gave instructions that - whatever the words used - conveyed to Madgwicks that Next Stage wanted to slow down work on the file. The stark contrast between Next Stage's lack of vigour in progressing the transaction following receipt of the March suite of proposed documents and the pace of responses, including by Madgwicks, prior to late March, tells its own story. Nor would I accept that the slowdown in pace on the Next Stage side was wholly explained by the impact of COVID-19 on the Salvo business, particularly given Mr Maitland's evidence about the very limited impact of COVID-19 on the financial health of the Salvo business interests.

221 The change in attitude on the part of Mr Maitland and Next Stage following receipt of the March suite of documents stands in stark contrast to their attitude to that point. Whereas previously Mr Maitland was relentlessly (albeit politely) pushing the pace to progress the transaction documents, responding to emails in short order and Madgwicks was likewise highly responsive and quick to turn things around following receipt of the March suite of documents, Next Stage did nothing to follow up. Rather, the shoe was on the other foot, and it was Mrs Darling and MinterEllison doing the chasing. Whatever the reasons for Next Stage's changed attitude, the objective fact of its lack of responsiveness - against a history of pushing the pace on negotiations and documentation - is relevant to consideration of the correct characterisation of the parties' interactions and whether the contracts were abandoned by mutual agreement in the period to 15 April 2020 (if they were still on foot) or were otherwise repudiated during that conversation.

222 At 7:41am on 17 April 2020, Mrs Darling emailed Mr Maitland. The email stated in part:

Thank you for your call on Wednesday.

I understood from our conversation that the documents are in order, but that you are not in a position to proceed with the transaction due to changed circumstances. This inevitably brings the deal to an end, which we understand and accept.

As mentioned on the call, given things have dragged on for so long and we are well beyond the agreed completion date, there is no appetite on our side to re-negotiate or extend further. However, if you are in a position to sign in the next week and settle in the fortnight following, we are ready to do so.[191]

223 Mrs Darling made candid concessions regarding this email in cross-examination:

MR EHRLICH: And it says, 'Thank you for your call on Wednesday.' Now if you look at the first sentence, 'I understood from our conversation the documents are in order.' That's the March documents?---Yes.

That you are not in a position to proceed with the transaction due to the changed circumstances, and what you mean by that is the March documents correct?---Correct.

That's right, and Mr - you then say in your second sentence 'this inevitably brings the deal to an end which we understand and accept' see that?---Yes.

That was a conclusion you were drawing was it not?---Yes.

It was a conclusion that you were drawing simply from that fact that Mr Maitland had said they would not sign the March agreement because of the milestones, correct?---Correct.

And Mr Maitland I suggest to you, never said to you 'this brings the deal to an end' correct?---He did ask me if there was any other way that we could keep the deal alive.

I'll come to that in a moment, he never said to you the words, 'this brings the deal to an end'?---He did not, no.

All right, and can I then take you - I'll repeat it again the second sentence of your first paragraph is the conclusion you were drawing?---From what he said yes.

Not what he said?---I said it's the conclusion I was drawing from what he said, yes.[192]

224 Mrs Darling also confirmed that her reference to signing in the next week and settling in the next fortnight related to the March suite of documents, and not the original contracts, which she regarded as no longer being capable of being settled.[193] That been her position since January 2020.[194]

225 At 6:41pm on 17 April 2020 Madgwicks emailed MinterEllison. The email stated in part:

We refer to the below correspondence received by our client earlier today.

We have been instructed the documents provided by you via email on 26 March 2020 are not agreed by our client, and understand from your email of the same date the amendments have not yet been agreed by your client.

As the Contract of Sale and Asset Sale Agreement signed by the parties on 5 August 2019 is unconditional, contrary to your client's comments below, the transaction is not at an end.[195]

226 Besides MinterEllison forwarding a letter from the Head Landlord withholding consent to the lease assignment on 21 April 2020,[196] there was no further communication between the parties until Next Stage served its Notices to Complete on 18 May 2020. The Sunset Date stipulated in the ASA (being 5 May 2020) came and went without remark.

Service of the Notices to Complete in May 2020, and Ardmillan's response

227 On 18 May 2020 Madgwicks emailed the Notices to Complete the Contract of Sale and the ASA to MinterEllison, requiring completion on 1 June 2020.[197]

228 Notwithstanding its silence vis-à-vis Ardmillan, Next Stage continued to progress its funding alternatives before serving the Notices to Complete on 18 May 2020. In the period leading up to serving those notices, Mr Maitland discussed financing with Joshua Balsim and Mr Salvo.

229 Mr Salvo told Mr Maitland that he would, if necessary, personally fund Next Stage for settlement.[198] There was no dispute at trial that Mr Salvo is a man of considerable wealth, both personal and held through corporate structures and that, if he wanted to make funds available to Next Stage to enable it to settle, he had the means to do so.[199] In his witness statement, Mr Salvo stated that, if Newground had not entered into a new facility with Next Stage to fund the balance due at settlement on 1 June 2020 (being the date set by the Notices to Complete) 'I would have personally provided all funds necessary to settle' and would have ensured that the 'cash advance facility from Trivett Property Partners Pty Ltd was available for cash draw down on 1 June 2020'. Mr Salvo's evidence was that he would have provided the funds without security over the assets of Next Stage, so no Priority Deed was required.[200]

230 Mr Salvo elaborated on his position saying it was only his intention that funds would be 'made available on a short-term basis and that, after settlement, [Next Stage] would borrow funds from another lender and repay me. I would not have been willing to fund the project on a long term basis at that time.'[201] Mr Salvo changed his position on only providing short term debt funding in the course of his oral evidence. In further re-examination (after the Court asked some questions of Mr Salvo), the following exchange occurred by which Mr Salvo gave evidence that he would have been willing to fund settlement by way of equity if advised by the lawyers that it was necessary to do so (the point being avoiding the need for a Priority Deed):

MR ERLICH: You mentioned, Mr Salvo, lawyers and the like and Her Honour asked you some questions about that. And if the lawyers were to say, it has to be done by way of equity as opposed to debt, would that have been an issue for you?---No.

And if it had to be done by way of equity that might have to sit there for two or three years, would that have been an issue for you?---No.[202]

231 Mr Maitland also gave evidence that, if advised by lawyers that equity were needed to avoid having a Priority Deed, 'we would've done whatever the lawyers would've told us to do to secure the deal'.[203]

232 The prospect of Mr Salvo and/or Mr Elzain financing settlement to permit Next Stage to make good on its Notices to Complete falls to be considered in light of the evidence that:

(a) the Salvo entities more commonly invest outright (usually without partners) or loan funds; they did not typically invest and use loan funds in combination;[204]

(b) the other investors in Next Stage preferred not to have Mr Salvo fund settlement if other options were available;[205]

(c) the investors looked to Mr Salvo, through Mr Maitland, to use their considerable experience and expertise to have day-to-day carriage of the project and financing;[206]

(d) the evidence to the effect that the Salvo interests,[207] and Mr Balsim,[208] considered Next Stage had secured a favourable deal, such that they were keen to complete; and

(e) where Mr Salvo has control of a project, he does not consider it necessary to advance funds on a secured basis, although, if he had been asked to fund settlement, he would have discussed the situation with Mr Maitland, including whether to take more equity, and would have consulted his advisors.[209] Mr Salvo also gave evidence that if he loaned money to allow Next Stage to complete, he would have ensured he had practical control.[210]

233 On 13 May 2020 Mr Balsim and Mr Elzain agreed that Mr Elzain would fund settlement if needed.[211] Mr Elzain's evidence regarding that conversation was as follows:

10. On about 13 May 2020, Mr Balsim and I had a further discussion about me lending this money.

11. The substance of that conversation was that:

(a) Mr Balsim told me that the Plaintiff was proposing to issue Notices to Complete which would bring on settlement on 1 June 2020;

(b) Mr Balsim and I agreed that I would lend to Trivett Property Partners between $10,000,000 and $12,000,000 on 29 May 2020, to be available for settlement on 1 June 2020;

(c) As security, Mr Balsim and I agreed that the lender would be granted a general security over the shares in Trivett Property Partners; and

(d) As I was not yet sure which particular entity would lend Trivett Property Partners the funds, I would nominate a particular entity at a later date after seeking advice.[212]

234 Mr Balsim explained that it was the investors' preference to borrow from a third party lender, rather than Mr Salvo, that it was intended to renew the Newground facility, but the agreement was made with Mr Elzain as a backup if the Newground facility could not be renewed.[213] Mr Elzain also gave evidence that, despite the investors' preference for funds to be sourced other than from Mr Salvo, if it had been necessary, Trivett would have agreed to Mr Salvo funding the transaction, as he had offered to do a number of times.[214]

235 On 15 May 2020 Trivett and Mr Elzain executed agreement to advance a minimum $10 million up to $12 million, to be available from 29 May 2020.[215] The document was styled 'Loan Agreement' and provided as follows:

Mr. Anthony Elzain (through his nominated entity) has agreed to advance a minimum of AUD $10 million and up to AUD $12 million to Trivett Property Partners for the acquisition of Next Stage Living's Moonee Ponds Project at 11-45 Derby Street, Moonee Ponds Vic 3039.

Date funds to be available: May 29th 2020.

Term: 12 Months.

Interest: 15%.

Repayments: Accrued.

Security: GSA over Trivett Property Partner shares.

This Loan Agreement and the aforementioned terms are legally binding and is to be formally drawn up by Mr. Anthony Elzain's nominated legal representation upon Trivett Property Partners formal instructions to draw the available funds.

236 Mr Elzain gave evidence that he was able to provide the required funding from 'the assets available to me, including by way of cash or cash equivalent assets'.[216] By a further witness statement, Mr Elzain gave evidence that, had Trivett needed to draw upon the funds under the loan agreement, the funds would have been advanced by Maxcon Constructions Pty Ltd (Maxcon) as his nominated entity. Mr Elzain referred to Maxcon's cash assets, as set out in its audited financial statements and reports, showing cash and cash equivalents of $14 million and $16.2 million in FY19 and FY20.[217]

237 Mr Elzain was cross-examined on his ability to advance the funds that would have been necessary for Next Stage to settle on the transaction without the Newground loan. The cross-examination was directed to demonstrating that, while Maxcon had substantial cash assets, those assets were not available to fund the loan to Next Stage as they were required for Maxcon's ordinary business operating cash flows as a construction company.[218] Mr Elzain's answer to this line of attack on his evidence was that:

It would have - if we decided to divulge that money from Maxcon - and I needed a top up, I would have gotten money from another one of our entities Mr Willis. Mr Willis I'll say this very briefly without explaining myself too much, I always have a residual of over nine figures so you know at my disposal so there's always that excess when I require it.[219]

238 There was no challenge mounted to that response in cross-examination.

239 It was also suggested to Mr Elzain that he was told the loan was never really going to be called on, and there was no real risk he was actually going to have to come up with the promised funds. Mr Elzain rejected that suggestion, and it was not pursued further.[220]

240 At 9:45am on 25 May 2020 MinterEllison responded to the Notices to Complete. Its letter contended the ASA and the Contract of Sale were not on foot and that, even if they were, Ardmillan was terminating the ASA pursuant to cl 2.4(b), with the result that the Contract of Sale was also terminated. MinterEllison's letter stated as follows:

We refer to your letter dated 18 May 2020, enclosing:

• Notice to Complete - Asset Sale Agreement dated 5 August 2019; and

• Notice to Complete - Contract of Sale dated 5 August 2019.

For the reasons set out in previous correspondence, neither the Asset Sale Agreement dated 5 August 2019 (ASA) nor the Contract of Sale dated 5 August 2019 (CoS) remains on foot. It follows from this that the Notices to Complete enclosed with your letter dated 18 May 2020 are misconceived.

Further, even if the ASA and CoS continued to bind the parties, any obligations that arise on or at Completion (as that term is defined in the ASA) could only arise once all Conditions in clause 2.1 of the ASA have been either satisfied or waived in accordance with clause 2.2 of the ASA. Despite the bald assertion in your email of 17 April 2020, plainly, that has not occurred.

While our client's position is that neither the ASA nor the CoS bind the parties, it appears from your letter that your client takes the contrary view. Accordingly, without prejudice or admission in relation to our client's position that neither the ASA or CoS remain binding on either party:

• enclosed with this letter is a notice given by our client, terminating the ASA pursuant to clause 2.4(b) of the ASA; and

• by reason of special condition 4.1(c) of the CoS, the CoS is terminated with immediate effect.

Our client's rights are, and continue to be, fully reserved.[221]

241 At 6:40pm on 25 May 2020 Madgwicks emailed MinterEllison attaching a letter disputing that the ASA and Contract of Sale had been abandoned or extinguished, and disputing Ardmillan's entitlement to terminate under cl 2.4(b) of the ASA, as well as claiming that Ardmillan's conduct was repudiatory. The letter stated in part:

1 The ASA and CoS have never been abandoned or extinguished and have, at all material times, remained enforceable by our client according to their terms and conditions.

2 Your client was not entitled to terminate the ASA pursuant to clause 2.4(b) because your client had not complied with its obligations under clause 2.3 of the ASA and also because of the operation of clause 7.5 of the ASA.

3 Your client's conduct:

(a) in asserting that "neither the Asset Sale Agreement dated 5 August 2019 (ASA) nor the Contract of Sale dated 5 August 2019 (CoS) remains on foot"; and

(b) in purporting to terminate the ASA in reliance upon clause 2.4(b) of the ASA,

evidence a plain intention by your client to not be bound by the ASA and the CoS. Your client has thereby repudiated the ASA and the CoS and its interdependent obligations thereunder.

We are instructed to tell you that our client by this letter elects to accept the said repudiation of the ASA and the CoS and to thereby terminate the ASA and the CoS.

Our client intends to forthwith issue proceedings against your client for loss and damage, including for loss of profit. In this regard, at all material times your client has been on notice of our client's proposed development plans for the property for profit, such as to engage the second limb in Hadley v Baxendale (1854) 9 Exch 341, (1854) 156 ER 145. In consequence, our client's damages will extend to the lost profits of the development: see Cottrill v Steyning and Littlehampton Building Society [1966] 2 All ER 295 and Sumy Pty Ltd v Southcorp Wines Pty Ltd [2004] NSWSC 1000.

Our client hereby demands the immediate repayment of the deposit paid to your client under the CoS in the amount of $2,970,000.00. Your client has no legal basis to retain it.[222]

242 On 26 May 2020 Next Stage lodged a caveat against dealings in the Property.

243 At 3:49pm on 27 May 2020 MinterEllison emailed Madgwicks attaching a letter. The letter stated in part:

We note your views and disagree. In particular, our client denies that, by its conduct, it repudiated the contractual arrangements between our clients on either basis referred to in para 3(a) or (b) of your letter, or any other basis.

Your client's prior conduct was repudiatory, which our client accepted first (17 April 2020). Even if that were not the case and the earlier agreements remained on foot, our client exercised its rights under the version of the agreement which your client contended was in force. In either case, our client was entitled to take the action that it did, and is entitled to recover the losses it has suffered. This includes the losses it has suffered as a result your client's repudiation of the contractual arrangements between our clients prior to 17 April 2020.

Suffice to say, if your client issues proceedings, they will be defended vigorously. Further, while our client is considering its position with respect to pursuing your client for its losses, should your client commence proceedings on the basis outlined in your letter, our client will certainly seek those losses by way of counterclaim against your client.[223]

244 At 4:46pm on 28 May 2020 Madgwicks emailed MinterEllison seeking details of the prior conduct of Next Stage said to have been repudiatory, as well as information on other matters raised in MinterEllison's letter the previous day.[224] The information sought was provided by MinterEllison by letter dated 1 June 2020. The letter stated in part:

Responding to paragraphs 2(a) - (c) in turn:

(a) The 'prior conduct' referred to is the statement by Mr Maitland in conversation with Mrs Darling on 15 April 2020, to the effect that while the documentation then in circulation was in order for execution, NSL could not or was unwilling to settle and proposed that the parties revisit the deal in at a later point in time.

This followed the failure by NSL to settle the original transaction on or after 29 November 2019 and its failure to use reasonable endeavours to satisfy the Conditions as soon as reasonably practicable after execution of the original transaction documents (being the ASA and CoS executed in August 2019).

By agreement, developed through exchanges of emails and concurrent discussions between 29 January 2020 and 1 February 2020, the parties agreed to renegotiate the transaction. Following negotiations throughout February and into March, our clients presented execution drafts for the revised transaction on 26 March 2020 and by 15 April 2020 had approved them, communicating to Mr Maitland on that day its willingness to sign them.

(b) Our client's email of 17 April 2020, from Mrs Darling to Mr Maitland (7.41am). Your letter of later that day confirmed your client's rejection of the terms circulated on 26 March.

(c) No attempt has been made by your client to satisfy the Conditions in clause 2.1 of the ASA in a way consistent with the ASA. Instead, it is clear that your client's intention has been to delay settlement until it suited your client to proceed with the transaction, and only in a form that was different to that which was agreed by the parties in August 2019.

The conduct our client relies on includes:

(i) your client's failure at any point to seek to execute a Priority Deed in the form agreed by the parties in August 2019, as required by item 1(c) of clause 2.1 of the ASA. Instead, your client has produced two signed versions of the Priority Deed (all after the Scheduled Completion Date of 29 November 2019), both of which are in a different form to the version agreed in August 2019;

(ii) your client's attempt to nominate a substitute purchaser. Prior to the Scheduled Completion Date, your client unilaterally purported to nominate a substitute purchaser, asserting (contrary to the ASA and CoS ) that it had the 'right' to do so - see, for example, the purported 'Nomination Forms' sent to our client in 27 November 2019. At all times through to the Sunset Date, your client's position has been, in effect, that it was only prepared to satisfy the Conditions in clause 2.1 of the ASA if our client consented to the proposed nomination and the documents contemplated by item 1 of clause 2.1 of the ASA were amended accordingly. The artificiality of this position is underscored by the extraordinary position now adopted by your client (after the Sunset Date) that, if the transaction were still on foot, it no longer would seek such a nomination; and

(iii) our client has seen no evidence of your client having satisfied, or sought to satisfy, the obligations identified in items 2 and 3 of clause 2.1 of the ASA prior to the Sunset Date.[225]

245 On 5 June 2020 Next Stage commenced proceedings against Ardmillan.

Were the Contract of Sale and ASA on foot at 18 May 2020?

246 Unless the Contract of Sale and ASA were on foot at the time it served its Notices to Complete on 18 May 2020, Next Stage's claim for loss of bargain damages must fail. Ardmillan contends that those contracts were not on foot at that date, either because they had already been terminated by mutual agreement, or on the basis that they had been repudiated by Next Stage on or prior to 15 April 2020, which repudiation was accepted by Ardmillan.

Legal principles: Termination by mutual agreement

247 The concept of discharge by agreement was explained by Lord Diplock in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal as follows:

Abandonment of a contract ('the former contract') which is still executory, i.e., one in which at least one primary obligation of one or other of the parties remains unperformed, is effected by the parties entering into a new contract ('the contract of abandonment') by which each party promises the other to release that other party from further performance of any primary obligations on his part under the former contract then remaining unperformed, but without such non-performance giving rise to any substituted secondary obligation under the former contract to pay damages.

It is the latter part of the promise by each party, i.e., the release of the other party from all further secondary as well as primary obligations, that distinguishes the legal concept of abandonment of the former contract from the extinction of unperformed primary obligations of both parties under the former contract by fundamental breach of a primary obligation (or breach of condition) by one of them, followed by the election of the party not in breach to put an end to all primary obligations of both parties under the former contract remaining unperformed. Unlike the contract of abandonment this leaves the secondary obligations under the former contract of the party who committed the breach enforceable against him by the other party.[226]

248 While, as the above passage suggests, the effect of a discharge by agreement is usually to discharge all prior rights (cf, the position where a contract is terminated for breach or repudiation), the effect of such a discharge depends on the terms of that second contract, which Lord Diplock described as the 'contract of abandonment'. It is, as a consequence, possible for the terms of the second contract to result in a partial discharge of the obligations under the first contract.

249 In the absence of an express second contract (and assuming no estoppel arises), a party contending that the first contract has been discharged by agreement must establish a second contract to be inferred from conduct. It is a question of fact in each case whether the parties, by their conduct, entered into a new contract which merely modifies the first contract or whether their conduct manifests an intention to extinguish the first contract.[227]

250 Contracts, whatever the subject matter, can be inferred where mutual assent may be inferred from the circumstances; it is not necessary that a clear offer and acceptance be identified.[228] Rather, the critical issue is what a reasonable person would make of communications in the context in which they occurred.[229] That objective assessment must, however, yield a tacit agreement with 'sufficiently clear terms' to which both parties considered themselves bound; it is not enough that the conduct is merely consistent with the terms of the alleged agreement.[230]

251 As the Court of Appeal observed in Danbol, while it may be rare to infer a contract where no offer or acceptance can be clearly discerned, that merely reflects the fact that, absent such offer and acceptance, it becomes 'difficult to identify mutual assent to a binding legal relationship and its terms'.[231]

252 The extent to which the second contract is inconsistent with, or is capable of performance alongside, the executory obligations of the first contract, informs the analysis of whether there is a mutual intention to extinguish the first contract. As stated by Lord Atkinson in Morris v Baron & Co:

Moreover, rescission of a contract, whether written or parol, need not be express. It may be implied, and it will be implied legitimately, where the parties have entered into a new contract entirely or to an extent going to the very root of the first inconsistent with it: Hunt v. South Eastern Ry. Co.; Thornhill v. Neats.[232]

253 The Court of Appeal referred to factors including the impossibility of performing the original agreement in considering that a contract was abandoned, and not varied, in Jafari v 23 Developments Pty Ltd.[233] The Court of Appeal confirmed the applicable principles in the following terms:

[191] Parties may expressly agree to terminate or abandon a contract. Abandonment can also be inferred from conduct of the parties that makes it 'plain' that neither intends to perform the contract. They are regarded as having conducted themselves in a manner so as to abandon the contract. Abandonment commonly arises from a period of time having elapsed, 'during which neither party to the contract manifests any intention to perform the contract, leading to the inference that the contract has been abandoned.' By inferring abandonment, the court infers that the arrangement has been discharged as between the parties, with 'each party being entitled to assume from a long-continued ignoring of the contract on both sides that ... "the matter is off altogether"'. Whether the parties have abandoned a contract is a question of fact, inferred from an objective assessment of the conduct of the parties.

[192] While commonly inferred by the lapse of an inordinate period of inactivity as between the parties, this is not always necessarily so. The doctrine rests on the objective intention of the parties to abandon or abrogate the contract, ascertained from their conduct and the surrounding circumstances. Accordingly, abandonment can be inferred where parties have either agreed or sought to agree on an entirely new bargain which constitutes a fundamental departure from their original bargain.

[193] Where a new agreement is formed, there must be a 'distinct abandonment of the old understanding so that the new agreement is to be taken as the contract irrespective of what might have been earlier agreed.' While it is not limited only to circumstances in which a new agreement has been reached, the inference is more readily drawn in such circumstances. Ultimately, through their conduct, the parties must have manifested an objective intention to the effect that they intended to no longer perform, and have abandoned their rights pursuant to, that original contract. There must be, in short, conduct that evidences an expression of intention by the parties that the original contract is no longer on-foot and that they are no longer bound by it.[234]

254 Likewise, where practical steps have been taken which clearly convey that a party is proceeding on the basis that an earlier contract is no longer operative, an agreement to terminate may be discerned. For example, closing down a business and selling trading stock may, with the acquiescence of the contracting party, show the parties abandoned the contract.[235] Parties proceeding to deal with one another on different terms may likewise support a finding of abandonment.[236]

255 In its submissions, Ardmillan relied in particular on the decision of the New South Wales Court of Appeal in Técnicas Reundias SA v Andrew.[237] That case involved an appeal against a decision dismissing an application to restrain a firm of solicitors from acting in an arbitration. One of the issues was whether a retainer had been terminated. The Court of Appeal upheld the trial judge's conclusion that the retainer had been terminated by September 2016 and referred to the parties' interactions. Those interactions showed that, despite invitations from the firm that it be instructed to take various steps in preparation for an anticipated arbitration, the client did not take those steps and in fact instructed another firm to act for it in the arbitration - a fact which it only informed the first firm of when they made another polite enquiry - and did not respond to the firm's two further overtures (three months apart) promoting its team's capabilities and expressing its enthusiasm to assist the client.

256 Leeming JA (with whom Bathurst CJ and White JA agreed) found that:

Ms Gómez's failure to respond - twice - to pointed overtures as to the possibility of some ongoing role for Pinsent Masons is not consistent with Técnicas Reunidas' case that the firm remained on retainer to provide assistance if it was required. It does not matter whether the delay be categorised as "inordinate" or whether Ms Gómez's silence conveyed an implied negative response to the overtures to be of further assistance. Indeed, both characterisations are available. Either way, the retainer was at an end, and the firm was free to act self-interestedly.[238]

257 Técnicas also confirmed that, although 'abandonment' may be referred to as though it were a separate doctrine, the term 'abandonment' refers to the type of case in which a contract has been discharged by inferred agreement.[239]

258 The parties' submissions on the legal principles governing repudiation were consistent, reflecting the fact that the governing principles are well established.

259 It is convenient to state those principles by setting out relevant passages of Ardmillan's closing submissions (with the omission of a paragraph on the significance of requests to re-negotiate, which is more contentious) (citations in original):

26. The authorities on what is required for a contract to be repudiated are clear. The relevant test is whether the conduct of the party is such as to convey to a reasonable person, in the situation of the other party, repudiation or renunciation of either all, or a fundamental obligation of, the contract.[240] The test is an objective one;[241] subjective intentions, unless manifested in the conduct of the parties to the contract, are irrelevant.[242]

27. While it is said that repudiation is not to be "lightly found or inferred",[243] and that it must appear clearly and without ambiguity,[244] one must look to "all the circumstances of the case" to determine whether the conduct can be characterised as repudiatory.[245] Relevantly in this regard, "an accumulation of conduct" may evidence repudiation "where no individual act on its own" does.[246]

28. Repudiation is often established by the drawing of an inference from a promisor's language and conduct which conveys to the other party that the defaulting party intends to fulfil the contract only in a manner substantially inconsistent with that party's obligations, and not in any other way.[247]

...

30. Once repudiation is established, the innocent party has an election: to affirm and continue with the contract (thus, putting the repudiatory conduct aside), or to accept the repudiation, bringing the contract to an end and entitling it to seek appropriate remedies.[248]

31. While a person confronted with a choice between the exercise of alternative and inconsistent rights is not bound to elect at once, rights cannot be kept on ice indefinitely. At some point, the party may act so as to convey affirmation or disaffirmation of the contract; election may be lost when the delay causes prejudice to the other side.[249] An election takes place when the conduct of the party is such that the innocent party's conduct would be justifiable only if an election had been made one way or the other.[250]

32. Essential to the making of an election is communication to the party affected by words or conduct of the choice thereby made. In this respect election may be made without subjective intention. There need be no expressed intention to elect, nor will an express disclaimer of such an intention be of any avail in preserving one right if in fact there be an exercise of another inconsistent right.[251] Once an election is made [it] cannot be retracted.[252]

260 In relation to the significance of requests to renegotiate, Ardmillan submitted that a request to renegotiate may be repudiatory when the party seeking to renegotiate conveys an unwillingness or inability to render substantial performance of the contract being renegotiated; in other words, where what is conveyed is 'renegotiation or no performance', the test for repudiation is satisfied. Next Stage, however, relied on the observation of Sackar J in Fishlock v The Campaign Palace Pty Ltd that:

[A] party does not repudiate its contractual obligations simply because it seeks to negotiate with the other party about variation to the contractual terms especially where those discussions may be ongoing.[253]

261 Next Stage also emphasised the need, consistent with the authorities, for a party electing to terminate by accepting repudiatory conduct, to communicate its acceptance in clear and unequivocal terms. Next Stage relied on the observation of Stephen J (with whom McTiernan ACJ agreed) in Sargent v ASL Developments Ltd that '[t]he words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other.'[254]

262 Next Stage contended the original contracts were still on foot when it served its Notices to Complete on 18 May 2020. It argued that Ardmillan's contentions to the contrary should be rejected and highlighted what it contended was an inconsistency in Ardmillan's case, namely Ardmillan's reliance on the same conduct in support of mutually exclusive pleas.

263 Next Stage submitted that the lack of specificity in Ardmillan's case (as to matters such as when the mutual termination agreement came into existence, its terms, and how and when it elected to terminate following Next Stage's alleged repudiation) was telling. It submitted that an agreement will only be implied at law where its terms are sufficiently clear, whereas the agreement contended for by Ardmillan was vague and imprecise. In resisting the contention that there was an agreement to terminate, Next Stage emphasised the implausibility of it wagering approximately $3 million in deposits on the chance of agreeing to a replacement transaction.

264 Next Stage contended that, far from the parties' conduct revealing an unambiguous agreement to terminate, or Ardmillan's conduct showing an unequivocal acceptance of repudiation, the parties repeatedly affirmed the original contracts or acted in a manner consistent only with those contracts remaining on foot.

265 In resisting the contention that it repudiated the original contracts, Next Stage submitted that:

(a) Its non-attendance at settlement on 29 November 2019 was not a repudiatory breach as it was known settlement could not occur under the original contracts (but only potentially by equitable settlement).

(b) It did not repudiate the original contracts by persisting with the nominations or seeking amendments to the Priority Deed, as changes to the Priority Deed were negotiated and agreed by 6 December 2019, and all that followed thereafter were negotiations concerning what Next Stage described as the 'price' Ardmillan was seeking to extract in order to agree to the nominations.

(c) In any event, the nomination of itself as trustee did not require Ardmillan's approval as substitution of a trust is not the substitution of a separate legal entity, such that the making of the nomination could not involve a renunciation. It further contended that, even if Ardmillan's approval was required, merely making the request for approval was not repudiatory as Ardmillan entered into negotiations in relation to approving the nominations.

(d) There was no conduct by Ardmillan clearly electing to accept any repudiatory conduct by Next Stage.

266 Next Stage also relied, in answer to both strands of Ardmillan's analysis - repudiation and mutual termination - on conduct which it contended constituted the express acknowledgement by Ardmillan (directly and via its solicitors) that the original contracts remained on foot. That conduct included statements reserving Ardmillan's rights. It also contended that Ardmillan continued to perform its obligations under the ASA in its dealings with the Head Landlord while the parties were negotiating the amendments.

267 In answer to the mutual termination argument, Next Stage also relied on some aspects of its own conduct (by Mr Maitland, and through its solicitors) in respect of which the existence of the original contracts was referred to, or was a substratum of the communication.

268 In relation to the conversation of 15 April 2020, Next Stage submitted that the conversation between Mr Maitland and Mrs Darling should be approached by reference to the context, which made it unlikely that Next Stage would simply 'walk away' from the deal and forfeit approximately $3 million in deposits. Next Stage contended that, even if Mrs Darling's version of the conversation is preferred it would, at most, have constituted a request for a deferred settlement. Next Stage also highlighted that the conversation was about the draft suite of revised documents circulated in March 2020, and did not involve any statements at all about the original transactions.

269 Ardmillan contended that the original contracts were no longer on foot when Next Stage served its Notices to Complete on 18 May 2020. It contended that this was the position on the basis that those contracts had either been terminated by mutual agreement by 15 April 2020, had already been repudiated by Next Stage by then or, if not, were repudiated by Next Stage in a conversation between Mr Maitland and Mrs Darling on 15 April 2020. Ardmillan did not contend that the original contracts were terminated by mutual agreement (implied from inaction or abandonment) between 15 April 2020 and 18 May 2020, when Next Stage served the Notices to Complete.[255]

270 In framing the mutual termination analysis, Ardmillan contended that, by their conduct in engaging in extensive negotiations over a sustained period of time (and not settling on the original contracts), the parties agreed:

(a) to terminate the original contracts;

(b) instead, to enter into negotiations for revised documentation for an amended transaction in substitution;

(c) as part of that renegotiation process, to 'roll over' the deposits such that they would be applied to any new, replacement transaction, and 'otherwise to be dealt with under the terminated contracts'; and

(d) otherwise, to make no claims with respect to the failure to settle the original contracts.

271 Ardmillan analysed the facts supporting its contentions by reference to the periods of time leading up to significant milestones in the parties' dealings with each other. Ardmillan's analysis of events by reference to specific periods of time was intended to facilitate analysis rather than to depart from assessment of the course of conduct as a whole. Where Ardmillan contended Next Stage repudiated the original contracts, it contended that it had accepted the repudiation. While Ardmillan did not abandon its case that Next Stage had repudiated the original contracts prior to the 15 April 2020 conversation, the focus of its argument in that period was on mutual termination.

272 Ardmillan contended that, by 23 December 2019, the parties had, by their conduct, mutually agreed to terminate the original contracts and negotiate a new, replacement, transaction. It relied on five matters from which it contended that the legal characterisation of mutual agreement should be inferred. First, the parties had negotiated and reached provisional agreement on the nominations, with Ardmillan having indicated (after the Scheduled Completion Date came and went) that it was willing to work with Next Stage to facilitate the nominations, and, provided the necessary terms were agreed upon and drafted, then Next Stage could make the acquisition in its trustee capacity. Ardmillan cited in support the fact that that Next Stage paid the sum required for MinterEllison to draft changes to the documents.

273 Secondly, Ardmillan contended that, by 23 December 2019, the parties had negotiated and reached a provisional consensus on amendments to the Priority Deed. Ardmillan here relied on the history of how those amendments came about, after 'ambitious' changes had first been proposed by Newground.

274 The third matter relied on by Ardmillan was that Next Stage had obtained approval for interim stamping around 19 December 2019, on the basis of its acquisition occurring in its trustee capacity. Ardmillan contended that Next Stage therefore paid approximately $1.78 million on the basis of a capacity that was 'inconsistent' with the original contracts.

275 Fourthly, Ardmillan relied on the fact that, after interim duty was paid, neither party acted to bring on settlement on the basis of the original contracts, despite what would otherwise have been the final hurdle to settlement occurring, having been cleared.

276 The fifth matter relied on was that, instead of calling on settlement, Next Stage agreed to pay the costs of Ardmillan's solicitors reviewing the contractual documents to prepare the necessary changes.

277 Ardmillan's alternative contention was that by 23 December 2019, Next Stage had repudiated the original contracts by variously:

(a) requiring acceptance of its nominations;

(b) requiring changes to the Priority Deed;

(c) failing to use reasonable endeavours to have the Priority Deed executed in the form annexed to the Call Option Deed as soon as practicable after the original contracts were signed; and

(d) failing to settle on 29 November 2019, being the Scheduled Completion Date.

278 In support of its contention that, if the original contracts had not already been terminated by mutual agreement by 23 December 2019, they were so terminated by 1 February 2020, Ardmillan relied on a number of matters in addition to the facts relied on to 23 December 2019. It contended that Next Stage's calling on of settlement by letter on 23 January 2020 was just a 'stunt', and that Next Stage had not clearly withdrawn the nominations. Neither the 23 January letter itself, nor the surrounding circumstances - the earlier execution of the Priority Deed in its trustee capacity prior to Christmas, and the fact that the PEXA booking referred to Next Stage's trustee capacity - indicated that the nominations were withdrawn. On the contrary, the trusts had not been dissolved and in fact copies of the suite of trust deeds were provided on 31 January 2020 as part of the negotiations.

279 Ardmillan also contended that the negotiations between the principals over, and following, the Australia Day long weekend treated three options - a sale without vendor finance, reversion to the original contractual documents and new contracts with vendor finance, nominations and priority arrangements - as equally valid, and was itself an objective indication that the original contracts were not treated as legally binding by the parties. Rather, the parties' focus was on striking a new deal. Next Stage's reference to its legal advice and reservation of rights was superseded by Mr Maitland's engagement on alternatives to the original contracts so as to move the transaction to completion as quickly as possible. Ardmillan relied on the parties' conduct in negotiating intently on revisions, which were subsequently issued.

280 While the draft revised documentation was issued well after 1 February 2020, Ardmillan addressed the form of that documentation in its submissions to 1 February 2020, contending that the drafting of the 'new deal' in the form of variations to the original documents was a matter of 'form, not of substance'.

281 Ardmillan's alternative argument was that, over the same period, Next Stage repudiated the original contracts, on the same basis as it relied upon in relation to the period prior to Christmas 2019.

282 Ardmillan relied on the next chapter of the factual narrative by which the parties negotiated in earnest after Next Stage's 23 January 2020 letter and the negotiations between the principals over the Australia Day long weekend. It relied, again cumulatively, on the further events occurring between 1 February 2020 and 15 April 2020 in support of its mutual termination contention, as well as factual context for the repudiation it contended occurred during Mr Maitland's conversation with Mrs Darling on 15 April 2020. Ardmillan contended that it accepted Next Stage's repudiation by Mrs Darling's 17 April 2020 email.

283 Ardmillan relied on the fact that, by 26 March 2020, revised draft documentation had been issued, and contended that, while framed as variations to the original documentation, in substance, and viewed commercially, the parties had negotiated a new deal. Against the backdrop of revised documentation having been circulated by MinterEllison on 26 March 2020,[256] and the parties just having to review that documentation, Ardmillan relied on the distinct slow-down in Next Stage's activity on the transaction, leading to the 15 April 2020 conversation. Ardmillan relied on Mrs Darling's version of that conversation, according to which Mr Maitland conveyed Next Stage would not settle and sought an open-ended deferral. Ardmillan contended that, if Mr Maitland's version of the conversation were correct, he would have rejected the 'words she [Mrs Darling] puts in [his] mouth' by her 17 April 2020 email.

284 The focus of Ardmillan's argument in contending that the original contracts were not on foot on 18 May 2020, was its contention that the original contracts had already been terminated by mutual agreement by the time Mr Maitland and Mrs Darling had their conversation on 15 April 2020.[257] In other words, Ardmillan contended for termination by mutual agreement at some point prior to 15 April 2020, but did not contend for termination by mutual agreement after 15 April 2020.[258] Accordingly, while acknowledging that Ardmillan's repudiation and mutual termination arguments run in parallel through overlapping periods of time, I will address its mutual termination contention first.

285 In order to find that the original contracts had been terminated by mutual agreement before 15 April 2020, I would have to be satisfied that Next Stage and Ardmillan entered into a subsequent agreement, inferred from their conduct, to terminate their existing contracts. I do not consider that, viewed objectively, the communications between Next Stage and Ardmillan conveyed, one to the other, that they were both proceeding on the basis that the original contracts were behind them, and that, unless the negotiations in which they were engaged bore fruit, each was free not to complete the sale and purchase of the Property and the Assets under the ASA.

286 This is not a case where either side took steps that can only be explained on the basis that it regarded itself as no longer bound by the original contracts.[259] For example, Ardmillan did not put the Property and retirement village business back on the market and treat with others.[260] Nor is it a case where the parties actually transacted with one another on different terms.[261]

287 What Next Stage and Ardmillan did was to negotiate, at length, in an attempt to see if changes could be agreed to their contractual arrangements, which would give Ardmillan sufficient comfort to consent to the nominations. As the parties were actively engaged in those negotiations, at least until late March 2020, this is also not a case where an inferred agreement to terminate can be found in a long period of time having elapsed with neither party manifesting any intention to perform, but instead effectively ignoring the contract.[262]

288 Nor is it a case in which the original contracts became impossible to perform, as opposed to merely being less advantageous to Ardmillan due to the completion of the Marimar apartments adversely affecting the GST position from its point of view. This was because, while the price was GST inclusive, completion of construction of the Marimar apartments prior to settlement resulted in Ardmillan's liability to remit GST on its taxable supply being larger than it would have been if settlement occurred prior to completion of the Marimar apartments.[263] None of the matters referred to by Mrs Darling in her 29 January 2020 email, as matters meaning settlement on the original contracts could 'sensibly occur ... at the moment', constituted a circumstance rendering performance of the original contracts impossible. The points she raised about capacity, execution of the Priority Deed and fixing a new date for completion (her points 1, 2 and 7) were practical matters that could have been attended to readily to complete under the original contracts. Mrs Darling's point about guarantees (point 3) was moot as Ardmillan had no rights to insist on replacement guarantors. Mrs Darling's points about the Marimar apartments and GST (points 4 and 5) went only to the commercial merits of the transaction for Ardmillan as already noted. They did not need to be attended to so as to permit completion to occur under the original contracts. Nor did the anticipated amendment and assignment of the Head Lease (Mrs Darling's point 8) present an impediment to settlement; the ASA did not require matters concerning the Head Lease to be resolved prior to completion (ASA cls 2 and 7). Finally, any changes to Next Stage's development plans (Mrs Darling's point 6) did not prevent settlement proceeding. The Contract of Sale contained provisions governing the extent to which Next Stage could depart from the existing plans without obtaining Ardmillan's approval (Contract of Sale, cl 25).

289 The Court of Appeal observed in Jafari that, while abandonment can more readily be inferred when the parties who engage in post-contractual negotiations do reach agreement on a new bargain, that is not the only circumstances in which such an agreement may be inferred. I accept that the length, content and nature of the parties' post-contractual negotiations are directly relevant to the question of whether or not they manifested an objective intention to terminate the original agreements, even though those negotiations ultimately failed. However, I cannot discern in the parties' interactions a mutual intention to terminate the original contracts and put all their eggs in the re-negotiation basket.

290 The negotiations occurred against the backdrop of the contracts as they were originally signed. Once the content of the Priority Deed was resolved in early December 2019, the negotiations were driven by Ardmillan's insistence that extensive changes were required to accommodate the nominations, despite Next Stage accepting throughout that it would remain bound and liable in its corporate (non-trustee) capacity. While Next Stage did not agree with the extent of the changes Ardmillan's solicitors were pursuing, and considered that the changes, as they emerged, strayed into unacceptable alterations to commercial aspects of the transaction, it attempted to find a negotiated solution so that it could complete in its trustee capacity, ie, with the benefit of the nominations.

291 There are a number of matters that, in my view, cannot be reconciled with the proposition that the parties, by their conduct, agreed to terminate the original contracts.

292 First, the fate of the deposits already paid, of about $3 million, was never discussed. Ardmillan contended that, as part of the agreement to terminate the original contracts, Next Stage agreed to forego the deposits unless the parties succeeded in concluding a renegotiated transaction.[264] That contention finds no foothold in the facts. The deposits were simply not discussed. Moreover, the circumstances in which Next Stage entered into the negotiations (viz, to seek to secure Ardmillan's consent to the nominations notwithstanding their disagreement about Ardmillan's rights to withhold consent) means that no communicated agreement to wager the deposits on the successful outcome of those negotiations can be inferred.

293 Secondly, when draft amendments were produced by MinterEllison, they were framed carefully, and explicitly, as amendments to the existing contracts. That is consistent with the footing on which the parties embarked on the negotiations. The correspondence reveals a range of expressions used to describe what the parties were doing. Exchanges in late November through into December 2019 refer to negotiating 'variations',[265] 'changes',[266] 'adjustment[s]'[267] or 'amendments'[268] to the contracts, including the annexed Priority Deed. Whatever form of words was used, the substance of what the parties were engaged in was negotiating changes to their deal to procure Ardmillan's consent to the nominations; they were not negotiating a new deal against a backdrop of there being no deal at all due to the original contracts having been terminated. That is so throughout the period of time over which the negotiations ensued. I can discern no point at which the course of negotiations, either in their content, or by reason of their duration, moved from negotiating changes to extant contracts to negotiating new contracts against a backdrop of there being no contracts on foot between the parties at all.

294 Contrary to Ardmillan's submission, the original contracts were not treated merely as a convenient repository of contractual terms, to be drawn upon in the renegotiated deal. Rather, the parties negotiated changes to the rights and obligations recorded in the original contracts. The changes were carefully and explicitly drafted on the basis that the existing agreements were to be amended.[269] Moreover, the solicitors for Ardmillan carefully drafted the relevant amending deeds to ensure that, so far as could be achieved, the original contracts continued in existence in an uninterrupted fashion (cf, being the kind of amendments that terminate and replace an existing contract). Even if such distinctions may not resonate with lay people, each of Ardmillan and Next Stage was represented by solicitors. The form in which the amendments were promulgated was important and has consequences in the objective assessment of what was conveyed. Further, Next Stage did not take issue with the promulgation of the changes by way of amendments to continuing agreements; they did not say the original contracts had been terminated, such that they could not be amended in that way.

295 Thirdly, over time, each side sent communications which variously reserved their rights and, in some instances, more explicitly referred to the original contracts in a manner that is inconsistent with treating them as at an end. I refer, in particular, to the following:

(a) MinterEllison's email to Madgwicks on 13 December 2019,[270] in which it explained the structure it proposed to adopt to give effect to the amendments. MinterEllison referred to preparing a Deed of Assignment and Variation 'as the ASA has already been executed', and a short form Deed of Variation to the Contract of Sale 'as the CoS has already been executed'. If, at that time, the original contracts had been terminated, there would have been no need or efficiency in proceeding in that manner. Further, were that the case, MinterEllison's references to the ASA and Contract of Sale having already been executed would be incongruous.

(b) Madgwicks' email of 18 December 2019,[271] proposing, instead of MinterEllison's more fulsome approach, a 'short form deed of nomination in respect of the Contract of Sale and the ASA' and limited 'amendments' to other documents. Madgwicks proposal assumed the continued existence of the original contracts.

(c) MinterEllison's insistence by email on 20 December 2019,[272] on its approach, stating that its earlier email set out the 'changes' the vendor required to ensure its position 'following the nomination would be as secure as it currently is without'. The 'current' position of the vendor obviously refers to its position under the original contracts. MinterEllison also, having noted that the transaction was 'due to complete' on 29 November 2019, and the SRO's delay, stated that it could not accept the inordinate delay 'and our client reserves its rights'. The reservation of rights was stated in general terms and was not, in my view, confined to a reservation of such rights as may have survived termination of the original contracts.

(d) MinterEllison's statement in an email of 22 December 2019 which,[273] like its previous communication, referred to the need to 'maintain' Ardmillan's position. The 'position' being 'maintained' was implicitly Ardmillan's position under the original contracts. MinterEllison was addressing the 'amendments' required to achieve that protection.

(e) MinterEllison's statement in its email of 22 December 2019,[274] that 'the Vendor remains ready to settle with the named purchaser in the contract as per the contract', which statement was then followed with another reservation of Ardmillan's 'existing rights under the contract'.

(f) Mrs Darling's email of 26 December 2019,[275] in which she referred to the changes proposed being in response to Next Stage's 'request to nominate', and constituted 'changes we require in order to approve the proposed nomination'. The nominations being approved were nominations made under the original contracts, with Ardmillan exercising what it considered to be its right under those contracts to withhold consent to the nominations.

(g) Madgwicks' letter of 23 January 2020,[276] rejecting the suite of amended documents circulated by MinterEllison in which it is stated that Next Stage did not 'accept the amendments' and was 'ready willing and able to settle its purchase pursuant to the terms of the Contract of Sale dated 5 August 2019'. Madgwicks stated that '[a]s per the PEXA workspace' settlement would proceed on 28 January 2020. While Next Stage did not, by the 23 January 2020 letter, serve a formal Notice to Complete, it clearly called for settlement of the original contracts. Its communication conveyed its position that the original contract remained on foot, capable of being settled. That position was not refuted by Ardmillan or its solicitors when responding to Madgwicks. The fact that the PEXA booking made reference to Next Stage's trustee capacity does not relevantly qualify Madgwicks' statement, by which it conveyed that (in its view) the original contracts remained on foot and could proceed to settlement. That statement was not consistent with the original contracts having been terminated. Further, there was insufficient evidence for me to form any view either that the PEXA booking's reference to a trustee capacity was anything more than a hangover, or renewal of an earlier booking, or that the PEXA system operated such that settlement could not have proceeded with Next Stage in its corporate capacity due to the trustee reference in the booking.

(h) Mr Maitland and Mrs Darling exchanged emails on 29 January 2020,[277] in which they referred (variously) to the 'current contract' (Mr Maitland) and the 'existing contracts' (Mrs Darling). Mr Maitland raised the option of completing under the current contract, in contradistinction to proceeding to negotiate 'amendments to the current contract'. Mrs Darling's email makes it plain, from the perceived impediments to completing under the 'existing contracts' that she raised, that she was referring to the original contracts.

(i) Mr Maitland's 29 January 2019 email also reiterated Next Stage's desire to settle 'as per our lawyers current correspondence', which, in context was a reference to Madgwicks' email of 23 January 2020 calling for settlement under the original contracts. Mr Maitland closed his email stating that, until there was an unconditional agreement on an 'alternative to the current executed contract we will continue to proceed with completing this contract'.

(j) Mr Maitland further referred to executing under the current contracts (while acknowledging that, given Ardmillan's position on perceived impediments to settling on them, the focus was on continuing negotiations) in emails on 30 and 31 January 2020.[278] His statement that they would 'agree to disagree' on the 'current executed contract option' was not a concession that the original contracts were not on foot, it was a recognition that, while Next Stage had taken the position that the original contracts were on foot and could be completed, Mrs Darling had conveyed she considered there to be impediments to settling under the 'existing contracts'.

296 Fourthly, as Ardmillan was aware, Next Stage had arranged and paid interim stamping and was advised (at least by 18 January 2020) that Next Stage had drawn down on the mezzanine funding and had been paying interest on that funding since 29 November 2019. While these steps are not wholly irreconcilable with the proposition that the original contracts had terminated, they further support the conclusion that Next Stage conducted itself in a manner so as to hold itself ready for settlement on the basis that the original contracts remained on foot, and settlement would proceed, either once the variations had been agreed to accommodate the nominations, or efforts to agree to variations ended.

297 Finally, while there was a marked lack of communication moving from Next Stage after MinterEllison circulated the March suite of proposed amendments on 26 March 2020, there is nothing that Mr Maitland said in the conversation he had with Mrs Darling on 6 April 2020 (or conduct otherwise attributable to Next Stage), before their conversation on 15 April 2020, that would give rise to an inferred agreement to terminate the original contracts if one did not already exist. In my view, Next Stage's lack of responsiveness to the suite of amendments proposed on 26 March 2020 was not of such a duration that it warrants a conclusion that the original contracts, on foot when that suite of documents was issued, had been abandoned in the period between receipt of that suite of documents and 15 April 2020.

298 In my view, Next Stage did not repudiate the Contract of Sale or the ASA prior to, or on, 15 April 2020.

299 Dealing first with the contention of repudiation prior to the conversation on 15 April 2020, none of the conduct of Next Stage relied upon by Ardmillan was such as to convey that Next Stage did not intend to honour its obligations, or that it would only perform its obligations in a way that was substantially inconsistent with the Contract of Sale or the ASA. I deal in turn with the matters raised by Ardmillan in contending that Next Stage repudiated the Contract of Sale and ASA prior to the conversation on 15 April 2020:

(a) seeking changes to the Priority Deed;

(b) making the nominations;

(c) failing to settle on the Scheduled Completion Date; and

(d) failing to use any (or any reasonable) endeavours to procure execution of the Priority Deed in the form annexed to the Call Option Deed.

300 In relation to the Priority Deed, what Next Stage did was to make enquiries of Ardmillan to see if changes to the Priority Deed could be agreed; and they were, on 5 December 2019. As submitted by Next Stage, merely requesting amendments does not necessarily constitute conduct which conveyed that Next Stage would only proceed to settle the transaction on the basis of an amended Priority Deed or not at all. Next Stage made those approaches to Ardmillan, which were not rebuffed outright. In circumstances where the suite of interconnected contracts executed on 5 August 2019 acknowledged that a financier may seek changes to the Priority Deed, and Ardmillan engaged with it after initially rejecting the first round of proposed changes, Ardmillan could have held Next Stage to the agreed, default form of the Priority Deed, but it did not. There is nothing in Next Stage's conduct in seeking changes to the Priority Deed that conveyed to Ardmillan that it would not abide by its obligations under the Contract of Sale or the ASA or would perform them only if Ardmillan agreed to amend the Priority Deed.

301 Nor did the late nominations constitute repudiatory conduct. While understandably most aggravating to Ardmillan as the nominations were only conveyed in the afternoon of 26 November 2019, I do not consider that the making of the nominations in the form in which they were communicated by the Madgwicks email of 26 November 2019 constituted repudiatory conduct. Nor were they persisted in in a way that constituted repudiation.

302 As noted above, GC18 of the Contract of Sale provided that Next Stage could nominate a substitute or additional transferee. General Condition 18 was modified by SC 8. Special Condition 8 prohibited Next Stage from assigning or otherwise dealing with the contract or any rights under it without the prior written consent of Ardmillan, but went on to stipulate that, subject to a subsequent purchaser being a related entity of Next Stage and approved by Ardmillan, Next Stage could nominate a substitute purchaser under GC 18. Where that clause was exercised, Next Stage was then required to nominate the same entity under the ASA.

303 Accordingly, Next Stage's notification on 26 November 2019 that it was going to nominate itself as purchaser in its trustee capacity, did not evince an intention no longer to be bound or otherwise to repudiate the Contract of Sale or the ASA. Rather, the nomination sought to invoke and exercise its rights under the nomination clauses. True it is that, as the correspondence shows, the parties had different views concerning whether Ardmillan could withhold consent or impose conditions on its consent, they effectively agreed to disagree on that point and to see if changes could be agreed that would lead Ardmillan to consent to the nominations and that were also acceptable to Next Stage. The point was never reached where Next Stage took any steps which objectively conveyed it would settle only with the nominations (whether or not approved).

304 Due to the delay occasioned by the stamp duty assessment issues, the nominations were not an immediate impediment to settlement. Once interim stamp duty was paid prior to Christmas 2019, negotiations concerning the amendments required by Ardmillan to agree to the nominations did come to present the only impediment to settlement. As is apparent from the evidence, the amendments required by Ardmillan were far-reaching and some might fairly be said to have been directed more to ameliorating commercial disadvantages Ardmillan perceived to have arisen due to the passage of time, in particular so far as relates to the Marimar apartments. In any event, both parties continued with those negotiations for some months, and neither elected to formally call on settlement in this period.

305 The next aspect of Next Stage's conduct relied on was its failure to settle the transaction on 29 November 2019. That did not evince an intention no longer to be bound by the Contract of Sale or the ASA, or an unwillingness to perform those contracts substantially on their terms. Completion of the two agreements was interdependent. Next Stage could not complete by electronic conveyance on the Scheduled Completion Date because the SRO had not completed its stamp duty assessment, which had to be done before electronic settlement (prescribed by the Contract of Sale) could proceed. The SRO's delay was known to Ardmillan, and meant that the other matters raised late by Next Stage - the nominations and changes to the Priority Deed - were not time-critical in the days leading up to 29 November 2019.

306 In circumstances where, as was known to Ardmillan, electronic settlement could not proceed on 29 November 2019, Next Stage's failure to settle on the Scheduled Completion Date was not repudiatory. While maintaining that the SRO's lack of readiness was Next Stage's problem, as purchaser, Ardmillan did not proceed to call on settlement as it could have. Rather, it was prepared to tolerate the delay, and the time was used to progress negotiations on the changes to the Priority Deed and, subsequently, the matters Ardmillan considered arose from the nominations.

307 Nor do I consider that Next Stage's failure to proceed with what the parties described as an 'equitable settlement' on 29 November 2019 constitutes repudiatory conduct. That method of settlement was not provided for in the Contract of Sale so failing to settle on that basis (which would have meant Next Stage did not become registered on title) cannot constitute repudiation of the Contract of Sale. In any event, while the idea of an equitable settlement had been floated at the dry run meeting on 27 November 2019, there was no firm plan to proceed in that manner on 29 November 2019.

308 That leaves Next Stage's endeavours to have the Priority Deed executed in the form annexed to the Call Option Deed. There was also no evidence of the detail of the interactions between Next Stage and Newground, so as to support a contention that Next Stage failed to use any, or any reasonable, endeavours to procure the execution of the Priority Deed in the form that was Annexure D to the Call Option Deed since execution of the original contracts on 5 August 2019. I also do not accept, as set out above, that seeking changes to the Priority Deed was repudiatory conduct. These two aspects of Ardmillan's repudiation case are linked; both must fail.

309 In any event, there is nothing in Ardmillan's conduct in this period that would qualify as an election communicated to Next Stage that it was accepting such repudiation and electing to terminate the contract. Ardmillan's conduct in not calling on settlement while it was engaged in negotiations with Next Stage did not constitute an election to terminate the original contracts. Nor did requiring Next Stage to fund MinterEllison's work to consider the amendments that Ardmillan would require before agreeing to the amendments.

310 That is sufficient to deal with the election point, but I also note that, periodically, both sides referred to the original contracts in terms that reflected them still being on foot. While Next Stage's communications of that kind are relevant to the mutual termination point, it is Ardmillan's communications of that kind which are relevant to, and inconsistent with, its contention that it accepted Next Stage's (alleged) repudiation. As may be seen from the analysis of the mutual termination contention above, Ardmillan periodically referred to the original contracts in terms which cannot be reconciled with the proposition that, by its conduct, it accepted Next Stage's repudiation and elected to determine the Contract of Sale and the ASA.

311 That then leaves the contention that Next Stage repudiated the original contracts in the conversation between Mr Maitland and Mrs Darling on 15 April 2020. In my view, this contention must also be rejected. The short point is that Mr Maitland and Mrs Darling were discussing the March 2020 suite of documents, drafted by MinterEllison, and only those proposed amendments. That was Mrs Darling's evidence, consistent with the evidence of Mr Maitland. Mrs Darling and Mr Maitland were not discussing the original contracts. Once that is understood, the areas in which Mrs Darling's account and Mr Maitland's diverged are not significant. Moreover, given that they did not discuss the original contracts, I am not able to conclude that their failure to directly discuss the original contracts constitutes repudiatory conduct by Next Stage, particularly given that it had already become apparent by then that Mrs Darling took the view that the original contracts could not sensibly be completed without amendments to, at the very least, account for the commercial impacts of the passage of time.

312 Mrs Darling's email of 17 April 2020 referred to, and is to be construed in the context of, the conversation that she had with Mr Maitland two days prior. As she readily conceded in cross-examination, her email related, and referred to, the content of the March 2020 proposed documents. She said that her statement in her 17 April 2020 email that '[t]his inevitably brings the deal to an end which we understand and accept' was a conclusion that she drew from the fact that Mr Maitland had indicated the March proposed variations were unacceptable. Given her view that the original contracts could no longer be sensibly - or perhaps more accurately, commercially - completed, her deduction may well have been a logical conclusion to draw from Ardmillan's point of view. But it did not arise from any repudiatory conduct by Next Stage in respect of the original contracts.

313 In any event, the suggestion that the 'deal' had been brought to an end was quickly disputed by Madgwicks, who responded on 17 April 2020. Madgwicks referred to and relied on the Contract of Sale and the ASA signed by the parties on 5 August 2019 being unconditional.

314 Before leaving the topic of repudiation, I should note that, perhaps curiously, Ardmillan contended that, if Mrs Darling's email of 29 January 2020 constituted an acknowledgement or affirmation that the original contracts remained on foot, then the balance of her email constituted a repudiation by Ardmillan, which was accepted by Next Stage. While initially attracted to this apparent concession, Next Stage confirmed during the course of the trial that it did not contend the Contract of Sale or the ASA were terminated by acceptance of repudiatory conduct by Ardmillan. Given, however, that the matter was raised by Ardmillan, I will address it shortly.

315 I do not consider that Mrs Darling's email was repudiatory. Her email was sent in the context of negotiations having taken place with Mr Maitland over the Australia Day long weekend, following Next Stage's email of 23 January 2020 calling for settlement. Mrs Darling and Mr Maitland discussed, as was recorded in his email earlier on 29 January 2020, the three options: settling on the 'current contract', amending the 'current contract' (as to which Mr Maitland stated, in summary, that the changes being proposed were changing the contract, and not just addressing the trustee provisions) and a 'new deal' not involving vendor finance. Mrs Darling's reference to the 'existing contracts' was responsive to Mr Maitland's email. What she proceeded to raise was a series of matters which she believed meant that completion could not 'sensibly occur under the existing contracts at the moment'. Putting to one side that many of the matters she raised were not, upon proper analysis, impediments to settling under the original contracts, each was presented as something that would need to be attended to, rather than being a permanent and insuperable obstacle to completion. Further, she concluded her email stating that she was happy to discuss the matters raised in her email with Mr Maitland.

316 In any case, I do not consider that Next Stage's conduct in continuing to engage with Ardmillan regarding amendments to the transaction to accommodate Ardmillan's concerns arising from the nominations as repudiatory conduct or conduct constituting an unequivocal election to terminate the original contracts by accepting Ardmillan's repudiation (if it be such).

317 Nor do I consider that, by their conduct through to 15 April 2020, either party waived its rights to sue for breach or repudiation or, in Next Stage's case, to seek the return of the deposits.

318 As I have found there was no agreement to terminate the original contracts and enter into negotiations, it is not necessary to address the contention that it was an implied term of that agreement that the deposits would be applied to any successfully concluded further agreement and otherwise would be, in substance, relinquished to Ardmillan. Nonetheless, I would not in any event conclude that such a term were necessary to give business efficacy to an agreement to terminate the original contracts and enter into further negotiations. If anything, if a term were to be implied to give business efficacy, it would likely point in the opposite direction (namely that the deposits should be returned if the parties were terminating the original contracts and renegotiating).

Was it open to Ardmillan to terminate the ASA on 25 May 2020, relying on cl 2.4?

319 Having regard to my conclusion that the Contract of Sale and the ASA were not terminated by mutual agreement prior to 15 April 2020, and were not repudiated by Next Stage on 15 April 2020, the next issue is whether Ardmillan was entitled to terminate the ASA in responding to Next Stage's Notices to Complete. That was Ardmillan's secondary position. Ardmillan's primary position - that the original contracts were not on foot - was repudiatory,[279] but nothing turns on that if Ardmillan was entitled to terminate the ASA. Ardmillan relied on its asserted right to terminate the ASA (and consequently the Contract of Sale) as a bar to Next Stage's damages claim, and in support of its claim to retain the deposits.[280] There is no dispute that, if the ASA was properly terminated by Ardmillan, the Contract of Sale would likewise terminate due to the operation of SC 4.1(c).

320 It should be noted that the Sunset Date (as that term was defined in the ASA) was 5 May 2020, such that the Sunset Date had passed when Next Stage served its Notices to Complete on 18 May 2020.

321 Ardmillan's contended that, if the original contracts were on foot on 25 May 2020 (the date of its response to Next Stage's Notices to Complete), it had an unrestricted right to terminate on the basis that:

(a) the ASA remained conditional as no executed Priority Deed in an agreed form had been provided by Next Stage to Ardmillan; and

(b) the Sunset Date had elapsed.

322 In closing, Ardmillan expanded its argument, contending that it was entitled to terminate under cl 2.4 of the ASA for the failure of Next Stage to satisfy item 1(c) (which related to the Priority Deed) and item 2 of cl 2.1 of the ASA. Item 2 of cl 2.1 referred to the provision to the Vendor by the Purchaser of a signed Notice to Residents in respect of each village resident at the Completion Date. During the course of the trial, counsel for Ardmillan indicated that the reference in paragraph 51 of its Amended Defence to items 1(c) and 3 of cl 2.1 was in error and should have referred to items 1(c) and 2.[281] Ardmillan did not seek to amend its Amended Defence when counsel for Next Stage contended that Next Stage would be taken by surprise, instead arguing that the reference in correspondence to items 1(c), 2 and 3, which correspondence was referred to in the pleadings, was sufficient to bring item 2 properly within the arena of the matters on which issue was joined, that Next Stage had pleaded on that basis and had adduced evidence regarding the Notice to Residents.

323 In relation to item 1(c), Ardmillan contended that, if Next Stage were able to settle (which it disputed) it would do so using an advance of funds from an NSL Lender, triggering the need for a Priority Deed. Ardmillan's written closing submission contended that:

Thus, loans (whether secured or unsecured) give rise to the need for a Priority Deed. The first and second parties are clearly the vendor and the purchaser; a party such as Trivett Partners would be a 'third party' within the definition, given that it would be acting in a capacity distinct from its role as a guarantor.

324 In oral closing submissions, Ardmillan highlighted that the definition of NSL Lender did not require that security be granted in favour of the lender. It also submitted that the reference to 'third party' in the definition of NSL Lender includes a guarantor who was a party to the Call Option Deed (which Trivett was) in its separate capacity as lender. It submitted that the terms of cl 9.3 of the Call Option Deed did not relevantly inform the construction of the term 'NSL Lender' and that the terms of the cl 9.3 protections relied on by Next Stage (as referred to below) were not coextensive with the terms of the Priority Deed.

325 In relation to item 2, Ardmillan's case was simply that there had not been compliance with item 2 as notices to all the residents had not been signed, whereas item 2 was clear that a notice had to be provided to each resident. At its highest, Mr Maitland's (contested) evidence was that a single such document was signed at the dry run meeting. Ardmillan submitted that multiple documents were required, which also had to be current at the Completion Date.

326 Next Stage contended that Ardmillan's argument based on item 1(c) failed on the basis that the ASA did not require execution of a Priority Deed if there was no NSL Lender. Next Stage drew attention to that part of the definition of NSL Lender which defines an NSL Lender as (inter alia) any third party 'approved' by Ardmillan in writing. As Next Stage submitted in opening, 'there was no approved NSL Lender and no need for one'. Without the need for an NSL Lender, waiver of the obligation to execute and deliver a Priority Deed at settlement was a non-issue. Next Stage's response to Ardmillan's complaint that Next Stage had not informed it that it proposed to settle without an NSL Lender, was that the complaint was misconceived because Ardmillan chose to terminate on the basis that no Priority Deed had been executed, without making any enquiry of Next Stage as to whether one was required, and there was no plea by Ardmillan that it had been misled by Next Stage's failure to inform Ardmillan there would be no NSL Lender.

327 Next Stage relied on the evidence of Mr Elzain and Mr Salvo concerning funding for settlement, including evidence of Mr Salvo that, if necessary (and despite what he said in his witness statement about providing funds by way of loan) he would have provided funding by way of equity.[282] In opening, it was contended that Next Stage did not need an NSL Lender to settle because 'Mr Salvo and Mr Elzain were going to fund [Trivett] to ensure that settlement could occur. They were going to do so on a short-term basis.[283] It was also submitted that they could have put the money in by way of equity (rather than debt) if that was what they were advised was required to avoid the need for a Priority Deed.[284] Next Stage also relied on the fact that the funds that had initially been advanced to support the deposit were sourced from a facility made available to Trivett, with no suggestion of a Priority Deed being required.

328 Trivett was one of the parties to the Call Option Deed (to which the Priority Deed was annexed, and in which the term 'NSL Lender' was defined for the purposes of the ASA). Next Stage's argument was that the definition of NSL Lender did not include Trivett as it was a 'party' to the Call Option Deed, and therefore was not a 'third party' as referred to in the definition of NSL Lender. This construction was said to be supported by the operation of cl 9.3 of the Call Option Deed - which counsel for Next Stage described as the 'anti-leakage' clause - on the basis that it imposed obligations directly on Trivett which were equivalent in their operation to the restrictions imposed on a third party lender via the Priority Deed. Reliance was also placed on the performance guarantee and indemnity provided by cl 18.2 of the Call Option Deed.

329 Next Stage's second main argument was directed to Ardmillan's ability to have recourse to cl 2.4 following service of a Notice to Complete. Next Stage contended in opening that Ardmillan was not entitled to terminate relying on cl 2.4 because, on its proper construction, cl 7.5 precluded it exercising rights of termination on the basis that a contrary interpretation would render cl 7.5 'entirely nugatory'. In closing, it advanced a further construction argument, contending that, properly construed, cl 2.4 was not a clause that permitted unilateral termination in circumstances where the ASA remained on foot at the Sunset Date and one party had called on settlement by serving a Notice to Complete that was binding on both the issuer and recipient.[285]

330 Next Stage put the contention two ways: first, that Ardmillan could not exercise rights under cl 2.4 at all; or secondly, that it could not exercise rights under cl 2.4 without first giving Next Stage a reasonable opportunity to ensure the conditions contained in cl 2.1 (ie, the 'Conditions') were satisfied before the new Completion Date. In other words, Next Stage contended for a construction of cl 2.4 which prevented Ardmillan responding to a Notice to Complete served after the Sunset Date with a 'sudden-death' unilateral termination relying on certain Conditions not having been fulfilled.

331 While not conceding that non-compliance with item 2 had been properly pleaded, Next Stage contended that item 2 could only be satisfied once a Completion Date was known and that, given settlement did not proceed on the Scheduled Completion Date in November 2019, item 2 was re-enlivened in respect of any subsequent Completion Date. Next Stage submitted that, given a new Completion Date was set by its Notices to Complete, refreshed details of the residents to whom notices were to be directed had to be provided by Ardmillan, such that it could not terminate relying on item 2 without first providing Next Stage the necessary information concerning residents.

332 In order to have the right to terminate under cl 2.4(b):

(a) Ardmillan must have complied with its obligations under cl 2.3 (using reasonable endeavours to ensure that each Condition was satisfied as soon as reasonably practicable after execution of the ASA and in any event before 5.00pm on the Sunset Date);[286]

(b) there must have been a Condition that had not been satisfied, or waived in accordance with cl 2.2, before 5.00pm on the Sunset Date; and

(c) as a matter of construction, including by reference to any implied terms, Ardmillan must have been able to exercise termination rights under cl 2.4(b) notwithstanding:

(i) that no reasonable period had been allowed following service of the Notices to Produce for Next Stage to fulfil any Conditions which remained unfulfilled on the Sunset Date (ie, the 'sudden death' point);

(ii) that the negotiation period under cl 7.5 was on foot;[287] and

(iii) that Next Stage was (on its case) ready, willing and able to settle without an NSL Lender.[288]

333 Subject to such further considerations that arise from the Sunset Date having passed, the Condition specified in item 1(c) of cl 2.1 would only clearly have failed if and when (assuming there was an NSL Lender) Next Stage failed to deliver an executed Priority Deed 'at Completion'. The purpose and function of cl 2.1 was to protect Ardmillan from having to proceed with the sale of the Assets under the ASA and transfer those Assets to Next Stage if any one or more of the Conditions had not been fulfilled. Provision of a complying Priority Deed was one of those Conditions. Provision of the Notice to Residents was another.

334 The ASA does not expressly address what was to occur if neither party had elected to terminate the ASA following the Sunset Date, leaving the ASA on foot but unsettled, and the other party sought to bring on settlement. Difficulties arise in applying cl 2.4 where Completion was called on, and set for a time after, the Sunset Date. But those difficulties do not arise (at least in relation to the Priority Deed) if no Priority Deed was required at all. Clause 2 is to be construed in the context of, and harmoniously with, the rest of the ASA. It is plain from cl 6 of the ASA (in particular cls 6.2(b) and 6.3(b)(i)) that:

(a) a Priority Deed was only required if there was an NSL Lender; and

(b) the Priority Deed could be delivered by Next Stage to Ardmillan 'at or before Completion' defined as 'completion of the sale and purchase of the Assets contemplated in this Agreement' (cls 1.1, 6.3(b)(i)).

335 The fact that a Priority Deed may not have been required is reinforced by cl 9.9 of the Call Option Deed (being part of the package of contracts executed on 5 August 2019), which required Next Stage to procure that 'any third party lender' execute a Priority Deed. It is further supported by the definition of Priority Deed in the ASA, which defined the term as a deed in the requisite form 'between the Vendor, Purchaser and any NSL Lender'. The use of 'any' in these clauses (as opposed to 'the') recognises that there may not be an NSL Lender (and thus no Priority Deed).

336 It was open to Next Stage to complete the transaction with or without an NSL Lender (if it had the funds to do so). The fact that it previously intended to settle with a loan from Newground, and had negotiated amendments to the Priority Deed with Ardmillan in connection with that funding, did not oblige it to continue to use an NSL Lender. Ardmillan's complaint that it was not told that there would be no NSL Lender when Next Stage called on settlement does not assist it. It made an assumption on that matter without making enquiries of Next Stage, but did not contend it had been misled by Next Stage.

337 The relevant enquiry is whether the funding which Next Stage contends it would have used to settle required provision of a Priority Deed.

338 I have referred above to the evidence of Mr Salvo and Mr Elzain regarding funding settlement to make good on the Notices to Complete. There was no evidence that Newground had been approached to renew the mezzanine facility after it was terminated at the end of March 2020.[289] Accordingly, settlement would have to have been funded through Mr Elzain and/or Mr Salvo. While Mr Salvo had not discussed the exact mechanism by which he would fund settlement if required,[290] there was a loan agreement between Trivett and Mr Elzain, which provided for funding of up to $12 million, with security over the shares of Trivett. I am satisfied that Mr Elzain had the means to make good on the loan agreement he entered into by moving funds into Maxcon, to the extent necessary,[291] and that the loan agreement was not a sham on the basis that Mr Elzain was assured it would not be called upon.

339 In Mr Salvo's case, I am satisfied that, other things being equal and unless advised otherwise, he would also have provided necessary funding to Next Stage directly or through Trivett, and that any security for the advance would not have involved security being granted by Next Stage (cf, by Trivett). The Benthos Facility, which Mr Salvo executed on behalf of a 'Salvo Group' entity,[292] was structured as a loan to Trivett (and not a loan directly to Next Stage), albeit in Trivett's trustee capacity. Mr Salvo's evidence was that he would not have allowed the transaction to be lost due to issues with mezzanine financing and would have taken the steps necessary to fund settlement without a Priority Deed being required. The Benthos Facility did not provide for any specific security to be provided to secure the loan to Trivett, but provided for Trivett to use its best endeavours to provide Benthos with security 'as reasonably required' by Benthos,[293] but only where it was reasonably possible for it to do so and was permitted by other financing and security arrangements. In my view, this is consistent with, and supports, Mr Salvo's evidence to the effect that he was willing to advance funds without being prescriptive about security, particularly where he had practical control of the project, as he did. I am satisfied that, if so advised, Mr Salvo would have made funds available to Next Stage for settlement by an advance to Trivett (rather than Next Stage directly), consistent with the structure of the Benthos Facility.

340 The Benthos Facility preserved flexibility by allowing Trivett to make the funds available 'downstream' by debt or equity. While, in their witness statements, Mr Maitland and Mr Salvo respectively referred to the funds to be provided by Trivett to Next Stage as 'on-lending' and a 'cash advance' without elaboration, Mr Maitland's oral evidence concerning the basis upon which settlement was originally anticipated to have been undertaken was that it involved equity in the conventional sense.[294] Similarly, and as already stated, Mr Salvo also gave evidence that he would have funded the transaction with equity if so advised. In my view, this evidence is consistent with the terms of the Benthos Facility, which allowed the funds to be made available to Next Stage (through Trivett) by way of debt or equity, and my conclusion that the Salvo Group was willing and able to provide funding through either debt or equity.

341 In any event, a defendant asserting a right to terminate in answer to a plaintiff's claim relying on the contract, bears the given onus.[295] It was Ardmillan's contention that it was entitled to terminate pursuant to cl 2.4 of the ASA on the basis that a Priority Deed had not been provided to it. To the extent that defence turns on establishing that a Priority Deed was required on the basis that funds would have been made available to Next Stage and advanced by way of a loan, Ardmillan has not established that defence.

342 In my view, a lender to Trivett is not a person lending funds 'to NSL', according to the definition of NSL Lender. Accordingly, in advancing funds to Trivett, neither Mr Salvo nor Mr Elzain (or Maxcon) would have been persons falling within that limb of the definition of NSL Lender. Nor would they have fallen within the second limb of the definition of NSL Lender, as Mr Elzain (through Maxcon) was not taking security over Next Stage's assets (cf, shares in Trivett), and Mr Salvo also stated in his evidence that he would have provided funds without taking security over Next Stage's assets.

343 Further, so far as the advance of funds from Trivett to Next Stage is concerned, Ardmillan has not established that Trivett would necessarily have made funds available to Next Stage by way of loan, or would have taken security over Next Stage's assets. Accordingly, I am not satisfied that the provision of funds through Trivett would have fallen within subparagraph (a) of the definition of NSL Lender so as to require provision of a Priority Deed (irrespective of whether Trivett was a 'third party').

344 Even if provision of funds for settlement through Trivett would have fallen within sub-paragraph (a)(i) of the definition of NSL Lender, it would not have been an NSL Lender unless it was a 'third party' as referred to in the chapeau to the definition of NSL Lender. The interpretation provisions of the Call Option Deed provided that a 'reference to a party is to a party to this deed'.[296] Trivett was a party to the Call Option Deed. As such, it was not a 'third party' to the Call Option Deed. I reject Ardmillan's argument based on the 'capacity' in which Trivett was a party to the Call Option Deed.

345 I do not consider that this construction of the Call Option Deed leads to an uncommercial or unbusinesslike result so as to suggest that the construction does not accord with the intentions of the parties, objectively ascertained.[297] The key features of the Priority Deed providing protection for Ardmillan were: the subordination of the security of the Second Creditor (ie, the NSL Lender) to the security of Ardmillan (defined as the First Creditor); priority being accorded to Ardmillan for repayment of the debt owed to it, in priority to repayment of the debt owed to the Second Creditor where there were proceeds from dealing with Secured Property;[298] and the imposition of a term providing that none of the debt owed to the Second Creditor was payable while any part of the debt to Ardmillan was outstanding.[299]

346 Clause 9.3 of the Call Option Deed likewise precluded the grant of any security interest over the Assets of the retirement village business, or the Property (which was the asset over which Ardmillan was to have security in connection with the vendor finance).[300] It also prevented the payment of any dividend or cash out of the retirement village business before the completion of Stage 1 of the development.[301] Those obligations bound Trivett as a related body corporate of Next Stage under cl 9.3 and as guarantor under cls 9.3 and 18.2 of the Call Option Deed.

347 While Ardmillan is correct to submit that the protections afforded to it by cl 9.3 differed from those provided for by the Priority Deed, the differences are not so marked as to render a construction, by which unsecured loan funds could be provided by Trivett without a Priority Deed, uncommercial or unbusinesslike.

348 The next issue to consider, then, is whether Ardmillan was entitled to terminate the ASA based on item 2 of cl 2.1 of the ASA. Despite Ardmillan's failure to raise the issue explicitly in the pleadings, through the course of the trial, the parties, including Next Stage, engaged on the issue.[302] Next Stage adduced evidence-in-chief, made submissions and cross-examined on matters relevant to it, such that it was in the arena of matters on which issue was joined.

349 In my view, Ardmillan was not entitled to terminate on that basis. Item 2 (which required the provision of a signed Notice to Residents in respect of each Village Resident 'at the Completion Date') was required to be fulfilled by provision of those notices at Completion (cl 6.3(b)) and as at the Completion Date (cl 2.1, item 2). Ardmillan's assistance was required in providing details of the residents at that date.[303]

350 In circumstances where Ardmillan's assistance was required in order to confirm the identity of the Village Residents, the Notice to Residents only had to be provided at Completion (which time Ardmillan did not permit to occur) and where there is no basis to consider that Next Stage would not have readily signed the necessary Notice to Residents (the terms of which had been agreed in December 2019),[304] I do not consider that there was relevantly a Condition that was not satisfied so as to trigger the right to terminate at the time Ardmillan purported to terminate (as its alternative position) .

351 It is of course the case that the Notice to Residents had not been signed by 5:00pm on the Sunset Date. But that points to the poor drafting of cl 2 of the ASA. In my view, properly construed, and having regard to the fact that the obligation to provide the signed Notice to Residents was only an obligation that could be said not to have been satisfied if such notices were not provided at or before completion, on the Completion Date, the precondition to Ardmillan having the right to terminate (namely that each 'Condition is not satisfied') was not made out.

352 I acknowledge that there is a tension between the drafting of the obligations in the ASA on the basis that they would be fulfilled (or fail) at Completion, and the reference to the Sunset Date in cl 2.4(b). In my view, the tension is best resolved by having regard to the objective intention of cl 2.4. Clause 2.4 is a provision which permitted either party to terminate if the dealings were dragging on past the Sunset Date. If the parties had intended the Sunset Date to effect automatic termination, they could easily have drafted the ASA in those terms; but they did not. Rather, cl 2.4(b) provided that either party 'may' terminate in the stated circumstances. As such, the parties' intention, objectively ascertained, was to permit Completion to occur after the Sunset Date if neither party had elected to terminate and the ASA remained on foot. While the contracts remained on foot, either party could call on settlement by serving notices fixing a reasonable time for completion.[305]

353 Acknowledging the difficulties in the drafting of cl 2, I consider that the construction that best gives effect to the objectively ascertained intentions of the parties is that cl 2.4(b) permitted either side to terminate if Completion had not occurred by the Sunset Date but, if neither party had so elected to terminate, it remained open to either side to serve notices to complete. That being the case, I consider that the better view is that it could not have been the objective intention of the parties that the service of notices to complete in those circumstances could be summarily thwarted by the other side terminating by relying on the fact that Completion (brought on by the notices to complete) had not yet occurred, meaning that obligations which only had to be fulfilled at or before Completion had not yet been fulfilled. In my view, a construction with the opposite effect would be circular and uncommercial.

354 Finally, if I had not already concluded that Ardmillan did not have a right to terminate under cl 2.4(b) based on the asserted need for a Priority Deed, the analysis I have set out above, in relation to item 2 in cl 2.1, would likewise apply to item 1(c), as any Priority Deed would also only have been required at Completion. In this regard, cl 2.4 of the ASA is to be read in the context of, and harmoniously with, cls 2.1, 6.2(b) and 6.3(b), which anticipate that the signed Priority Deed need not be provided by Next Stage before Completion, even though it could be provided earlier. In that respect, the Condition requiring provision of the Priority Deed would also not have 'failed' until the time for Completion arrived and no signed Priority Deed was provided.

355 For completeness, I note that I was not persuaded by Next Stage's argument on the construction of cl 2.4 so far as it was based on the proposition that, if Ardmillan could terminate under cl 2.4(b), that would render cl 7.5 of the ASA nugatory. Clause 7.5 was directed at a distinct matter, namely what was to occur if the obligations of the parties under cl 7 had not been satisfied by the Sunset Date. Clause 7 was directed to the variation and assignment of the Head Lease. The transaction was structured so that those matters could be attended to after Completion (cf, the matters identified in cl 2.1 which were conditions to Completion occurring).

Did Ardmillan repudiate the Contract of Sale and the ASA by its letter of 25 May 2020?

356 In its letter of 25 May 2020, Ardmillan explicitly and unequivocally took the position that it was not bound by any contract with Next Stage. It said the Contract of Sale and the ASA were no longer on foot. That would not have been of significance had it had the right to terminate the ASA (and hence the Contract of Sale) as was its alternate position, but I have concluded it did not have that right. In that circumstance, it is clear that Ardmillan repudiated the Contract of Sale and the ASA. In addition to unequivocally stating the contracts were no longer on foot in its 25 May 2020 letter, Ardmillan maintained that position (in MinterEllison's letter of 27 May 2020) in response to a letter from Madgwicks advising that MinterEllison's earlier letter (ie, the 25 May 2020 letter) constituted a repudiation by Ardmillan, which was accepted by Next Stage. The case is, accordingly, not one in which a contracting party, having been alerted to the error in the position it has adopted, has evinced an openness to stand corrected on the disputed point. Madgwicks' letter of 25 May 2020 accepted Ardmillan's repudiation in clear terms.

Was Next Stage itself ready, willing and able to perform?

357 The obligations of the buyer and seller of real estate are typically dependent and concurrent obligations; the buyer tenders the purchase price, and the seller simultaneously delivers title and transfer documents.[306] Consequently, where one party is in breach, the innocent party is not entitled to terminate unless the innocent party was ready and willing to perform its obligations. The innocent party must be both able to perform - that is, have the capacity to perform - and must be disposed to do so.[307]

358 However, the obligation to tender performance can be dispensed with. Accordingly, where it is clear that settlement cannot proceed and it would be futile for the innocent party to tender performance, the innocent party can still rely on the breach and is not obliged to seek out the breaching party to put on a show of tendering performance.

359 Accordingly, Ardmillan's repudiation does not avail Next Stage unless it was ready, willing and able to perform. In the circumstances of this case, nothing turns on whether that matter is assessed when Next Stage accepted Ardmillan's repudiation, or on the date when Next Stage would itself have been required to perform, having served the Notices to Complete on Ardmillan.

360 Ardmillan contended that Next Stage has not shown that it was ready, willing and able to perform. In summary, Ardmillan's contention was that, in the absence of the Newground facility (which was terminated in late March 2020), Next Stage did not have the financial capacity to settle on the contracts. Ardmillan contended that it was 'curious' that the Loan Agreement with Mr Elzain was not secured until 15 May 2020, shortly prior to service of the Notices to Complete on 25 May 2020. Ardmillan submitted that the Court should find that the Elzain loan was 'a non-existent make-believe arrangement to fix a gap, and not something on which the plaintiff could (or would) actually rely.' Reliance was placed on Maxcon having been identified as the entity to make the loan, whereas it did not have sufficient uncommitted capital. In its written closing submissions, Ardmillan did not address the potential for Mr Salvo to supply the shortfall in funding, beyond noting that the Benthos Facility was already drawn to the sum of over $3 million (of a total $4 million facility). In oral closing submissions, senior counsel for Ardmillan expanded upon the criticisms of the Elzain/Maxcon loan, and further contended that the lack of specificity in Mr Salvo's evidence about how funds would have been advanced to fund settlement on 1 June 2020 - which Mr Salvo said was the case because matters did not reach a point where specifics were discussed - was a 'very serious blow against the claim of the plaintiff that they were ready, willing, and able.'[308]

361 For its part, Next Stage contended that it did not have to show that it was ready, willing and able to perform. It relied on Foran v Wight[309] in which Brennan J stated that an anticipatory breach will not give rise to a breach of contract if the innocent party is not, at the time when the intimation of non-performance is given, 'substantially incapable' of future performance, or not ready and willing.[310] It relied on the fact that, having served Notices to Complete, Next Stage had bound itself to settle, citing Fekala Pty Ltd v Castle Constructions Pty Ltd.[311] As to the facts, Next Stage relied in opening on Mr Salvo's evidence that he was going to 'short-term finance and then refinance'.[312] It relied on the evidence of Mr Salvo, who (it was submitted) 'by himself could have done all of this'[313] (ie, financed the transaction) and the evidence of Mr Elzain concerning his willingness to advance funds.

362 I am satisfied on the evidence of Mr Salvo and Mr Elzain that they had the means to provide funds to enable Next Stage to settle on the Contract of Sale and ASA upon service of the Notices to Complete. Next Stage had the means (through the vendor finance, Mr Elzain and Mr Salvo) to settle and it was ready and willing to do so, having served Notices to Complete bringing on settlement. Nothing turns on the distinction, if there be one, between being 'ready, willing and able' to settle, and not being 'substantially incapable' of settling.

363 As set out above, Ardmillan contested Next Stage's financial capacity to settle. Ardmillan's point about the extent to which the Benthos Facility had already been drawn down goes nowhere; it was clear from Mr Salvo's evidence regarding his willingness to provide funds to support settlement that he was aware of this and was referring to advancing further funds.

364 In addition, so far as Mr Elzain is concerned, the suggestion that the Loan Agreement was (in essence) a sham was based on two contentions: first, that the timing of that loan being arranged was suspicious; and secondly, that Maxcon did not have the available funds, once its business needs were taken into account. I reject both contentions. In relation to the first contention, the temporal proximity between entry into the Loan Agreement with Mr Elzain and service of the Notices to Complete makes perfect sense: it would have been reckless of Next Stage to serve those notices if it had not 'got its (financial) ducks in a row'. In relation to the second contention, in circumstances where Ardmillan did not challenge Mr Elzain's evidence that he had ample funds to move around between entities in his control,[314] I have no reason to reject his evidence and find that the Loan Agreement was a sham on that basis. For those reasons (and even without considering whether any Browne v Dunn[315] point arises in relation to the cross-examination of Mr Elzain) I am satisfied that the Loan Agreement with Mr Elzain was not a sham.

365 Both parties called expert witnesses to give evidence about the value of the assets the subject of the Contract of Sale and the ASA. This evidence included both town planning evidence about the highest and best use of the Vacant Land, as well as detailed valuations of the component parts of the bargain struck between Next Stage and Ardmillan under the Contract of Sale and the ASA. The component parts to which the valuation experts addressed their opinions were:

(a) the value of the Vacant Land;

(b) the value of the Balance of Level 3; and

(c) the value of the Business, comprising the value of:

(i) the fee-related revenue streams of the Business; and

(ii) the unsold stock.

366 The aggregate of these components constitutes the total value of that which was to have been conveyed under the Contract of Sale and the ASA. I address each component in turn below.

The Court's task in evaluating expert evidence

367 In approaching the expert evidence going to Next Stage's loss and damage, it is necessary to bear in mind the role of the Court in evaluating that evidence.

368 In Masters Home Improvement Pty Ltd v North East Solution Pty Ltd,[316] the Court of Appeal summarised the principles as follows, highlighting the need for the Court not to introduce 'a third set of opinions' into the arena, while recognising that the Court may need to make adjustments (emphasis added, citations omitted):

Where expert evidence is concerned, the Court's role is to evaluate it critically. Where the evidence is cogent, it should not be ignored**. In this regard, it is not part of the Court's role to bring a third set of opinions into the arena, nor to piece together its own valuation. However, where there is conflicting expert evidence, it may be necessary to accept part of each expert's evidence and reject other parts**. In some circumstances, it may be necessary for the Court to make adjustments to the conclusion reached by an expert when that expert's opinion is shown to be flawed in one or more respects or based on an incorrect assumption. Moreover if, after careful examination, the Court forms the view that a piece of expert evidence is not cogent, then it may be disregarded.

Bearing these matters in mind, it is clear that judges should not take on the role of an expert. If an evaluation of the whole of the evidence demonstrates that the experts' opinions are not well founded, then the judge is left in the position of having to do the best that he or she can if satisfied that the plaintiff has sustained loss.[317]

369 Among the cases cited by the Court of Appeal in Masters Home Improvement is the decision of Batt J in 101 Collins Street Pty Ltd v City of Melbourne.[318] There, Batt J (as his Honour then was) addressed the need to be mindful of the interdependence of variables within an expert's opinion when making adjustments or preferring an expert's evidence on one issue and the evidence of a different expert on another issue (emphasis added, footnotes omitted):

Counsel for the parties combined to chart a difficult course for me to navigate. By reference to Brewarrana Pty Ltd v Commissioner of Highways (No 2) (1973) 6 SASR. 541 at 544-545 and 578, Bronzel v State Planning Authority (1979) 21 SASR 513 at 523 and Brown, Land Acquisition, 3rd edn, 158-159, counsel for the respondent cautioned me to avoid the Scylla of usurping the function of experts and of making adjustments to one variable in, for instance, Mr Callaghan's valuation that was conditioned by the adoption of other particular variables or, in other words, inter-dependent with them. On the other hand, by reference to Royal Sydney Golf Club v FC of T [1957] HCA 31; (1957) 97 CLR 379 at 394-395, Yates Property Corporation Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156 at 168 and 171 (though this was in the dissenting judgment of Mahoney, JA) and Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409 at 436, counsel for the appellants cautioned me to avoid the Charybdis of binding myself to one valuer's valuation where the evidence or methodology was not satisfactory instead of "doing the best I can" in those circumstances. Reference may also be made to Hyam, op cit, 299-306 and 317-320. It seems to me that the question is one of degree. Even counsel for the respondent acknowledged that I could accept the evidence of one valuer on one issue and the evidence or the other valuer on another, discrete, issue. He acknowledged, too, that I could make at any rate make some adjustments to evidence that I was otherwise disposed to accept. That, indeed, is indisputable.

...

Although on some aspect or aspects the evidence may be unsatisfactory to my mind, the fact is that the evidence cannot now be supplemented and I am bound to reach a decision overall and thus on the aspect or aspects in question, having regard, if it should be appropriate to do so, to the onus of proof. Whilst I cannot piece together a valuation of my own (Brewarrana at 545), it appears to me that I am entitled, by reference to evidence of one valuer, to adjust on a number of aspects the valuation of another valuer, provided that I make allowance for the fact that one variable in a component consisting of several variables may in fact have been balanced in the latter valuer's valuation by one or more of the other variables. In such a case it might, depending upon the circumstances, be necessary to refrain from making the adjustment [and] to adopt the component in full or not at all.[319]

370 The Court of Appeal recently reaffirmed the principles governing the assessment of expert valuation evidence in Caradi Pty Ltd v Secretary, Department of Transport, again emphasising the importance of the Court acting on the evidence - which may involve selecting the opinion of the expert that best withstands scrutiny - rather than piecing together its own valuation, although it is open to the Court to accept the evidence of a valuer on one issue, and the evidence of another valuer on another issue.[320]

371 Helpfully, in the present case, the experts proceeded by reference to the same set of valuation components and valued each component discretely. Subject to one matter relating to the way in which Ms Burnet and Mr Meredith approached the valuation of the revenue streams from the Business as compared with the unsold stock valuation (addressed further below), the structure of the expert evidence, and the fact that the experts valued the component parts separately, permits me to adopt the opinions of one or other expert on discrete components where I consider that appropriate. However, below that 'component' level, the structure of the experts' approaches, particularly in relation to the Business income stream valuations, present challenges in preferring one or the other expert's valuation at the sub-component level (eg, by preferring one expert's opinion on the rate of turnover of retirement village units, but the other expert's opinion on the operating deficit).

372 Counsel for both sides acknowledged that it would be open to me to accept one expert's opinion on a particular topic, and another expert's opinion on another topic.[321] Counsel for Ardmillan also explicitly submitted that it was open to me to apply adjustments to the experts' figures if I considered them relevantly to have failed to account for specific matters.[322] Next Stage did not cavil with that submission.

373 The making of adjustments was referred to by the Court of Appeal in Masters Home Improvements and by Batt J in 101 Collins Street (referred to above). In the latter case, Batt J further referred to the authorities acknowledging that the process of making adjustments - whoever is undertaking that process, be it a judge or an expert - is necessarily imprecise and may well be a matter of 'degree', 'conjecture' or 'guesswork', not always capable of being reduced to exact reasoning.[323]

374 On the making of adjustments, counsel for Ardmillan referred me to ISPT Pty Ltd v Melbourne City Council, in which the Court of Appeal stated that appropriate adjustments may be made in arriving at the true valuation,[324] and Port Macquarie West Bowling Club Ltd v The Minister,[325] where the Court found no error in the local land board having adopted a higher valuation and then reducing it by 14% without specific evidence on that reduction, to account for zoning. I was also referred to Royal Sydney Golf Club v Federal Commissioner of Taxation,[326] in which Kitto J applied a 5% uplift to reflect the chance that development restrictions would be removed from the subject land, stating that adjustment was 'as near the mark as one can get'.[327]

375 At the valuation date, part of the Property was already built-up with ILUs. The Vacant Land falls into two portions, separated by the internal road into the retirement village, as illustrated by the following annotated aerial photograph, drawn from Ms Burnet's First Report (paragraph 307):

376 Ms Burnet and Mr McAuliffe agreed on a number of matters, including:

(a) that the valuation date should be 1 June 2020;

(b) that the Vacant Land (which they referred to as the Balance Land) had a total site area of 14,551 square metres;

(c) that, of the valuation approaches established under the International Valuation Standards (IVS),[328] the 'market approach' was the appropriate valuation approach for the Vacant Land;

(d) that the market value was to be determined in accordance with the IVS as:

[T]he estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion.

(e) that the 'comparable transactions method' is the appropriate valuation method for the Vacant Land, with two techniques within the comparable transactions method being appropriate, namely a 'unit rate per developable dwelling' and a 'unit rate per square metre of site area';

(f) that the market evidence comprised an agreed list of properties, presented in summary form in a table in the Joint Expert Report:

Joint Expert Report Table 2: Market Evidence for [Vacant Land]

(g) that there was insufficient information to enable them to assess the value of the Vacant Land through a development feasibility calculation; and

(h) the impacts of the COVID-19 pandemic were unknown at the valuation date, and this uncertainty was impacting the economy and delaying investment decisions.

377 The main point of difference between the approaches adopted by Ms Burnet and Mr McAuliffe[329] was that Ms Burnet adopted an approach based on deriving a per square metre rate for the Vacant Land by reference to the prices achieved upon the sale of the identified set of comparable properties, whereas Mr McAuliffe approached the valuation by identifying the 'rate per developable dwelling'. For the reasons which follow, I prefer the opinion and valuation of Ms Burnet on the value of the Vacant Land.

378 In her First Report, Ms Burnet valued the Vacant Land at $28,100,000. However, as she observed in her Supplementary Report, her First Report was based on an estimate of the area of the Vacant Land. Following the completion of her First Report, Ms Burnet was provided with a survey plan establishing that the area of the Vacant Land was somewhat larger than her estimate that had been the basis of her First Report. Specifically, her First Report was based on the Vacant Land being 14,100 square metres, whereas the survey plan established the area to be 14,551 square metres. Based on that larger area, Ms Burnet's revised valuation was $29,050,000.

379 The increase in the area of the Vacant Land did not result in any change to Ms Burnet's approach in valuing the two portions of the Vacant Land based on different development uses. Ms Burnet proceeded by calculating a value for the north-western portion of the Vacant Land along York and Derby Streets on the basis that it would accommodate 18 dwellings, with the balance of the Vacant Land accommodating an apartment development with 150 lots. The use to which Ms Burnet ascribed each portion of the Vacant Land was drawn from the opinion of Mr Barlow, the expert planning witness from Urbis, called by Next Stage.

380 It was Mr Barlow's opinion that the highest and best use of the Vacant Land was as a residential development comprising several multi-level buildings together with dwellings fronting onto York and Derby Streets with the development yield range being in the order of:

(a) 16 to 18 single storey dwellings facing York and Derby Streets (although some of the dwellings in Derby Street could be double storey); and

(b) apartment buildings yielding approximately 140 apartments of 90 square metres each or approximately 150 apartments ranging in size from 75 to 90 square metres each.[330]

381 In coming to his conclusion on highest and best use, Mr Barlow proposed that approximately 140 apartments of 90 square metres each be contained in three buildings, one of three storeys and two of four storeys. In cross-examination, Mr Barlow explained that the yield of his proposed development concept could be increased by reducing the size of the apartments.[331] Mr Barlow also addressed a concept plan devised by Plus Architecture, dated 22 January 2019.[332] Those plans differed slightly from his proposed concept.[333] As was clear from Mr Barlow's oral evidence, the main point of difference was that the Plus Architecture concept rose to five storeys in one section.[334]

382 Importantly, however, Mr Barlow noted that that highest and best use (based either on his concept or the Plus Architecture concept) would require an amendment to the current Incorporated Plan applying to the site.[335] In his oral evidence, Mr Barlow assessed the prospects of the Plus Architecture proposal securing necessary amendments at 'about 70%' while noting the prospects would improve from there if they 'lost the fifth level'[336] and Mr Barlow assessed the prospects of his own concept (which only rose to four levels) being approved as 75 to ‑80%.[337] Mr Barlow's opinion regarding the prospects of securing amendments to the Incorporated Plan to permit more intensive development took into account the location of the Property, its proximity to the designated Major Activity Centre of Moonee Ponds and the railway station, the size of the site, its Mixed Use Zoning, and the evolution in the controls applying to nearby residential areas, which had evolved to permit dwellings of up to three storeys in the General Residential Zone.[338] As to timing, Mr Barlow's evidence was that the 'usual timeframe' for approval of planning scheme amendments was 18 to 24 months.[339] He also considered a Panel hearing would likely be required given community interest.[340]

383 Ms Burnet's revised value of $29,050,000 equated to $1,996 per square metre, which she considered to be in line with the sales evidence, albeit at the lower end of the range. The figure of $1,996 per square metre was a blended rate for the whole of the Vacant Land. Ms Burnet applied a rate of $1,800 per square metre for the single level lots along York and Derby Streets, and a rate of $2,100 per square metre for the part of the Vacant Land to be used for the apartment buildings. In her First Report, Ms Burnet set out the comparable sales evidence on which she relied in respect of the north-western portion of the Vacant Land, comprising a series of sales of properties for townhouse development. The townhouse development site sales evidence assembled by Ms Burnet reflected a range between $1,794 per square metre and $3,001 per square metre for sites ranging between 1,197 square metres and 5,712 square metres. Expressed as a range per proposed dwelling, the townhouse set of comparable transactions revealed a range of $170,200 to $298,333 per proposed dwelling. In her First Report, Ms Burnet observed that, having regard to the size and proposed low density development of the north-western portion of the Vacant Land, she considered a rate at the lower end of the range to apply to that portion of the Vacant Land. As noted, the rate adopted by Ms Burnet was $1,800 per square meter.

384 Ms Burnet then assembled and analysed a data set of comparable sales for apartment developments, which revealed a range between $1,920 per square metre and $4,668 per square metre for sites ranging between 3,656 square metres and 8,803 square metres. In her First Report, Ms Burnet concluded that, having regard to the size of the portion of the Vacant Land in the north-eastern section, together with the proposed density, a rate at the lower end of the range was appropriate for that portion of the Vacant Land. As noted, the rate adopted by Ms Burnet was $2,100 per square metre.

385 In her Supplementary Report, Ms Burnet identified two further comparable sales, which she highlighted as they were both purchased by retirement village operators. The first such site was 2 Vida Street, Aberfeldie, which was purchased by Ryman Healthcare in March 2018 for $20 million, yielding a rate of $1,905 per square metre based on a site area of 9,816 square metres. In her Supplementary Report, Ms Burnet observed that she considered a higher rate per square metre should be applied to the relevant portion of the Vacant Land due to the inferior location of the Aberfeldie property.

386 The second property identified by Ms Burnet in her Supplementary Report was 1-3 Moreland Road, Essendon, which sold for approximately $25,500,000 in December 2020 to Ryman Healthcare, with a site rate of $1,336 per square metre on a site area of 18,314 square metres. Although the contract post-dated the valuation date, Ms Burnet was content to include the sale given the purchase was initially negotiated around the date of the valuation during the COVID-19 lockdown conditions. In Ms Burnet's view, the Essendon property was inferior to the Vacant Land, being further removed from amenities and with limited street access. She noted that the sale price was reflective of the heavily encumbered nature of the site, part of which comprised Crown land with a restriction stipulating that the land could only be used for the provision of accommodation and services for the elderly, with that restriction also applying to an adjoining parcel. Ms Burnet's opinion was that a significantly higher rate per square metre was appropriate for the relevant portion of the Vacant Land.

387 In her oral evidence, Ms Burnet confirmed that it was her understanding that the constraint referred to was incapable of being changed (in contrast to the position concerning the Incorporated Plan Overlay affecting the Property).[341]

388 By contrast, Mr McAuliffe preferred to focus on the rate per developable dwelling. In his written reports and oral evidence, he explained this preference on the basis that developers focus on the number of developable units they can create on any site they are considering purchasing. Mr McAuliffe therefore analysed the market evidence using rate per developable dwelling as his primary technique, then compared that with the site rate per square metre on an 'adjusted site rate' basis as a secondary technique.

389 Adopting this approach, Mr McAuliffe valued the Vacant Land at $15.3 million. Unlike Ms Burnet, Mr McAuliffe approached the entirety of the Vacant Land through a single analysis, rather than splitting the analysis into the north-western portion and the north-eastern portion. In his First Report, Mr McAuliffe proceeded on the basis that the development potential of the Vacant Land was 51 dwellings of one and two storey construction. This extent of development potential was drawn from the Incorporated Plan Overlay, which provided for a maximum of 70 dwellings on the Property, of which 19 had already been constructed.

390 Mr McAuliffe then had regard to the same four comparable properties that Ms Burnet used in her 'townhouse' analysis to derive a range of rates per developable dwelling from $173,673 to $296,667 for developments of 38, 13, 12 and 49 townhouses on smaller sites. For each of these comparable properties, Mr McAuliffe calculated what he described as an 'efficiency factor', calculated by dividing the site area by the number of developable dwellings. The lower the ratio expressed by the 'efficiency factor', the more intense the development. In respect of the comparison between these four properties and the Vacant Land, Mr McAuliffe commented as follows:

Given the smaller site areas and efficiency factor, the resultant site rates per square metre of site area reflected by the comparable transactions are higher than anticipated for the larger [Vacant Land].

In my opinion, the lower density nature of the proposed development on a larger site area enhances the amenity of the proposed development and as such I have adopted a rounded rate of $300,000 per developable dwelling which is above the range shown by the sales.[342]

391 The 'efficiency factor' for the Vacant Land based on 51 developable dwellings was 1:277, in effect stating that there would be one dwelling for every 277 square metres of land. Mr McAuliffe explained in his First Report that he adopted the unit rate of $300,000 per developable dwelling irrespective of the nature of the development, be they retirement village dwellings (ILUs or ILAs) or traditional residential dwellings of detached housing, townhouses, villas or units. Mr McAuliffe observed that his adopted rate was at the upper end of the range shown by the market evidence.

392 Mr McAuliffe then calculated the implied site rate per square metre based on his adopted unit rate of $300,000, which was $1,083 per square metre. While Mr McAuliffe noted that the rate of $1,083 per square metre was below the range presented by the available market evidence (which, for the four comparable sales used in this analysis was between $1,832 per square metre and $2,984 per square metre), Mr McAuliffe stated that he considered the fact that the resultant site rate was below the peer group to be appropriate 'given the efficiency factor of the development yield (51 dwellings) on a relatively large site area (14,121 square metres)' in comparison to the market evidence.[343]

393 In his Supplementary Report, Mr McAuliffe addressed the question of whether he would ascribe a higher value to the Vacant Land if it were 'certain' at 1 June 2020 that the number of units permissible and to be developed on the Vacant Land was as set out in Ms Burnet's First Report and, further, what effect it would have on his opinion of value if it was unknown at 1 June 2020 whether any units beyond the further 51 units in accordance with the Incorporated Plan were permissible.

394 Mr McAuliffe's opinion (as set out in his Supplementary Report) was that, if it were 'certain' that the Vacant Land could be developed in the manner set out in Ms Burnet's First Report, he would value the Vacant Land at $18.9 million. On the alternate scenario, that there was uncertainty about the development on the 168 dwelling basis, in his opinion 'a prospective purchaser would not pay a premium over the market value derived in my First Report'.[344]

395 In his Supplementary Report, Mr McAuliffe contrasted the rate per developable dwelling observed from the four townhouse comparable transactions with the rate per developable dwelling derived from three of the comparable 'apartment' transactions assembled by Ms Burnet.[345] Mr McAuliffe observed that the two data sets revealed distinct bands of per unit values for different intensity developments. He concluded that the evidence showed that more intense developments reflect lower per unit values than less intense developments, pointing to the rate per developable dwelling for the three more intense comparable transactions (properties I.5 to I.7) being between $100,000 and $114,000 per developable dwelling. On this basis, Mr McAuliffe concluded that the per unit value may alter if the development was more intense than 51 units, decreasing from the rate per unit adopted in his First Report.

396 In his Supplementary Report, Mr McAuliffe adopted a per unit rate of $90,000 per unit for the 150 apartment scenario. This resulted in Mr McAuliffe calculating that the value of the portion of the Vacant Land that could be used for apartments was $13.5 million (being 150 apartments at $90,000 per apartment) and the value of the balance of the Vacant Land that could be used for dwellings was $5.4 million (being 18 dwellings at a rate of $300,000 per dwelling). Adding these together, Mr McAuliffe's overall valuation for the Vacant Land based on it being certainly capable of development with 168 further units was $18.9 million. This yielded a comparative rate of $1,338 per square metre, which Mr McAuliffe stated was appropriate in his opinion given the density of the proposed development of the Vacant Land in comparison to the proposed development at sales referred to as I.5, I.6 and I.7 on sites of between 3,667 and 4,023 square metres.[346]

397 In explaining the basis on which he selected $90,000 per developable unit for the apartment portion of the Vacant Land, Mr McAuliffe stated that, in his view, sale I.5 was the 'best comparator'.[347] Sale I.5 was the sale of 429-435 Albert Street, Brunswick for $15 million in February 2020, which yielded a rate per developable dwelling of $100,000 per dwelling with an 'efficiency factor' of 1:27, as compared with the 'efficiency factor' calculated by Mr McAuliffe for the entirety of the Vacant Land at 1:84, based on 168 units.

398 Turning to the portion of Mr McAuliffe's analysis addressing his valuation on the basis that the potential to develop beyond 51 dwellings was uncertain, Mr McAuliffe stated as follows in his Supplementary Report:

My valuation calculations derived market values of $15,300,000 and $18,900,000 based on certainty of development potential for the resultant number of developable dwellings that can be achieved.

Without certainty, a prospective purchaser must absorb the risks associated with the uncertainty as to whether a more intense development scheme can be achieved.

The adopted market value of $15,300,000 in my First Report is already above the range of rates per developable dwelling as shown by the market evidence, reflecting certainty, scale of development and efficiency factor.

I am of the opinion that a prospective purchaser would not pay a premium based on a more intensive, but uncertain, development density over the market value derived in my First Report based on a development density that is legally permissible and certain.[348]

399 In further elaborating his views in the Joint Expert Report, Mr McAuliffe observed that the town planning report of Mr Barlow did not provide 'certainty of development potential for 168 developable dwellings', and, as such, he allowed what he described as 'a discount' to his assessed value of $18.9 million to account for the additional time, cost and risk of achieving the development density according to Mr Barlow's opinion.[349] Mr McAuliffe stated in the Joint Expert Report that, given the quantum of capital involved and the risks, time and costs associated with the uncertainty as to whether the higher density scheme could be achieved, as well as the holding costs and requirement for a return on investment, he was of the opinion that a discount should be applied and that an appropriate discount would be in the order of 20%. Applying this discount numerically to the higher $18.9 million valuation resulted in an 'as is' market value of $15,120,000, in fact below the value ascribed by Mr McAuliffe to the Vacant Land based on the 51 dwelling development scenario.

400 As noted, Mr McAuliffe performed a cross-check of the per square metre site rate for the Vacant Land (working back from his developable unit rate) against the site rates for the comparable transactions. Mr McAuliffe's approach in calculating the site rates for the comparable properties involved adjusting the actual rates (being the sale price divided by the area in square metres) to derive what he termed the 'adjusted site rate'. Mr McAuliffe's derivation of the 'adjusted site rate' involved dividing the raw site rate by the 'density ratio factor'. The 'density ratio factor' was calculated by Mr McAuliffe by dividing the efficiency factor for the subject property (on either the 51 or 168 developable units scenario) by the efficiency factor of the comparable sales evidence.

401 To illustrate the process, taking property I.5 (429-435 Albert St, Brunswick, which Mr McAuliffe described as the best comparable in his analysis of the more intensive development scenario), the calculations flow as follows:

(a) the 'efficiency factor' of property I.5 was 1:27 (essentially one dwelling per 27 square metres);

(b) the 'efficiency factor' of the Vacant Land based on the 168 unit scenario was 1:87 (essentially 1 dwelling per 87 square metres);

(c) the 'density ratio factor' for the property I.5 was 3.22 (or 3.23 as recorded by Mr McAuliffe) (being 87 divided by 27); and

(d) the 'adjusted site rate' was $1,155 per square metre (being the result of the unadjusted site rate of $3,729 per square metre divided by the 'density ratio factor', to reflect the relative density of the two properties).

402 Applying this technique to arrive at the 'adjusted site rate' significantly reduced the site rate for the comparable properties as follows:[350]

403 The next matter to address is Ms Burnet and Mr McAuliffe's criticisms of one another's approaches.

404 Each of Ms Burnet and Mr McAuliffe addressed the basis upon which they disagreed with the methodology and valuation of the other. In her Supplementary Report, Ms Burnet explained that, in her view, Mr McAuliffe's approach only assesses one value metric affecting price, being potential density and 'does not account for the difference in location, prevailing market conditions and the potential lot pricing amongst other factors'.[354] Ms Burnet's opinion was that 'Mr McAuliffe has assumed that potential development density is the main factor driving value'.[355] Ms Burnet also drew attention to the fact that, while the experts were working on a common set of comparable properties, the sample group was limited and primarily comprised smaller sites in a variety of locations, the size and location of which would heavily influence their value.

405 To illustrate her point, Ms Burnet noted that, in his First Report, Mr McAuliffe adopted a rate of $300,000 per lot for the 18 townhouses, relying on the sale at 7-9 Walker St, Monee Ponds (property I.3), which had the same rate per lot even though the lots on that property had an average lot size of 99 square metres, as compared with the much larger lots (of 279 square metres) which would be developed on the Vacant Land on the 51 lot scenario.[356] Ms Burnet also noted that Mr McAuliffe's implied site rate of $1,338 per square metre was 'well below all of the evidence relied upon', including the sale at 130-186 Buckley St, Footscray (property I.4), which Ms Burnet considered to be an inferior property to the Vacant Land.[357] Ms Burnet noted the rarity of a development site of the size of the Vacant Land in the inner suburbs of Melbourne.[358]

406 Ms Burnet's Supplementary Report went on to make some observations about the extent to which, in her view, Mr McAuliffe's views were influenced by his instructions. Dr Mintah made similar criticisms. I address these criticisms further below but, for the moment, note that I do not accept that Mr McAuliffe's chain of reasoning was driven by the manner in which he was instructed. Rather, his approach was driven by his view that development density is the overwhelming driver of price for development sites.

407 For his part, Mr McAuliffe considered that his approach was more reliable than Ms Burnet's selection of a primary valuation methodology based on a site rate per square metre. He explained his position as follows in the Joint Expert Report:

I disagree with Ms Burnet's selection of a primary valuation method/technique of a rate per square metre of site area. Whilst I am aware of a number of court decisions that have concluded a rate per square metre of site area is appropriate, invariably those cases contained transactions that had significant similarities to the subject properties, such as zoning, development potential, size, legally permissible uses and location. I am of the opinion that if there was a wide body of evidence providing similarities such as these to the subject then a rate per square metre of site area may be appropriate. The subject property is strikingly dissimilar to the body of sales in regard to development yield relative to site area, and as such a rate per square metre of site area could provide a misleading result unless the sales are analysed and adjusted for this efficiency factor.[359]

408 In his First Report, Mr McAuliffe set out his opinion that Ms Burnet's approach failed to analyse the comparable transactions 'in a way that takes account of the main factors driving value, being the economic unit of production (a rate per potential dwelling or unit).'[360] Mr McAuliffe also criticised Ms Burnet's broad-brush approach to adjustments to sales based on a rate per square metre of site area:

The adjustment of a rate per square metre as a primary metric is problematic due to the nature of the schemes planned for the various transactions. Various schemes of development have inherent variability in costs, revenues and timing due primarily to size and construction type and end use. The M3 [i.e., Burnet] report seeks to make broad adjustments referring mostly to a single adjustment factor (such as size or location), which fails to account for the variances in the proposed schemes in the comparable transactions.[361]

409 In Mr McAuliffe's assessment, Ms Burnet's approach, when converted to rates per developable dwelling, yielded figures that were too high. He pointed to the fact that, on Ms Burnet's analysis, the 51 dwelling scenario would result in an implied rate of $569,608 per developable dwelling, and $172,917 per developable dwelling on the 168 dwellings scenario. He suggested that property I.3 (which had a rate per developable dwelling of $296,667, which was the highest in the data set) should be disregarded, and that Ms Burnet was essentially double the rate presented by sale I.1, the next highest (which had a rate per developable dwelling of $276,316). Mr McAuliffe considered that sale I.1 offered 'significant comparability'.[362]

410 Dr Mintah suggested that the fact that Mr McAuliffe was instructed on the basis that the Vacant Land was suitable for development with 51 dwellings meant that his valuation outcomes were driven by his instructions, and his pool of hypothetical buyers was artificially constrained to exclude those who may consider there to be higher development potential.[363] Ms Burnet noted that it was not uncommon for valuers to be instructed to value on scenarios other than the highest and best use, but that the resultant valuation would not be a market valuation under the IVS.[364] Dr Mintah was, like Ms Burnet, critical of Mr McAuliffe's cross-check.[365]

411 While the manner in which Mr McAuliffe was instructed might not have been ideal given the desire to rely on his report as providing a market valuation, in my view nothing turns on the fact that he was instructed that the Vacant Land was suitable for development with 51 dwellings rather than being invited to determine the highest and best use himself. Ultimately, Mr McAuliffe valued the Vacant Land on both the 51 and 168 dwelling scenarios, so did conduct a valuation based on the highest and best use constituting the basis for Ms Burnet's opinion. Somewhat ironically, given the criticisms of Mr McAuliffe advanced by Next Stage via Dr Mintah's evidence and in cross-examination,[366] Ms Burnet also did not herself determine the highest and best use, but - quite reasonably in my view - adopted Mr Barlow's opinion regarding the highest and best use given the existing planning constraints and the potential for successfully amending them.

412 I have referred to the views of Mr Barlow, the planning expert called by Next Stage, above. Ardmillan also procured an opinion of a planning expert, Mr Milner. Mr Milner was instructed to provide any comments on Mr Barlow's report, and also explain, amongst other matters, the process that would be involved in amending the planning controls over the Property, including the timeframe and costs involved. Mr Milner was not cross-examined. In his report, he outlined the relevant planning controls, largely agreeing with Mr Barlow. Mr Milner did not put a figure on how many lots could be developed on the Vacant Land, if planning controls were amended.[367] He stated that the timeframe involved would be a year to 18 months if no Panel hearing was required, or 18 to 24 months if a Panel hearing was required.[368] These time estimates are broadly consistent with Mr Barlow's estimates. Mr Milner's estimate of costs without a Panel was $150,000 to $200,000, and $300,000 or more with a Panel.[369]

The parties' submissions on the value of the Vacant Land

413 Next Stage's submissions emphasised, by reference to relevant passages in the IVS, the test in Spencer v The Commonwealth of Australia,[370] and other cases, that the market value of land is to be assessed on a highest and best use basis that requires consideration of the development of the land, and is not confined to currently permitted uses where the land could be put to a more profitable use after necessary planning approvals.[371] It relied on Mr Barlow's evidence concerning development potential as identifying the highest and best use by reference to which the valuation exercise should be undertaken. Addressing a theme advanced by Ardmillan in its cross-examination of Mr Barlow, Next Stage submitted that the history of failed attempts to secure changes to the Property's planning controls should not lead to the rejection of Mr Barlow's evidence.

414 Next Stage was critical of the basis on which Mr McAuliffe was instructed to proceed in preparing his First Report. It contended that, by being instructed to confine himself to the present planning controls limited to 51 dwellings (despite having Mr Barlow's report), Mr McAuliffe was not conducting a valuation which addressed the highest and best use. Next Stage's criticisms went beyond Mr McAuliffe's instructions; it also criticised Mr McAuliffe on the basis that his reports lacked independence and did not apply the IVS or the Spencer test, despite the attestations in his First Report that he had complied with the IVS.

415 While recognising that Mr McAuliffe's Supplementary Report did address Mr Barlow's report, Next Stage contended that he again failed to apply the IVS properly as he focused on the 'most probable' use in determining the highest and best use, despite reference to the 'most probable' use having been removed from the current version of the IVS. This led Mr McAuliffe again to conclude (erroneously in Next Stage's submission) that the highest and best use was, despite having Mr Barlow's report, the development of 51 dwellings. It criticised Mr McAuliffe on the basis that he had failed to engage with Mr Barlow's evidence in a quest for 'certainty' which was misdirected and contrary to the IVS, which require reference to the 'likelihood' of change to planning restrictions, and provide that the prudent buyer and seller would be informed about the actual and potential uses of the property.[372] It characterised Mr McAuliffe's view that a prospective purchaser would ascribe no value to the development potential beyond the existing planning controls as an

416 Next Stage contended that Mr McAuliffe's reports should also be rejected on the basis that his rate per developable dwelling method of analysis was unsound. It submitted that the method, and Mr McAuliffe's use of it, was flawed as:

(a) it was not in conformity with the IVS, which includes various cautions in relation to unit comparison methods;[373]

(b) two of Mr McAuliffe's comparator properties (for the rate he derived for the more intense development scenario: I.5 and I.7) were sold without planning permits, meaning that they were unsuitable as unit comparators due to their uncertain development potential;

(c) the common method of analysis is price per square metre, which Ms Burnet adopted, and which was supported by Dr Mintah;

(d) it treated density as the only driver of value, ignoring differences in amenity, size of dwellings and location;

(e) his adjusted site rate comparison was novel; and

(f) he failed to make adjustments, including failing to adjust his principal comparable transaction (property I.5) for the costs associated with demolition and contamination.

417 Ardmillan's submissions on the applicable principles governing valuation were generally consistent with Next Stage's submissions. It cited the conventional Spencer test, to be applied having regard to the highest and best use, which can be different from the current use. However, in Ardmillan's submission, such a different use can only be the highest and best use if it:[374]

(a) is within planning controls;

(b) is likely;

(c) is not speculative;

(d) is of a kind that a hypothetical purchaser appreciates; and

(e) can be carried out within a reasonably short time.

418 Ardmillan's submissions on valuation principles departed from those of Next Stage insofar as it submitted that, where removal of planning controls is speculative or uncertain, the proper course is first to value the land without any change being in prospect, and then consider how much should be allowed for the chance of restrictions being lifted to allow a different use. It relied on the judgment of Kitto J in Royal Sydney Golf Club on this point.[375] Ardmillan submitted that the question for the Court was not what the planning authorities might do, but what impact uncertainty or the possibility of changes in planning controls would have on the hypothetical willing but not anxious buyer.[376]

419 Ardmillan recognised that, as set out in Nardone v South Australian Land Commission,[377] where planning controls limit what would otherwise be the full potential of the land, the potential for securing change to the restricting factors presents a spectrum. As Jacobs J explained in Nardone, where the case sits on that spectrum can determine whether it is preferable to value the land on its constrained basis and then assess whether there should be any uplift - as in cases such as Royal Sydney Golf Club with only slender prospects of restrictions being relaxed - or value the land unconstrained, and then allow a discount - as in cases such as Port Macquarie West Bowling Club, where it was reasonable to anticipate that restrictions would be relaxed.

420 Ardmillan contended that the development scheme forming the foundation of Ms Burnet's opinion is outside current planning controls, speculative, and not one that could be carried out within a reasonably short time.[378] It stressed the time and cost involved, and the fact that, despite Mr Barlow's estimate of the chance of success, there could be no assurance of success, noting Mr Barlow's evidence that 'you cannot be 100% certain, the planning process just does not allow that to occur'.[379] Ardmillan also pointed to the zoning of the Property and the history of resident opposition when previous attempts were made to alter the planning controls.

421 In Ardmillan's submission, the Royal Sydney Golf Club approach should be applied on the basis that the land is (as in Nardone) fettered by existing planning constraints, while having 'undoubted future potential for ... development at an indefinite time in the future'.[380] On that basis, Ardmillan's contention was that the Vacant Land should be valued on the 51 unit scenario, and then an uplift for future potential should be assessed. However, on Mr McAuliffe's evidence, there would be no uplift due to the discount Mr McAuliffe considered should be applied on the 168 apartment scenario to account for the uncertainty concerning planning outcomes.[381]

422 Ardmillan also relied on Roads Corporation v Love[382] in which Osborn J observed that the enquiry into highest and best use may involve inquiry into the probability of planning permission being obtained for the use in question. Justice Osborn there referred to the decision of the House of Lords in Transport for London (formerly London Underground Ltd) v Spirerose Ltd[383] in which Lord Walker considered the valuation should be based on the 'hope value', not on the basis of assumed approvals.

423 In oral closing submissions, counsel for Ardmillan relied on Re Marriott,[384] a decision of Gillard J (senior) in which his Honour said, having observed that the value of property is essentially a matter of opinion and 'frequently there is great variation in opinion thereon:

On the other hand, having regard to the difficulties in accurate valuation, if parties to a contract or sale of land are at arm's length and after hard bargaining arrive at a price which was introduced into a contract, then it would be extremely difficult for any court to say, even in the face of a battery of expert testimony to the contrary, that at the precise time of the contract, the value was any different to this price.[385]

424 Ardmillan's submission was that the contract price established by the 5 August 2019 bargain struck by the parties represented the market price, and there was no real movement in the market between that date and 1 June 2020, being the valuation date.[386] On that basis, taken at the 'package' level (Property and business valuation) Ms Burnet's combined value of $48 million should be rejected because the parties contracted (through the Contract of Sale and the ASA) for a price of around $35 million. In discussion, counsel for Ardmillan accepted that the proposition 'cut both ways' and would also undermine Mr McAuliffe's reports.[387]

425 Ardmillan also addressed the criticisms made of Mr McAuliffe, contending that they should be rejected. Ardmillan submitted it was orthodox for Mr McAuliffe to provide valuations at the two extremes: no further development potential (51 dwellings) and certainty of development at 168 dwellings, and those valuations establish the parameters of the debate. In oral closing submissions, Ardmillan contended that the rate per square metre approach is artificial for development land, as demonstrated by the fact that Ms Burnet's valuation rose when she was instructed the Vacant Land was larger than she had assumed, even though the larger size did not increase the number of units that could be built.[388]

426 Ardmillan contended that, if I was not persuaded to (in effect) reject the expert evidence entirely (based on the Re Marriott observations), it would be appropriate to discount Ms Burnet's valuation by 22.5%, being the mean represented by Mr Barlow's evidence that his revised 168 lot scenario would have between a 75 and 80% chance of success (in terms of securing revisions to the planning controls). Ardmillan suggested a discount in this order was consistent with the discount Mr McAuliffe applied for uncertainty (being 20%) to his valuation on the assumption of certainty for a 168 lot development.[389] Applying this discount would take Ms Burnet's $29,050,000 valuation down to $22,513,750.[390] Ardmillan also submitted that it would also be open to me to 'modestly uplift' Mr McAuliffe's $15.3 million valuation if I were otherwise minded to accept it.[391]

427 Applying the test in Spencer, the issue to be determined is the price at which a willing but not anxious buyer and a willing but not anxious vendor of the Vacant Land would transact, assuming them both to be acquainted with the Vacant Land and cognisant of circumstances which might affect its value. There was no dispute between the parties that the hypothetical buyer and seller would be well informed about the existing planning constraints, but would also be aware of, and have regard to, the potential for those constraints to be relieved by securing amendments to the planning controls to permit more intensive development.

428 There was also no dispute that, without securing amendments to the planning controls, only 51 dwellings could be constructed and that the only more intensive development scenario by which value was to be assessed was the 168 lot development scenario drawn from Mr Barlow's opinion that a development at that level represented the highest and best use of the Vacant Land. There was no other 'highest and best use' proposed by Ardmillan. While Ardmillan resisted the suggestion that the 168 lot development could be characterised as the highest and best use,[392] it is not necessary in the present proceeding to embark on a technical or overly detailed analysis of 'highest and best use'. That is because by the time Ardmillan made its oral closing submissions, whatever its earlier stated position on the technical concept of 'highest and best use', it accepted that the valuation exercise was to take into account the potential for planning controls to be amended to permit the 168 lot development.

429 The need to assess the value of the Vacant Land having regard to the potential for changes to the planning controls to be procured is a matter of common sense, particularly in this case where the site is a large, and rare, development site in the inner city with planning controls which the evidence suggests are outdated. It would be inconsistent with the Spencer test, in my view, for the valuation exercise to be undertaken on the basis that both the purchaser and the vendor would shut their eyes to the potential to develop more than 51 lots. Ample authority also supports the need to have regard to the potential for the land to be put to a more advantageous use than the 'as of right' use presented by current zoning or other planning controls. Much of that authority (including Roads Corporation, Nardone, Royal Sydney Golf Club and Port Macquarie West Bowling Club) was referred to by Ardmillan in its oral closing submissions. It suffices here to refer to Roads Corporation where Osborn J said (emphasis added, citations omitted):

The development potential of the land may affect its highest and best use. In ISPT Pty Ltd v Melbourne City Council, the Court of Appeal stated:

In Commonwealth Custodial Services Ltd v Valuer-General (NSW), Biscoe J elaborated the concept by reference to relevant authority in the following terms:

"There is no statutory definition of 'highest and best use'. It has been described in the High Court as 'the most advantageous purpose for which [the land] was adapted': Spencer v Commonwealth. It 'is the present value alone of such advantages that falls to be determined': Cedar Rapids Manufacturing and Power Co v Lacoste. In Park v Allied Mortgage Corporation Ltd Hill J said at [70]: 'As Spencer's case itself makes clear the valuation must proceed by reference to the best use of the property. For this purpose the valuer will take into account not only the present use to which the land is applied, but any more beneficial use to which it may reasonably be applied. This is the process which a purchaser negotiating to purchase the property would undertake. Thus, it is not inappropriate in valuing property to take into account a potential development of the property, for among the range of hypothetical purchasers can be assumed to be a person who would undertake such a development as would maximise the usage of the land'.[393]

430 Given that Ardmillan's expert, Mr McAuliffe, approached the 168 lot analysis on the basis of applying a discount to the valuation he arrived at if there was certainty of development for 168 lots (rather than applying an uplift to his 51 lot analysis) Ardmillan's submission that the facts support a Royal Sydney Golf Club approach appears inutile to its case. However, in case it is of any significance, in my view the facts of this case are such that it is more appropriate to apply a discount to a value arrived at based on the 168 lot scenario. I am of this view because, far from securing the necessary amendments being a 'slim chance' (as in Royal Sydney Golf Club), it was Mr Barlow's evidence - on which he was not cross-examined - that there was a 75 to 80% chance of securing the necessary amendments to the planning controls to proceed with the 168 lot development.

431 It follows that, in my view, having regard to the evidence of Mr Barlow and Mr Milner, assessing the Vacant Land on the basis that its highest and best use is capped at 51 dwellings is not appropriate. While it is true that the Property is subject to onerous planning controls, there was no serious contest to the fact that those controls are outdated and no longer in keeping with the area in which the Property is situated. It may be accepted that hypothetical market participants would take into account those existing controls. But they would also take into account the possibility that those controls could successfully be amended. As such, I do not consider that the basis upon which Mr McAuliffe was instructed to value the Vacant Land in his First Report - namely 51 dwellings and no more - accurately captures its value. In effect, it assumes that the market would assume the worst case scenario, namely that no change to the planning controls could be achieved. That flies in the face of Mr Barlow's evidence that the prospects of securing amendments to permit 168 dwellings (on his plan) was in the order of 75 to 80%.

432 For this reason, I do not accept that Mr McAuliffe's First Report is capable of being accepted. That is so whatever view is taken on the question of whether the comparable transactions method should be applied on the basis of the price per square metre ($/m) or the price per developable dwelling ($/dwelling).

433 It may be accepted that valuers deploy a range of methods in their analyses. Which method is preferable will depend on the circumstances and the valuer's professional judgment. In the present case, both property valuers agreed that the comparable transactions method is the appropriate valuation method for the Vacant Land, but they disagreed on whether that method was to be applied, as the principal method of analysis, on the $/m or $/dwelling basis.

434 The conventional method of comparable sales analysis utilises the $/m approach.[394] The successful application of that method requires a body of comparable sales evidence, as does any method anchored in comparisons with market data, including the $/dwelling method. Adjustments may be needed, whichever method is applied, to account for differences between the subject property and the market sales. Likewise, differences may lead the valuer to assess a subject property at the higher or lower end of a range.

435 I prefer Ms Burnet's opinion based on a conventional $/m analysis to Mr McAuliffe's analysis based on $/dwelling. As noted, the approach taken by Ms Burnet is a conventional valuation methodology. She adopted a $/m rate at the lower end of the range exhibited by the comparable properties for the townhouse component of her analysis (Ms Burnet adopted $1,800 per square metre against the range presented by properties I.1-I.4 of $1,794 to $3,001 per square metre) due to some differences in market conditions, size and location, which Ms Burnet assessed in considering each property. Ms Burnet also adopted a relatively conservative approach in selecting a figure towards the lower end of the range for the apartment component of the Vacant Land. From a range (derived from sites I.5-I.9) of $1,920 to $4,668 per square metre Ms Burnet selected a rate of $2,100 per square metre, which she chose recognising that the land forms part of a larger development site and carries heightened planning risk.[395]

436 My only material reservation in relation to Ms Burnet's opinion is whether it adequately accounts for the risk that the planning controls might not be lifted to the extent necessary to permit the 168 lot development upon which her opinion was founded. While Mr Barlow's evidence supports a reasonably bullish view on prospects, as he was at pains to make clear, there is no such thing as a 'sure thing' in planning. While Ms Burnet adopted a $/m rate towards the bottom of the range accounting for planning risk (among other factors) the question is whether any further discount ought to be applied. I return to that matter below.

437 Overall, I am of the view that Ms Burnet conducted a straightforward comparable sale analysis on a $/m basis and applied her professional judgment in selecting $/m rates from the range presented by sales evidence, to account for differences between the Vacant Land and the comparable sale properties. Against that, I consider that Mr McAuliffe's $/dwelling analysis does not present a reliable opinion as it treats density as the overriding driver of value. I accept Ms Burnet's reasoned criticisms of that approach.

438 In Caradi, Quigley J observed that the '$/apartment method has too much variability due to variation in apartment size and quality of finish, as well as other amenity features of each particular development being compared.'[396] While her Honour's observations are to be read in the context of the evidence before her, they resonate in the present case as well.

439 Here, Mr McAuliffe's approach treats the number of dwellings as determinative of value without paying adequate regard to the differences in amenity between the dwellings that may be constructed on the Vacant Land, and those forming the basis of his comparable data set. This point is illustrated by an example Ms Burnet gave in the Joint Expert Report.[397] Having noted that Mr McAuliffe justified his $300,000 per dwelling rate for the 18 townhouses portion of his analysis primarily by reference to property I.3 (7-9 Walker St, Moonee Ponds), Ms Burnet highlighted that, whereas the average lot size at that property would be 99 square metres, the 18 townhouse lots on the Vacant Land would have an average lot size of 279 square metres. In my view, Mr McAuliffe's approach did not adequately take into account differences in the amenity attendant on larger lot sizes.

440 Further, turning to Mr McAuliffe's analysis of the portion of the Vacant Land that could be used for development of the apartments (being 150 of the total 168 lot scenario, allowing for the 18 townhouse lots), Mr McAuliffe's data set (properties I.5, I.6 and I.7) showed a range of $100,000 to $114,000 per developable dwelling, but Mr McAuliffe ascribed a value well below even the bottom end of that range - $90,000 - to the 150 developable dwellings. In justifying that figure, Mr McAuliffe relied on sale I.5 in Brunswick, which yielded a rate of $100,000 per developable dwelling with a site density ratio of 1:27 (ie, 1 dwelling per 27 square metres). When Mr McAuliffe calculated the density ratio of the Vacant Land (across 168 units) he arrived at a density ratio of 1:84. I fail to see how Mr McAuliffe's lower price per unit is supportable; if anything, it would seems there would be greater amenity to units developed at a ratio of 1:84 than 1:29.

441 Moreover, neither of the cross-checks deployed by Mr McAuliffe in support of his figures is compelling. His first cross-check was to check the overall per unit value, being the total value divided by the total number of proposed dwellings (whereas his primary method valued the per unit rate of the 18 lots along York and Derby Streets and the apartments separately). However, Mr McAuliffe then performed his cross-check by comparing the blended rate for both the townhouses and apartments against the rate derived only from the apartment comparable transactions. In the Joint Expert Report,[398] Mr McAuliffe also compared the overall quantum of his valuation against the range of prices achieved for various comparable transactions. However, in performing this cross-check, Mr McAuliffe did not adjust for the size of the properties being sold and I do not consider the cross-check has any utility.

442 Mr McAuliffe's primary cross-check, and the one he placed most weight on in his reports, was his cross-check based on the $/m rate. However, as set out above, Mr McAuliffe only compared the $/m rate derived from his $/dwelling analysis with the 'adjusted site rate' he calculated for each comparable property. He did not compare his rate with the actual $/m rate at which those properties sold. Moreover, his conversion of actual $/m sale rates to 'adjusted site rates' involved multiple steps in calculation, and in every case reduced (often very significantly) the $/m rate. In my view, Mr McAuliffe's process of adjustment was so driven by density analysis (given the steps by which he converted unadjusted $/m rates into adjusted site rates by reference to density ratios) as not to serve as any useful cross-check on his primary density-driven approach.

443 In her evidence, Ms Burnet captured the point as follows:[399]

[Valuers are] very good at over analysing - or analysing sales on which you have a tendency to over-analyse and focus on certain aspects when we get in a focus. One of the jobs - or one of our responsibility[ies] is to be able to step back and say, 'Does this make sense?'. 'Does it - is it common sense the number that I'm valuing or the number that I've come up with', and the only a remark I can make is Mr McAuliffe came up with the value of 15.3 million, I think it was or an 18.3 million with a higher density. But does it make sense when a site that is half the size or 9,800 square metres that's a significantly smaller site, sold around the (indistinct) of 20 million[400] or [does it] make sense in the light of the Essendon site[401] which sold per - in the order of 25 million and it's heavily encumbered. So, the common-sense question, it doesn't fit the answer that was provided. So, in those circumstances of the valuer, you generally go back, and you retest what you're doing by using a different method or different analysis tool and I think that Mr McAuliffe hasn't done that in this approach.

444 One matter that was raised by Mr McAuliffe as casting doubt on Ms Burnet's opinion was the rates per lot derived from her valuation approach. At 168 lots, Ms Burnet's opinion, resulted in the 18 townhouses having an implied value of $501,900 per lot, with the per lot rate for each of the 150 apartments being $133,448. While a rate of approximately $500,000 is well above the range presented by the comparable townhouse developments (I.1-I.4), that apparent disparity is readily explained by the difference in the size of the lots,[402] which ranged from 89 (or possibly 73)[403] to 151 square metres.[404] Further, as set out by Ms Burnet in her Supplementary Report, she identified townhouse developments - albeit ones with only two lots each - with a land size of 218 to329 square metres, and per lot values of $697,500 to $1,100,000.[405] While Ms Burnet explained that she did not rely on those properties as directly comparable transactions due to the small number of lots, they were still supportive as showing the underlying land value. Ms Burnet considered, in light of that evidence, that her figure of approximately $500,000 per lot was in fact conservative.[406] Mr McAuliffe's evidence was that the median house price in Moonee Ponds was $1,242,500.[407] Having regard to this evidence, I am satisfied that the rate of approximately $500,000 per lot for the townhouse part of the Vacant Land is not excessive by reason of it being substantially higher than the per lot rates for the comparable townhouse developments.

445 I turn now to the submission, made by Ardmillan in closing, that, pursuant to the decision of Gillard J in Re Marriott, there was really no valuation exercise required as the prices struck by the Contract of Sale and the ASA establish the market value of the Property and assets to be conveyed under those contracts. Re Marriott has not been applied in the manner urged on the Court by Ardmillan in any case (although it has been cited on other points). On its face, the proposition that market value must be established by the price set by an arm's length contract, fully negotiated, appears to me to be too rigid, and at odds with the well-established principles which make loss of bargain damages available measured by the difference between the contracted price and the market value of the asset.[408]

446 In light of this tension, I enquired of counsel for Ardmillan whether Re Marriott had been applied so as to effectively render loss of bargain damages unavailable in circumstances where there has been no opportunity for the market to move so as to create a differential between the contract price (taken to be the market value on Ardmillan's approach) and market value at a later time. I was not referred to any case directly applying Re Marriott in the way Ardmillan urged on the Court. Counsel submitted that Re Marriott had been referred to with approval by Mandie J in Symex Holdings Ltd v Commissioner of State Revenue.[409] That may be putting the position too strongly. The appellant in that case relied on Re Marriott, but Mandie J declined to find that the contract price was the market price on the basis that there may have been factors influencing price other than those of a simple arm's length transaction, even though the transaction was between parties at arm's length.

447 While the price struck between parties at arm's length is a further piece of information to which regard may be had in assessing the opinions of expert valuers, I do not consider I am bound to, nor do I consider it would be appropriate to, effectively disregard the expert evidence adduced by both parties on the basis that the contract price must represent market value. Moreover, until oral closing submissions, that was not the basis upon which the case was conducted. Rather, both parties addressed the damages question by procuring expert opinions, which addressed the value of different components of the transaction, being the Vacant Land, the Balance of Level 3 and the Business. Given that the Contract of Sale and the ASA did not price the transaction by the same components, it is only at the global level that the contrast with the contract price could even theoretically be applied.[410] Further, as Next Stage submitted, the Property was not marketed on the open market.[411] That does not mean the price agreed was not an arm's length price, but it does present another reason not to proceed on the basis contended for by Ardmillan pursuant to Re Marriott.

448 I return, now, to the question of whether I ought to apply any discount to Ms Burnet's valuation of $29,050,000 to account for the uncertainty attending securing the planning amendments necessary to permit a 168 lot development of the kind that underpinned her valuation opinion.

449 There is some evidence that Ms Burnet was mindful of the planning uncertainty. In her oral evidence, Ms Burnet stated that she had approached the valuation task taking into account that there was uncertainty around securing approvals for the more intensive development uses. She considered that, having regard to Mr Barlow's assessment of prospects, a developer would 'absolutely take that risk on'.[412] She did not consider there was market evidence that would allow her to apply any particular discount for that uncertainty. As noted already, Ms Burnet also stated in the Joint Expert Report that she adopted a figure towards the bottom of the range due to the 'planning risk'.[413] It was Next Stage's contention that Ms Burnet had already applied a discount, but counsel acknowledged that I 'might come to a view that she might not have discounted enough'.[414] That submission was made in answer to counsel for Ardmillan's submission in closing that, if Ms Burnet's valuation was to be adopted, it should be discounted by 22.5% to reflect Mr Barlow's assessment of prospects standing at 75 to 80%.

450 In considering the question of whether I ought to apply a discount to Ms Burnet's valuation, I also note that under the Contract of Sale the price of the Property (which included the land on which the ILUs had already been constructed, as well as the Vacant Land) was $26,050,000.

451 Approaching the Vacant Land as a whole (ie, not distinguishing between the portion to be used for townhouses as opposed to apartments), Ms Burnet's valuation equates to $1,996 per square metre (being $29.05 million divided by 14,551 square metres). While Ms Burnet's adoption of a $/m towards the bottom of the range does reflect a degree of conservatism, I am nevertheless of the view that I should apply a further adjustment to reflect the fact that the valuation of the Vacant Land is being conducted on the basis of a hypothetical that not only involves a sale without a planning permit having been issued for the 168 lot development, but also on the basis that significant changes would have be secured to the underlying planning controls. By comparison, the body of comparable sales relied on by Ms Burnet involved a mix of properties being sold with and without planning permits, but there was no suggestion that the sale of any of the properties without planning permits had development proposals that involved securing far-reaching changes to the planning controls.[415] At least two of Ms Burnet's comparable transactions (the two additional properties referred to in her Supplementary Report) were also sold on 18 month settlement terms so that the purchaser did not have to bear the full financial cost of the purchase while planning approval was in train.

452 By contrast, here, not only would significant changes to the planning controls be required, but they would be required in respect of a site that has a history of community opposition (albeit opposition to what Mr Barlow described as 'ambit claims'[416]). Further, on the evidence, a Panel hearing would likely be required, taking 18 to 24 months and costs of upwards of $300,000, to an amount possibly exceeding $1 million.[417]

453 Accordingly, I consider that some downward adjustment to Ms Burnet's valuation is warranted to reflect the risk, time and cost of securing the necessary amendments to the planning controls to develop on the 168 lot scenario which formed the basis of her valuation. As Ms Burnet did not present a separate analysis based on a development of 51 lots (which would not require amendments to the planning controls) I, of necessity, have to apply the adjustment to the whole of her 168 lot analysis (rather than only applying an adjustment to the 'at risk' portion). While acknowledging that there is no science in the adjustment, I consider an adjustment of 7.5% to be an appropriate adjustment to take account of these costs and risks. I consider the discount of 22.5% proposed by Ardmillan to be excessive given that Ms Burnet's starting point was already towards the bottom of the range of $/m rates presented by the comparable sales evidence.

454 The value of the Vacant Land which I adopt is $26,871,250.[418]

What was the value of the Balance of Level 3?

The opinion of Ms Burnet and Mr McAuliffe on the value of the Balance of Level 3

455 As with the value of the Vacant Land, the experts agreed on a number of points concerning the value of the Balance of Level 3 (being that part of Level 3 of the hospital building, covered by the 99 year Head Lease, but not occupied by the retirement village). Under the ASA, Next Stage was to take an assignment of the Head Lease. The experts were valuing the right to sublease that part of Level 3 which was not already occupied by the Business. They agreed that the 99 year leasehold nature of the tenure for that area had a negative impact, resulting in the application of a higher capitalisation rate and lower rate per square metre than the market evidence. They also agreed that the Balance of Level 3 presents as 'secondary grade accommodation'.[419] The Royal Institute of the Deaf and Blind Children, trading as Taralye, had a sublease over about 400 square metres of the Balance of Level 3. The experts agreed that the option under Taralye's sublease had been exercised.[420] In terms of methodology, the experts agreed that the 'income approach' and 'market approach' were the appropriate valuation approaches to be applied in valuing the Balance of Level 3, with the 'capitalisation of net income method' being the appropriate valuation method to be applied under the 'income approach',[421] and the 'comparable transactions method' being the appropriate valuation method to be applied under the 'market approach'.[422]

456 The experts agreed on the following set of nine transactions constituting the market evidence for the conduct of their analysis:

457 They also agreed on a capitalisation rate of 7.25% on a fully leased basis in the capitalisation of the net income for the Balance of Level 3 and that the impacts of the COVID-19 pandemic were unknown at the valuation date and the uncertainty was impacting the economy and delaying investment decisions.

458 The three main points of difference between the opinions of Ms Burnet and Mr McAuliffe regarding the value of the Balance of Level 3 were:

(a) what the correct area of the Balance of Level 3 was;

(b) whether the valuation should be approached on the basis that:

(i) the whole of the Balance of Level 3 would be 'sold' (via a lease equivalent to the remaining term of the 99 year Head Lease) to a single tenant who would take responsibility for the overall fitout to maximise the potential for what both experts agreed was a very difficult space (which was Ms Burnet's approach); or

(ii) a number of tenants would be found to fill the areas not already occupied by Taralye; and

(c) whether (as Mr McAuliffe contended) the calculations should be based on the rent actually achieved for the Taralye occupancy ($250 per square metre per annum) or as Ms Burnet concluded, a higher figure ($350 per square metre per annum) should be used.

459 Given that part of the Balance of Level 3 was occupied by Taralye, a 'demolition clause' in its sublease would need to be exercised in order to terminate its tenancy and make the whole of the Balance of Level 3 available for a single sub-tenant. Ms Burnet favoured the 'single tenant' scenario as, in her view, that would enable a tenant to be attracted who would maximise the potential of the space, rather than letting it out to a number of sub-tenants at low rates, reflecting the challenges posed by the space, as further detailed below. Ms Burnet considered that the valuation on the single tenant scenario could be undertaken, either on the basis the demolition clause would be exercised immediately, or that there would be a delay of 39 months to enable the Taralye sublease to run its course (leaving the rest of the space vacant), allowing for options to be explored during that period.[423]

460 For his part, Mr McAuliffe did not consider it would be prudent to leave the rest of the space vacant and wait out the approximately three years it would take for the Taralye lease to run out.[424]

461 Based on the correct area being 1,664 square metres, Mr McAuliffe valued the Balance of Level 3 at $4,360,000 and Ms Burnet valued it at $7,100,000.

462 Based on the correct area being 1,340 square metres, Mr McAuliffe valued the Balance of Level 3 at $3,460,000 and Ms Burnet valued it at $5,740,000.

463 There was some lack of precision in the evidence concerning what accounted for the difference in the square metre figures advanced for the Balance of Level 3. In particular, it was not clear on the evidence whether the difference was accounted for by the inclusion or exclusion of certain physical areas, or whether there was a difference in the measurement of areas as well. Nevertheless, it is clear that at least a substantial part of the difference related to whether office and boardroom space presently occupied by Ardmillan and Mrs Darling's other business interests (the Office Space) ought to be included or excluded.[425]

464 To put the discussion of the leasing debate in some context, it should be noted that:

(a) despite being level 3 of the hospital building, Level 3 is at ground level, at least when approached from the east and from the north;

(b) most of the Balance of Level 3 has very limited natural light, with the eastern boundary opening onto a parking area with an overhead overhang, only a small portion of the boundary of the Balance of Level 3 to the north having natural light, and the entire southern boundary being constituted by an internal wall;

(c) while the Office Space opened on to the retirement village lobby (and so enjoys some natural light as long as it remains connected in that way with glass walls) it does not have a direct external boundary; and

(d) the unoccupied portions of the Balance of Level 3 are largely in original condition from the days when the building operated as a hospital (including a defunct x-ray machine).

465 The experts - and counsel for that matter - did not shy away from recognising the challenges presented by the Balance of Level 3. Ms Burnet and Mr McAuliffe agreed that the Level 3 space was a challenging space[426] in a secondary location.[427] Dr Mintah said that the space was 'unattractive'.[428] Ms Burnet and Mr McAuliffe each noted that its rental history and appearance indicated that much of the space had never been let since its use as a hospital.[429] Indeed, counsel for Next Stage noted that it was a 'terrible space to work out what to do with',[430] a 'shocking space' creating 'obvious headaches',[431] and went so far as to suggest it was 'unlettable'.[432] Counsel for Ardmillan agreed that it was a 'difficult' and 'challenging' space.[433] They were not exaggerating.

466 The first two diagrams below are drawn from Ms Burnet's First Report, and the third diagram is drawn from Mr McAuliffe's First Report. The first diagram illustrates the internal structures and Taralye occupancy (shaded area), including the Office Space. The second diagram illustrates that area combined (labelled 'proposed medical centre' to reflect Ms Burnet's approach of conducting the valuation on the basis that a single tenant would take and sublease the space for medical and allied health uses). This diagram shows the limited area to the north with natural light, and the way in which the western and southern boundaries are internal. The third diagram shows the areas into which Mr McAuliffe divided the Balance of Level 3; it shows the area rented by Taralye as Area B and does not include the Office Space, which is to the west of the central portion of Area D.[434]

Diagram 1: Paragraph 267 of Ms Burnet's First Report

The Taralye tenancy is shown in grey, and the bounds of the proposed medical centre in red (including the Office Space).

Diagram 2: Paragraph 276 of Ms Burnet's First Report

Diagram 3: Appendix G in Mr McAuliffe's First Report

467 As noted above, Ms Burnet's valuation based on the larger site area was $7.1 million. This figure represented the higher of the two alternative analyses she conducted in her First Report. In that report, Ms Burnet also arrived at a capitalised value of rents on an 'as is' basis, assuming that the Taralye lease continued to run for three years, meaning that the only rental income derived for the first three years of the income analysis period was the income from the Taralye rental but, after that three year period, the entirety of the Balance of Level 3 would be leased to a single tenant. This analysis yielded an 'as is' capitalised value of $6.1 million and an equated market yield of 7.16%.[435]

468 Ms Burnet's alternate analysis proceeded on the basis that the demolition clause, which allowed Taralye to be served with a termination notice of six months, would be exercised, resulting in the whole of the Balance of Level 3 (again on the larger site area scenario) being leased to a single tenant straight away, allowing for a fit out period. This analysis yielded a capitalised value of $7.1 million, equating to a market yield of 7.27% and $4,267 per square metre, which Ms Burnet considered to be reasonable.[436]

469 In her First Report, Ms Burnet noted that the current passing rent for the Taralye tenancy was $96,675 per annum, equating to a rate of $238.70 per square metre of lettable area. It was her opinion that this rate was well below market rental levels. However, Ms Burnet also noted that the central position of the current tenant within the context of the overall Balance of Level 3 meant that it would be difficult, in her opinion, to secure separate tenancies for the remaining vacant space given the majority of the area is internal with no external windows and limited entry and exit points.[437]

470 In order to determine rental rates and yields on the hypothesis that the Balance of Level 3 was to be leased, whether immediately or otherwise, to a sub‑tenant for the purposes of a medical centre, Ms Burnet assembled a data set comprising six comparable properties.[438] That data set, to which Ms Burnet had regard in her First Report, comprised six medical centres. Having regard to that data set, Ms Burnet derived a range of passing yields of between 4.74% and 6.70% and analysed market yields between 4.76% and 6.27%. She also derived a range between $5,394 per square metre and $9,083 per square metre.

471 Ms Burnet concluded in her First Report that a capitalisation rate in the range of 7.25% should apply to the Balance of Level 3.[439] In arriving at that value, she had regard to the fact that the comparable properties afforded title ownership, whereas the Balance of Level 3 could only be offered to the proposed sub-tenant on a 99 year lease basis, justifying, in her view, a higher capitalisation rate and lower rate per square metre. Ms Burnet also noted that the entrance to the Balance of Level 3 was on the eastern side of the building and did not benefit from passing traffic, although she also noted that, despite the lack of street exposure, having regard to the size of the proposed tenancy and proximity to the retirement village and aged care facility, the area was suited to be developed as a medical and wellness centre offering services not only to the public but to current and future residents.[440]

472 In responding to Mr McAuliffe's reports, Ms Burnet noted that she and Mr McAuliffe both agreed that the income approach was the appropriate methodology to adopt although Mr McAuliffe had assessed the area on a multiple tenancy basis. In Ms Burnet's opinion, letting the area on a multiple tenancy basis would require a level of commercial sophistication on behalf of the owner. Further, the operations and management of a multi-tenanted medical centre would not align with the core business of a retirement operator. On that basis, she preferred to assess the value of the whole of the Balance of Level 3 being sold (on a long term lease basis) to an external party who would take responsibility for the internal fit out and reconfiguration of the area.[441]

473 In his First Report, Mr McAuliffe stated that he was of the opinion that the highest and best use for the Balance of Level 3 was for letting to multiple tenants and that he had had regard to the current condition and presentation of the accommodation in his valuation. Mr McAuliffe also had regard to a body of market evidence. That market evidence was the same as that deployed by Ms Burnet in her First Report, save that Mr McAuliffe identified an additional three properties, referred to as I.10, I.12 and I.13.

474 Mr McAuliffe was also briefed with a fairly extensive leasing history of the Property, as advised by Ardmillan, revealing that there had been limited interest in the Balance of Level 3 and an inability to finalise a lease over those areas. Mr McAuliffe noted that the Taralye lease, which commenced on 1 September 2017, was amended and renewed on 23 November 2020[442] for commencement of the option from 1 September 2020 at a rental rate of $99,574.75 per annum. Mr McAuliffe considered that the rental rate was escalated in accordance with the terms of the original sublease to Taralye and he adopted that figure in his valuation as equating to a rate of $249 per square metre per annum on a triple net basis.[443] Importantly, Mr McAuliffe was of the opinion that the rental rate achieved for the Taralye tenancy (which he referred to as Area B) was evidence of the market rate that could be achieved for what he described as Areas A and C given those areas are smaller, have some natural light, an aged fit out, shared toilet facilities and a lack of car parking. Mr McAuliffe adopted a rounded rental rate of $250 per square metre per annum for those areas.[444] Mr McAuliffe adopted a lower rate, being $125 per square metre for what he described as Area D to reflect the larger secondary nature of the rear position and non-contiguous accommodation, lack of exposure, lack of natural light, aged fit out, shared aged toilet amenities and lack of car parking.[445]

475 On the basis of that market evidence, Mr McAuliffe stated that the market evidence indicated initial yields ranging from 4.97% to 7.25%. In his opinion, a capitalisation rate at the upper end of that range was appropriate to reflect the 99 year leasehold tenure of the Balance of Level 3, the nature and configuration of the accommodation, perceived tenancy profile and security of income. Mr McAuliffe adopted the capitalisation rate of 7.25% in his calculations.[446] Mr McAuliffe also allowed a period of two years to lease the remainder of the space, reflecting the uncertainty of the market given the COVID-19 pandemic together with a lack of interest in the Property to date. He did not allow for any incentives given the low rental rates that he allowed for.[447] Bringing these calculations together, Mr McAuliffe arrived at a rounded valuation of $3.46 million, reflecting an improved rate of $2,582 per square metre of lettable area. That figure was based on the correct area being 1,340 square metres. Mr McAuliffe acknowledged that that figure was below the range of capital value shown by the market evidence. However, Mr McAuliffe explained that, in his view, 'the market evidence is considered to comprise superior quality premises in superior locations and reflective of existing leases'.[448] On that basis, he considered the rate in his calculations to be reasonable and reflective of the leasehold nature of the Balance of Level 3, the current level of vacancy and expected level of rental return.

476 Mr McAuliffe's Supplementary Report did not address the Balance of Level 3, but he provided a further opinion in the Joint Expert Report on the basis of the area being 1,664 square metres. In addressing the larger site area scenario in the Joint Expert Report, Mr McAuliffe included an additional area of 324 square metres, which he described in that report as Area E. For that area he adopted a rental rate of $250 per square metre. This resulted in a total capital figure of $4.36 million (including allowances). Mr McAuliffe observed in the Joint Expert Report that the resultant improved rate of $2,620 per square metre of lettable area, while below the range shown by the market evidence, was appropriate given the superior nature of the properties forming the body of the market evidence in comparison with the subject property.[449]

477 In the Joint Expert Report, both Mr McAuliffe and Ms Burnet offered further commentary on each other's views. Ms Burnet observed that the rental rates in her First Report reflected a range of between $341 and $544 per square metre of net lettable area and her adopted rate was $350 per square metre, which was at the lower end of the range, to reflect the secondary location of the Property. Ms Burnet noted that, based on the same evidence, Mr McAuliffe had adopted a rate of $250 per square metre, which was well below that range. In Ms Burnet's opinion, Mr McAuliffe's assessment was 'overly harsh and conservative'. For his part, Mr McAuliffe considered that Ms Burnet was 'optimistic in securing a party for the entire area who will then undertake refurbishment works and look to sublease to a variety of tenants'.

478 Mr McAuliffe was of the view that significant cost and time would be required to alter the accommodation to present it to a higher standard and that prospective tenants may still not be secured. He considered that a feasibility analysis would have to be undertaken and appropriate profit and risk margins factored in, were this single tenant approach to be adopted. Mr McAuliffe noted that he had allowed two years in which to secure tenants on a multiple tenancy basis, which differed from Ms Burnet's more optimistic assumption of nine months to secure a single tenant for the whole area at a higher rental rate.

479 In his report, Dr Mintah opined that the exercise of the demolition clause was inevitable to achieve the highest and best use and that, on that basis, the valuation ought to be undertaken on the basis that the demolition clause was exercised. It appears that Dr Mintah held this view on the basis that the demolition clause would have to be exercised to repair the Balance of Level 3 to a standard allowing leasing to a single tenant or to alter the configuration for renting to multiple tenants.[450]

480 The experts further discussed and exchanged views in the concurrent evidence. Relevantly, there was discussion of whether Ms Burnet's adopted per square metre figure (of $350 per square metre of net lettable area) was excessive given the market evidence of rental rates being achieved for head tenants in large medical and like facilities. Ms Burnet gave evidence that, across Melbourne, the base rate for a 'warm shell' was around $450 per square metre and, her adoption of $350 per square metre formed a judgment on her part.[451]

481 In his observations, Mr McAuliffe drew particular attention to two properties, comprising part of the market evidence. Firstly, he drew attention to property I.13 at 789 Pascoe Vale Road, Glenroy which had a rental rate of $341 per square metre per annum. Mr McAuliffe noted that this was below Ms Burnet's rate despite the Glenroy property being a superior property on a retail strip.[452] Mr McAuliffe also drew particular attention to property I.14 at 111 Overton Road, Williams Landing which was a large, purpose-built property, achieving $362 per square metre per annum. It was Mr McAuliffe's assessment that this property was distinctly superior to the Balance of Level 3 and it was his preference to adopt the rates actually being achieved at that property through analysis of the Taralye tenancy.[453]

482 In response, Ms Burnet considered that the Williams Landing property was in an inferior location and, although the building itself was brand new and did not have the same challenges as the subject property, there was nothing really around the Williams Landing property at the time it was sold. On the basis that the comparison was between an inferior building in a superior location (Moonee Ponds) and a superior building in an inferior location (Williams Landing, in development) a similar rental rate would be achieved.[454]

The parties' submissions on the value of the Balance of Level 3

483 Next Stage's principal submission was that Mr McAuliffe's valuation should be rejected on the basis that, contrary to the IVS, he did not conduct the valuation on the basis that maximises the site's potential, and thus did not assess 'market value'. It submitted that Ms Burnet's scenario - whereby the Balance of Level 3 would be let to a single, master tenant - maximised the potential of the space. Next Stage submitted Mr McAuliffe's view that value was to be assessed on the assumption of a continuation of a patchwork of tenancies perpetuated under-market rental. It contended (somewhat colourfully) that Mr McAuliffe's 'bird in the hand' analysis would be more aptly described as 'nothing in the hand', and that Mr McAuliffe's highest and best use was a 'never ending spiral to oblivion'.

484 As to the difference in the lettable area, Next Stage submitted that the larger area should be adopted as it was made up largely of the Office Space occupied by Ardmillan, and which Mrs Darling accepted in her evidence was larger than necessary for the conduct of the Business. Next Stage also contended that Mr McAuliffe had failed to address two matters raised by Ms Burnet, namely the broader site context and how the appeal of the Balance of Level 3 would change with development of the Vacant Land, as well as the fact he allocated no resources to account for managing multiple tenancies.

485 Next Stage submitted Ms Burnet's valuation ought to be accepted, as it adopted a rate of $350 per square metre per annum which was below the range of the agreed comparable data set. It relied on Ms Burnet's evidence regarding rental rates for 'warm shell' medical and allied health spaces, which she said have a base rental rate of around $450 per square metre per annum, with even higher rates for pathology spaces. By contrast, Mr McAuliffe's rate of $250 per square metre per annum was 30% below the lowest agreed comparable.

486 In its opening written submissions, Ardmillan focused on the very difficult leasing history of the Balance of Level 3 in contending that Mr McAuliffe's opinion ought to be preferred. It submitted that Ms Burnet had not taken that history into account. Its written closing submissions were virtually silent on the Balance of Level 3 valuation issue, not going much beyond contending that Ms Burnet's $/m rate was 'unrealistic' and her 'sale in one line' analysis was also 'unrealistic'. In oral closing submissions, counsel for Ardmillan submitted Mr McAuliffe's analysis should be preferred because it adopted a net rental rate (ie, the rate to be received by the owner net of leasing incentives) whereas Ms Burnet's rate did not make any allowance for letting up.[455]

487 On this issue, I prefer the valuation of Mr McAuliffe, but consider that it should be based on the larger floor area as I consider the Office Space is, as Mrs Darling conceded in her evidence, larger than necessary for the Business. Accordingly, in my view, it should be regarded as part of the lettable area given I do not have the figures before me to allocate a more modest area to administrative offices for use in the Business. The Office Space does not, of course, account for the entire differential in the lower and higher areas upon which Mr McAuliffe and Ms Burnet prepared their principal valuations; it appears that a corridor accounts for much of the balance. While a corridor would not be separately lettable on Mr McAuliffe's multiple tenant approach, I do not have the figures before me to identify how many square metres ought to be deducted from this corridor. Accordingly, doing the best I can on the evidence before me, I consider the larger area figure should be used.

488 Using the higher figure does not present an impediment to adopting Mr McAuliffe's valuation, as it also serves to apply a slight upwards adjustment, albeit not on any scientific basis, to account for the extent to which Mr McAuliffe's approach may be criticised as being unduly pessimistic. In that regard, I note that there is some force in the criticism advanced by Next Stage that Mr McAuliffe's adopted rate is not only low in comparison to the market evidence, but also values the Balance of Level 3 on the basis that a purchaser would value the area on the basis that it would continue to attract relatively low rentals indefinitely, as a challenged space without a value reflecting master planning.

489 While, as I have noted, I accept that there is some force in the submission that Mr McAuliffe's valuation may be slightly pessimistic for those reasons, I do not consider that I should prefer Ms Burnet's valuation instead. That is for a number of reasons. It is difficult to overstate the challenges facing the Balance of Level 3. As set out above, it has extremely limited natural light, large internal areas which would inevitably lack access to natural light, and is in a parlous condition. While the master planning concept behind Ms Burnet's approach would make the best of the inherent limitations of the area, I remain of the view that her approach is too speculative to form the basis of a valuation.

490 It is speculative because it assumes interested purchasers: would adopt the master planning concept in determining the price at which they would purchase the Balance of Level 3 as an asset; would assume they would be able to lease the entire area to a master tenant at a rental well above the rate presently being paid by the only tenant of the area; and would give greater weight to the potential for a successful master planning exercise than the rental rates actually being achieved by Ardmillan on the Taralye lease. In short, the surest guide to what could be achieved for a unique and very difficult space is the Taralye lease. Even that might, on one view, be somewhat optimistic as Taralye presently occupies the more readily accessible spaces within the Balance of Level 3, and the leasing history of the Balance of Level 3 is very troubled. While I do not proceed on the basis that hypothetical purchasers would have access to the full leasing history made available to Mr McAuliffe, I consider that, based on their own inspection of the site, and the kinds of enquiries a hypothetical purchaser would be expected to make about the letting history, they would acquire enough information to adopt a cautious approach to valuing the Balance of Level 3.[456]

491 Further, in my view, the comparable properties to which Ms Burnet had regard should be approached with caution. With one exception, Ms Burnet described them as being much smaller than the Balance of Level 3.[457] The size of the properties is important in circumstances where it cannot be assumed that the demand for such a large medical and allied health centre would exist (or, more to the point, an intending purchaser of the Balance of Level 3 would be prepared to assume that demand exists in fixing its purchase price offer). The one comparable property of a similar size (property I.14), which had a rate of $362 per square metre (as compared with the $350 per square metre rate adopted by Ms Burnet) was an attractive, modern medical and allied health facility in a newly constructed A-grade commercial building in a new locality. In explaining why he considered the rental for the Balance of Level 3 ought to be substantially below the rental for this comparable property, Mr McAuliffe referred to the 'overall quality of the accommodation' and continued:

[It's] purpose-built, it's modern, it's new, it's well - good natural light. It's of size, it's in a developing area, it's the new one on the block basically. Ours is an untenanted space competing with a number of medical facilities already in existence throughout the Moonee Ponds and the surrounding suburbs. So - and our population growth is not growing significantly in comparison to an area like this that is growing. We've got substantially more competition as well.[458]

492 In addition, when comparing Mr McAuliffe and Ms Burnet's valuation, I consider the more useful comparison to be between Mr McAuliffe's $4.36 million valuation and Ms Burnet's $6.1 million figure, as her $7.1 million figure assumes the immediate exercise of the demolition clause (to terminate Taralye's lease and allow for the entire Balance of Level 3 to be leased to the master tenant straight away). I consider that to be an unrealistic assumption which results in the value being inflated, even on Ms Burnet's approach.

493 For the foregoing reasons, I adopt Mr McAuliffe's valuation of $4.36 million for this component of the loss and damage assessment.

What was the value of the fee-related income streams of the Business?

Preliminary observation: limited difference in outcome with audited figures

494 While the discussion below addresses Mr Meredith and Ms Burnet's business valuations in some detail, the debate between them should be viewed in the context of the limited differences in their opinions on the value of the management fee income stream once they used Ardmillan's audited accounts in their calculations. The management fee income stream was referred to as the 'deferred management fee' (DMF).

495 As set out below, Ms Burnet in effect assumed an intending purchaser would proceed on the basis that it could dramatically improve the financial performance of the Business, whereas Mr Meredith assumed that the losses recorded in Ardmillan's unaudited accounts would be ongoing, without critically analysing those costs (including by examining which costs were truly retirement village costs and not other costs of Ardmillan). Given that neither expert used the audited accounts, I requested that they calculate the outcome of their opinions if the audited accounts were used. The experts helpfully did so, and both parties' counsel confirmed that the Court could proceed using those revised figures without straying into the realm of introducing a third opinion into the ring.[459]

496 Once the audited accounts (which had a more modest deficit than the unaudited accounts) were used by Ms Burnet and Mr Meredith, the difference between their opinions on the value of the income stream from management fees[460] collapsed from $2,100,000 (Ms Burnet at $4,600,000 and Mr Meredith at $2,500,000) to $260,000. That is the differential between:

(a) Ms Burnet's figure of $4 million using the average of the FY18 and FY19 audited accounts and allowing for a deficit over three years; and

(b) Mr Meredith's figure of $3.74 million using the average of the FY18-FY20 audited accounts in his existing model (on a non-inflation basis).[461]

497 In oral closing submissions, counsel for Next Stage confirmed it was content for the Court to proceed using the audited accounts.[462]

498 This narrowing of the difference in the expert opinions on the value of the cashflow from management fees does not affect the difference in their valuations of the stock on hand, which was $340,000 (Ms Burnet at $5.3 million and Mr Meredith at $4.96 million) save that Ms Burnet's valuation of the unsold stock would increase by approximately $150,000, to reverse a deduction she made against unsold stock for the shortfall in operating revenue (which, under her revised figures, becomes accounted for in the DMF calculation).[463]

499 Thus, the differences (if the audited accounts are used and the DMF figures set out in the experts' 1 October 2021 notes are adopted)[464] are as follows:

Overview of Mr Meredith and Ms Burnet's valuations

500 Ms Burnet and Mr Meredith gave evidence of the value of the Business. They both proceeded by modelling the discounted value of the future cashflows to be derived from the retirement village business, as well as the value of the unsold stock. It was common ground that, at the valuation date, the unsold stock consisted of 11 vacant units,[469] including the eight newly constructed apartments, referred to as the 'Marimar' apartments. They also agreed on the following points:[470]

(a) that the discount rate should be 15%;

(b) the long term growth rates to be applied; and

(c) that the cashflow should be over 40 or 50 years.

501 Ms Burnet and Mr Meredith summarised their conclusions as follows in the Joint Expert Report (the adjustments referred to above following use of the audited accounts post-dated the preparation of the Joint Expert Report):

Value of the Stock on Hand [unsold stock]

502 Ms Burnet's figures, as stated in the Joint Expert Report and her Supplementary Report, represented a downward adjustment from the figures in her First Report, which were $5,300,000 for the DMF and $5,950,000 for the unsold stock. The change to the DMF figure was accounted for by Ms Burnet's inclusion, in her revised modelling, of a 40 year cashflow,[471] and an allowance for a refurbishment and capital replacement at 2.5% of the value of each retirement unit.[472] The change in the unsold stock was due to Ms Burnet's application of a different valuation methodology (gross realisations and her alternate in-one-line analysis including assumptions as to the rate of sale, various categories of costs and an assumed rate of return).[473]

503 Analysis of the areas of difference between Mr Meredith and Ms Burnet is complicated by the fact that they used different modelling approaches[474] and adopted different assumptions in relation to a number of matters. Nevertheless, the key points of difference between them - so far as those points of difference affected their ultimate opinions - were that:

(a) Ms Burnet proceeded on the basis that an interested purchaser would value the retirement village business on the basis that the incoming operator would be able to rectify the operating deficit of the retirement village business such that service fees charged to residents and operating expenditure would net off;[475] and

(b) Mr Meredith proceeded on the basis that the operating shortfall would continue for the entire duration of the model,[476] although he retained constant dollar figures, meaning that the real value of the operating deficit declined over time.[477]

504 This difference in approach to the operating costs accounted for much of the difference between their valuations of the DMF ($3.12 million of the total difference).[478]

505 While both experts modelled the discounted value of the future cashflows and the unsold stock separately, Ms Burnet included a short-term operating shortfall as a single, below the line adjustment to her value of the unsold stock, whereas Mr Meredith included the ongoing shortfall in his discounted cashflow analysis. Ms Burnet explained that her approach was based on her view that an incoming operator would quickly rectify the operating shortfall and that the operating shortfall was, in effect, a one-off cost of the village not being fully occupied; thus, she accounted for it as a 'below the line' adjustment to her unsold stock valuation.

506 The other points of difference between Mr Meredith and Ms Burnet concerned:[479]

(a) the calculation of the 'early vacate' factor (which determined how often each ILU or ILA would be re-let, attracting the DMF from the outgoing resident, and the establishment fee from the incoming resident[480]);

(b) the time it would take to sell down the vacant units;

(c) whether Mr Meredith included in his calculations the additional service fee income that would arise from the vacant units, once sold;[481] and

(d) the quantum of refurbishment costs that would be borne by the operator, and not recovered from vacating residents (or their estates).

507 Mr Meredith calculated that the different approaches to refurbishment costs accounted for $280,000 of the difference between their valuations, and also calculated a residual difference of $800,000 being attributable to 'revenue and other'.[482]

508 As has been noted, the driving factor in the difference between Mr Meredith's and Ms Burnet's DMF valuations was that Mr Meredith included the ongoing operating shortfall, whereas Ms Burnet did not (instead including a one-off adjustment in her stock on hand calculation).

509 In order to elucidate the dimensions of the dispute between them regarding operating costs, it is necessary to refer to some of the evidence concerning the retirement village's revenues, costs and the reporting regime established by the RV Act. The retirement village operates on a 'loan-lease' model. Broadly, this means that the lump sum paid by the resident is loaned by the resident to the village operator in exchange for the resident obtaining a lease over the ILA or ILU.[483] The loan - which is a 'refundable ingoing contribution' under the RV Act - is then repaid upon exit, less agreed fees.

510 Mrs Darling gave evidence of the fees which Ardmillan charges to residents.[484] Those fees are:

(a) an establishment fee: equal to 5% of the purchase price (ie, the 'refundable ingoing contribution') of the ILU or ILA, paid upon taking possession;

(b) a resale charge: equal to 5% of the purchase price if the resident is in occupation for less than 5 years, or 10% if in occupation for 5 or more years;

(c) a weekly fee: a fee similar to a body corporate fee, indexed to CPI and the level of which Mrs Darling explained has been constrained by the need to remain competitive, leading to Ardmillan not recouping the full costs of outgoings via this fee;

(d) a long-term maintenance charge: a contribution to a sinking fund which can only be used for capital works; and

(e) a refurbishment charge: a charge levied to cover the cost of refurbishments such as re-painting and re-carpeting, while other refurbishment costs (such as updating dated bathrooms or kitchens) are borne by the operator.

511 Mrs Darling's evidence was that the retirement village operates at a loss as it cannot recover all its operating costs from village residents and commercial tenants. In her second statement, she said that the village operated at a loss 'notwithstanding these fees', apparently referring to all of the fees she had just explained, including the establishment fee and resale charge, along with the other fees.[485] However, in her oral evidence, when asked to explain how Ardmillan makes up the operating deficit due to the weekly fees not meeting operating costs, Mrs Darling explained that the idea was for the operator to make its profit from the resale charge and, in Ardmillan's case, the establishment fee as well.[486]

512 Section 34 of the RV Act requires the manager of a retirement village to present a financial statement to an annual meeting each year, which details, inter alia, expenditure 'on the provision of goods and services for the village by the manager'. Pursuant to s 3, 'services' is broadly defined and includes, inter alia, 'management and administrative services'.

513 The audited financial statements presented to residents were in evidence for FY18-FY20[487] (the last month of which post-dated the agreed valuation date of 1 June 2020), as were the unaudited profit and loss statements of Ardmillan for the same years[488] and Pitcher Partners reconciliation documents.[489] Those documents revealed the following:

'Direct costs'

- retirement village

- general repairs and maintenance

116,838

[102,908 for 'retirement village']

[13,930 for general repairs and maintenance]

77,681

[64,596 for 'retirement village']

[13,085 for general repairs and maintenance]

168,631

[158,886 for 'retirement village']

[9,745 for general repairs and maintenance]

Net Recovery/ (Loss) (per audited Profit & Loss)

Total establishment fees and resale charges (per Pitcher Partners)

Net profit (loss) (per unaudited) Profit & Loss)[491]

514 Returning to the ambiguity in Mrs Darling's evidence, the above figures suggest that the inclusion of the establishment and resale fees (but not the long term maintenance fee) would not have wholly addressed the operating deficit in each of the years referred to. It is also apparent that Ardmillan's unaudited operating profit and loss involved significantly greater costs, resulting in much greater deficits than the audited statutory accounts presented to residents. It was clear that, whatever other amounts accounted for this difference, there were significant staff costs included in Ardmillan's unaudited operating profit and loss, which were excluded from the audited accounts. In FY19, the amount excluded was $218,674.

515 The evidence adduced at trial never did reveal the detail of the expenses Ardmillan incurred that were referable to the operation of the retirement village, but were excluded from the statutory accounts. Nor was there any explanation in the evidence as to what the 'direct costs' referable to the 'retirement village' line in the audited accounts were for;[492] this figure was largely responsible for the greater deficit incurred in FY20 than in the previous years.

516 As far as the evidence went, it revealed that Mr Booth's role extended well beyond the Business. Mrs Darling described him as her 'development manager', and his evidence was that he worked for Mrs Darling as her development manager 'for various entities associated with Mrs Marina Darling'.[493] Mr Booth's evidence was that he was employed by another of Mrs Darling's companies, Hilbury Pty Ltd.[494] Neither Mr Booth, nor Mr George Robinson (an accountant[495]) were expected to transfer with the sale of the Business,[496] although the draft Notice to Residents, which purported to explain the changes that would occur following the sale of the retirement village to Next Stage, anticipated that three employees would be transferred (Vanessa (sales/administration), Lily (bookkeeper) and John (maintenance/gardening)).[497]

517 Mr Booth assumed some portion of his salary was on-charged to the Business, but was unsure about this.[498] Mr Booth was also unable to explain, beyond making assumptions, the figures that accounted for the staff costs line ($445,501 in FY20) in Ardmillan's profit and loss statement.[499] Nor could he explain the 'management fees' figures in the Rexnova Unit Trust accounts for FY19 and FY20.[500]

518 Mr Booth's inability to explain the accounts or how his salary was allocated among Mrs Darling's various business interests is not a cause for criticism of him; it reflects the limits of his role. What is relevant, however, is that the Court has been left with no evidence upon which to obtain a proper understanding of the extent to which the costs recorded in Ardmillan's unaudited financial statements include costs that are not directly referable to the ongoing costs of running the Business, or are costs which could (or could not) be reduced to stem the operating losses being experienced by Ardmillan. This matter goes to whether Mr Meredith's assumption on operating costs should be adopted, whether Ms Burnet's view should be adopted, or whether I should use the audited accounts which (by operation of s 34(3)(b) of the RV Act) ought to, as best as can be done, reflect costs directly related to the retirement village business (albeit without assessing the extent to which the performance could be improved by tighter management).

519 Mr Meredith's model adopted a constant operating loss of $464,038 over the entire period of his model, totalling $23.2 million over the whole of his model.[501] Ms Burnet disagreed with this assumption on the basis that it included staff costs of $529,403 per annum which could not be justified for a village of the size of the Ardmillan retirement village.[502]

520 Reviewing the operating profit and loss for FY19, as detailed in the Pitcher Partners Reconciliation sheet, Ms Burnet calculated an operating shortfall in that year of $121,527 (if income included recovery of water and electricity expenses, and the long-term maintenance fund, but not the establishment fees and resale charges[503]) and expenses of $537,779 after making adjustments to the staff costs.[504] Based on her anticipated rate of sale of the vacant stock, Ms Burnet calculated that the monthly deficit would tip into positive territory by April 2021.[505]

521 Mr Meredith analysed the line item differences between the operating expenses he allowed for (which led him to adopt an ongoing operating shortfall of $464,038) and the expenses Mr Burnet allowed for (which led her to a single year shortfall of $121,527 which, as noted elsewhere, extended slightly beyond a year on her modelling of the sell-down rates of the unsold units). Mr Meredith identified that the main cause of the difference was his inclusion of additional 'staff costs' of $218,674, 'cleaning - internal staff' of $97,673, 'accounting - staff' of $76,522, and 'accounting expense' of $23,478.[506]

522 Each expert's position on the costs differential may be succinctly stated:

(a) Mr Meredith took the view that, as the costs had been incurred and were recorded as referable to the retirement village business, they should be included, whether or not they were in the audited accounts.[507] He considered that there was no reason for him to consider that the retirement village had been operated on a basis that it incurred excessive costs.[508]

(b) Ms Burnet considered that the expenses recorded were simply unjustified given the size of the retirement village, and any incoming purchaser would approach the business on the basis that they would reduce the costs.[509]

523 While Mr Meredith acknowledged that his model allowed for an ongoing operating deficit, he did stress that he was not modelling a loss-making business overall. He explained that, while his model generates negative cash flows in some years, it predominantly generates positive cash flows once all income streams are taken into account, noting that it is a 50 year model.[510]

524 At the request of the Court, each of Mr Meredith and Ms Burnet identified how their analyses would change if they adopted the deficit stated in the audited accounts.

525 Both experts presented some alternative analyses, which usefully expose the sensitivity of their approaches to different variables:

Meredith Model, adjusted to include average net recovery/(loss) from the FY18 and FY19 audit reports

Meredith Model, adjusted to include average net recovery/(loss) from the FY18 and FY19 audit reports inflated for CPI

Meredith Model, adjusted to include average net recovery/(loss) from the FY18, FY19 and FY20 audit reports not inflated

Meredith Model, adjusted to include average net recovery/(loss) from the FY18, FY19 and FY20 audit reports inflated for CPI

Value - with 3 years financial deficit accounted for utilising the average between FY18 and FY19 Audited Accounts ($260,572 pa)

Value adopted on the basis of market partificipants [sic] behaviour if the shortfall is significant and requires 3 years to trade up to a net $0 balance. In Scenario 2, if a 2 year shortfall period is adopted, discounted rate equates to 16.0%

Value - with 40 years financial deficit accounted for utilising the average between FY18 and FY19 Audited Accounts ($260,572 pa)

Analysed discount rate is outside of market evidence

Value - with 40 years financial deficit accounted for utilising the average across FY18, FY19 and FY20 Audited Accounts ($289,850 pa)

Analysed discount rate is outside of market evidence

Value - with 3 years financial deficit accounted for utilising the Burnet assessed village operating shortfall of $121,527 per annum

526 Next Stage contended that Mr Meredith's analysis ought to be rejected, principally because it failed to account for expenses of Ardmillan that were not expenses of the retirement village business, and also failed to assume a reasonably efficient operator (on the contrary it contended that Mr Meredith assumed an operator who would continue to trade unprofitably for the 50 year duration of his model). It also contended that Mr Meredith's valuation should be rejected on the basis that he failed to include additional service fee income as unsold stock is sold down.

527 In relation to the operating costs, Next Stage contended that the staff costs recorded in Ardmillan's accounts (used by Mr Meredith) included significant management fees paid by Ardmillan to Rexnova Pty Ltd. Those additional costs were excluded by the auditors in preparing the statutory accounts required under the RV Act. In its written closing submissions, Next Stage submitted that Ms Burnet's operating costs ought be preferred as she made the necessary adjustments to reflect a reasonably efficient operator (although, as noted, counsel for Next Stage also embraced Ms Burnet's figures based on the audited accounts in oral closing submissions).

528 So far as the omission of fee revenue as units are sold down is concerned, Next Stage submitted that Mr Meredith's explanation - namely that he allowed for that income in effect, by assuming it would be netted off against increases in operating expenses - was unjustified, and Mr Meredith had not properly considered what the additional operating expenses would be.

529 In relation to the experts' 1 October 2021 modelling applying the audited accounts, Next Stage contended that Ms Burnet's scenario 2 should be adopted as it allowed the operating deficit to be remedied over a short period of time (rather than carrying through for the entire duration of the model) and that, of Mr Meredith's further figures, his scenario B1 should form the point of comparison as that model is, like Mr Meredith's original model, prepared on an uninflated basis. Next Stage noted that Ms Burnet's 1 October 2021 modelling did not include additional service fee income, at least in the first three years.

530 Ardmillan made no specific submissions in its written opening or closing submissions on the business valuation issues, beyond stating in its written closing submissions that Ms Burnet's modelling was flawed on the basis that she failed to take account of operating losses, and even her modified 1 October 2021 modelling, which allowed three years for the operating revenue to reach a break even point, was understated. It also stated in its written closing submissions that her management costs were 'unrealistic/unverified'. In oral closing submissions, counsel for Ardmillan elaborated briefly on these points, and noted that some version of the 'homework' (being the expression used to refer to the experts' 1 October 2021 analysis based on the audited accounts) might commend itself to me.[511]

531 As outlined above, on the question of the value of the DMF component of the Business, much is driven by the set of accounts which are adopted to establish the net operating costs: in his First Report, Mr Meredith adopted a normalised version of Ardmillan's actual net operating performance.[512] This figure (net operating loss of $464,038) was close to Ardmillan's actual net operating loss in FY19 of $465,332, but above its actual net operating loss in FY18 of $446,636.

532 It is, however, important to note that the income credited to these operating profit/loss calculations did not include the resale charge income earned by Ardmillan upon a resident exiting (5 or 10% of the unit price, depending on how long the resident had occupied the apartment), the re-lease income earned by Ardmillan upon the sale of a unit to a new resident (essentially the difference between the sale price to the new resident and the price at which the previous resident entered) and establishment fee income earned when a new resident enters (5% of the unit price). As Mrs Darling explained in her evidence, the service fees charged to residents (which form part of the operating profit/loss calculation) may not recover all costs, but retirement village operators seek to make up for that by the income they earn on the entry and exit of residents.[513]

533 As shown in Appendix H of Mr Meredith's First Report, when those other income streams are included, the EBIT was positive in most years over the period of his projections, often to the tune of multiple millions of dollars. As such, I reject the contention that Mr Meredith's approach should be rejected on the basis that he essentially modelled a perpetually loss-making business.

534 That does not, however, mean I consider I should adopt the valuation figure in his First Report. That is because, in my view, the value of the DMF component of the Business valuation ought to be determined by reference to the audited accounts.

535 On the evidence, there is too much uncertainty regarding the nature and extent of the costs attributed to Ardmillan through Mrs Darling's personal group of companies for me to have any confidence that its accounts accurately record only costs that are fairly attributable to the running of the retirement village business, and not other costs associated with Mrs Darling's other business interests or costs associated with the retirement village, but which were not ordinary, recurring operating costs. For example, Mr Booth was clearly heavily involved in the negotiations for the sale of the Property and Business, and, on the evidence adduced by Ardmillan, those negotiations began in early 2018.

536 In the absence of any explanation of the basis of attribution of costs to Ardmillan, I am not prepared to assume that the operating accounts of Ardmillan, on which Mr Meredith relied, present a reliable account of the operating costs properly referable to the retirement village business for the purposes of the valuation exercise. I also accept Ms Burnet's evidence that the costs are objectively excessive given the size of the Ardmillan retirement village. As Ms Burnet stated 'given the size of the village and the management and services offered, this level of staffing costs is considered excessive and incongruent by comparison to observed market parameters.'[514] Ms Burnet had sufficient experience of the operating costs and staffing levels of retirement villages to have a proper basis for her opinion, having significant experience in valuing retirement villages specifically, within a team that specialises in the sector.[515]

537 Conversely, I consider an approach which assumes an intending purchaser would price its offer on the basis that it would be able to immediately and drastically reduce the operating shortfall, ought to be rejected. That was the approach Ms Burnet took in her Supplementary Report.[516] Even assuming an intending purchaser concluded it would be able to reduce expenditure, it is unlikely to assume it would be able to do so on day one; at the very least, a period of adjustment would be required. This was accounted for by Ms Burnet in her 1 October 2021 analysis, by which she provided (as scenarios 2 and 5) valuations for the DMF income if the operating shortfall continued to exist for the first three years following the sale.

538 For these reasons, I consider that the audited accounts prepared pursuant to s 34 of the RV Act present the most reliable guide to the costs of operating the retirement village. As noted above, s 34 of the RV Act requires the manager of a retirement village to present a financial statement to an annual meeting each year which details, inter alia, expenditure 'on the provision of goods and services for the village by the manager'. Adopting those accounts as the basis of the DMF valuation avoids the pitfalls of conducting the valuation on overly optimistic assumptions that the operating deficit could be eliminated immediately or in three years, while also recognising that the costs stated in Ardmillan's accounts may well have been excessive and/or included costs not directly related to the ongoing operations of the retirement village.

539 The question then becomes whether, having determined that the audited accounts should be adopted, I should prefer Mr Meredith's opinion, or that of Ms Burnet. Both presented analyses based on the audited accounts in their respective 1 October 2021 analyses. I have concluded that I must adopt one of their opinions notwithstanding that their approaches also differed on a number of subsidiary matters such as refurbishment costs. I simply do not have the mathematical analysis before me to determine the valuation figure were I, for argument's sake, to prefer Mr Meredith's approach on the duration of the operating shortfall and Ms Burnet's approach on refurbishment costs.[517]

540 Taking the DMF valuation matter as a whole, I prefer Mr Meredith's approach. As noted above, the existence of an operating shortfall does not mean that the retirement village business, overall, is loss-making. Even on the higher operating shortfall figures Mr Meredith adopted in his First Report, EBIT was positive - significantly so - in most years. Logically, the position would only be improved by adopting the more modest operating shortfall based on the audited accounts.

541 By contrast, for the reasons noted, I am not persuaded that an intending purchaser would assume it could reduce the operating shortfall to zero (even from the more modest level associated with using the audited accounts) immediately or over three years. I am satisfied, based on Mrs Darling's evidence concerning the operations of the Ardmillan retirement village, that it would be reasonable for an intending purchaser to anticipate an ongoing operating shortfall so as to maintain headline service fees at a competitive level, while making up for that shortfall from the income earned when residents enter and exit the village.

542 Given that Mr Meredith conducted his principal analysis without inflating the operating deficit, I consider that I should not adopt one of his 1 October 2021 analyses that involved inflating the deficit; the reasons why an analysis involving inflation ought to be adopted were not explained, nor was any positive submission made by Ardmillan that one of his scenarios involving inflation ought to be adopted. Adopting an uninflated scenario means that, in real terms, the size of the deficit decreases slightly over time with inflation reducing the real value of the deficit.[518]

543 That then reduces the choice to Mr Meredith's scenarios A1 and B1 of his 1 October 2021 analysis. Scenario A1 used the FY18 and FY19 audited accounts, whereas scenario B1 adopted the FY18, FY19 and FY20 audited accounts. Given the deficit was larger in FY20 than in the two earlier years, scenario B1 assumes a higher ongoing deficit than scenario A1 ($289,850 as opposed to $260,572). I will adopt scenario B1 for two reasons. First, Next Stage did not contend that I should prefer scenario A1 to scenario B1 in closing submissions, but instead addressed submissions to Mr Meredith's scenario B1.[519] Secondly, while the deficit is larger with the inclusion of FY20, I see no logical reason to exclude it[520] given the FY20 accounts were prepared by Pitcher Partners, as were the FY18 and FY19 accounts. While the FY20 accounts include one month (June 2020) which post-dates the valuation date, inclusion of that month is not material to the analysis.

544 Accordingly, I adopt Mr Meredith's 1 October 2021 scenario B1 valuation, which was $3,740,000 for the value of the DMF income stream.

What was the value of the vacant stock component of the Business?

The experts' approaches to the valuation of the vacant stock

545 The experts' starting points for their analyses, being the gross realisable value for the 11 units, was not markedly different. Ms Burnet and Mr Meredith, however, adopted different valuation approaches. Mr Meredith included the value of the unsold stock in his DCF model, and then split out the portion of his ultimate value attributable to the unsold stock versus the amount attributable to the income streams. By contrast, Ms Burnet performed each analysis separately and, as noted, included a short-term operating deficit offset as an adjustment to her calculation of the value of the unsold stock.

546 The difference between the experts' valuations of the unsold stock (including their various adjustments) was $340,000.[521] Ms Burnet calculated a starting position (gross realisations before deductions) of $6.97 million, and a final position of $5.3 million, with the difference being accounted for by a series of below the line adjustments, including selling costs, a profit and risk allowance, the one-off allowance for the operating shortfall ($147,671 as units were sold down), interest and purchase costs, but adding back GST credits.[522]

547 Mr Meredith's valuation on an undiscounted basis was $6.88 million, with his final figure (discounted value) being $4.96 million.[523]

548 The primary difference between Ms Burnet's and Mr Meredith's approaches lay in the assumptions they made about the rate of sales. Mr Meredith undertook his analysis assuming sales at a rate of one unit every three months, and at a rate of one unit every six months, and then chose the mid-point of that analysis in his calculations.[524] As set out in his Letter Report, Mr Meredith's discounted value on the assumption of a sale every three months was $5,357,504, and his calculation based on a sale every six months was $4,559,332, with the midpoint being Mr Meredith's adopted valuation of $4,960,000.[525]

549 In relation to the rate of sales, Ms Burnet considered the rate of sale allowed for in Mr Meredith's modelling to be well below industry benchmarks when proper marketing is adopted. She considered a rate between one and two units per month with a total sell down period of nine months to be appropriate and within observed market parameters.[526]

550 Mr Meredith's reasoning was that his rate of sales was reasonable given the resale history of units at the retirement village,[527] and the fact that, at the date of his First Report, the vacant units remained unsold, a period of over six months from the valuation date in June 2020.[528]

The parties' submissions on the value of the vacant stock

551 Next Stage did not make any written submissions specifically addressing the pace of sales issue that forms the basis of the difference between the opinions of Mr Meredith and Ms Burnet. Nor did Next Stage address that matter in oral closing submissions.

552 Ardmillan also said very little about the vacant stock valuation in its written closing submissions, contending only that that Ms Burnet's opinion was flawed, recording the comment 'unrealistic speed of sale'. This substantive submission was repeated in Ardmillan's oral submissions.

553 The values ascribed by Ms Burnet and Mr Meredith to each of the vacant apartments or units is not materially different in the aggregate. As is apparent from examination of Appendix I to Mr Meredith's First Report, they adopted the same values for each vacant unit/apartment, except that Mr Meredith adopted a value of $70,000 more than Ms Burnet for apartment 321, and Ms Burnet adopted a value of$50,000 more than Mr Meredith for each of apartments 319 and 320.

554 I prefer Mr Meredith's opinion on the vacant stock. In my view, Mr Meredith's approach strikes an appropriate balance between adopting a reasonable rate of sales based on the actual resale history of units at the retirement village, but which also takes account of the fact that, for reasons unknown (and not explored in the evidence), all units and apartments that were unsold at the valuation date (June 2020) had remained unsold for a period of over six months. While Ms Burnet's view was that with 'proper marketing' the units could be sold at the rate of one or two per month, Next Stage did not attempt to establish what that 'proper marketing' would entail, or how the actual pace of sales at the retirement village may have been depressed by a lack of 'proper marketing'.

555 I also prefer Mr Meredith's opinion as Ms Burnet adopted an 'in-one-line' approach in her Supplementary Report. I accept Mr Meredith's opinion contained in his Letter Report that the 'in-one-line' approach is not appropriate for the sale of apartments in a retirement village (cf, unsold stock in an apartment building).[529]

556 Accordingly, I conclude the value of the unsold stock was $4,960,000.

557 Bringing those conclusions together, in my view the total value of the land and assets which Next Stage contracted to acquire under the Contract of Sale and the ASA was $39,931,250 (being the sum of the four component parts of the valuation identified above: the Vacant Land ($26,871,250), the Balance of Level 3 ($4,360,000), the DMF income stream ($3,740,000) and the unsold stock ($4,960,000)).[530] Subject to the matter of mitigation, which I address below, I conclude that Next Stage is entitled to loss of bargain damages being the difference between $39,931,250 and the price established under the Contract of Sale and the ASA, as those final figures would have stood at 1 June 2020. Ardmillan submitted that, if the original contracts had completed on that date, the price payable would have been $34,735,000, including approximately $790,746 in GST.[531] While Next Stage did not make a submission about the price that would have been payable had the original contracts completed on 1 June 2020, and did not address Ardmillan's submission on this point, the basis of the calculation of Ardmillan's figures was not explained and the parties will need to make further submissions on the final calculation of the damages award in light of these reasons, if they cannot agree the figure.

558 Given the conclusions I have reached, it is not necessary to address Next Stage's alternative reliance damages claim.

559 Ardmillan contended that Next Stage failed to act reasonably in rejecting open offers made by it in February and April 2021, by which it offered to convey that which Next Stage would have acquired under the Contract of Sale and the ASA for a lesser price than the price set by the original contracts. As set out below, Ardmillan's second offer provided for a significant discount - $6 million - from the original purchase price. However, Ardmillan's offers came with terms, and, most significantly, involved withdrawal of the vendor finance. Next Stage explicitly rejected the first offer, and did not accept the second offer. Ardmillan accepted, by its submissions, that it had the onus of showing the extent to which Next Stage acted unreasonably in failing to minimise its loss.

560 On 19 February 2021, Ardmillan offered to settle the proceeding on the basis of an outright sale of the Property and Assets for $34,335,000 (including GST) (the First Offer).[532] The First Offer anticipated settlement on the transaction in 90 days from acceptance. It provided for the parties to settle on the basis of the Contract of Sale and the ASA, but with a series of adjustments. Of present relevance was the withdrawal of vendor finance, in lieu of which the First Offer provided a discount of $880,000 on the purchase price for the Property, said to be calculated at the rate of 4% on the vendor finance of $22 million.

561 The First Offer was rejected by Next Stage on 10 March 2021.[533] In explaining why the offer was rejected, the solicitors for Next Stage stated that the withdrawal of the vendor finance would result in additional costs of $5-6 million, and was also disadvantageous as the acquisition could no longer be funded entirely by debt (whereas there was no prospect that new finance could be obtained without a significant equity contribution). Next Stage also referred to advice from a financing advisor to the effect that a bank would not lend and, even if it were possible to secure finance from a non-bank lender, it would be at significantly higher cost and would also require equity given likely maximum Loan to Value Ratio (LVR) constraints. Another reason given was that, in the period since Ardmillan's (alleged) repudiation more than nine months earlier, the joint venture shareholders of Next Stage had 'moved on' commercially and no longer had the management capacity or, in some instances, the financial capacity to proceed, particularly on terms which no longer included vendor financing. Next Stage also contended that the terms of the First Offer were unreasonable because it was open for only 21 days and the deposits would certainly be lost (with no recourse, given the terms of the offer included releases) if it could not complete, or if Ardmillan defaulted.

562 Omitting an intervening exchange of correspondence, the next move was made by Ardmillan, which made a further offer (the Second Offer) by letter from MinterEllison on 1 April 2021.[534] The main changes made to the offer, when compared with the First Offer, were that the price discount was raised to $6 million, and the Second Offer was open for acceptance for 60 days. MinterEllison pointed to, amongst other things, the very significant gap between the price for which Ardmillan was now offering to transfer the Property and Assets, as against Next Stage's expert valuation evidence prepared for trial ($26.125 million against a total valuation of $46.45 million).

563 The Second Offer was not accepted by 31 May 2021, so it lapsed.

564 Mr Maitland gave evidence that, after receipt of the First Offer, he consulted with Joshua Balsim as well as Mr Balsim and determined that the offer was not acceptable to Next Stage. He explained the reasons for their having formed this view which included, consistent with the solicitor's correspondence, that the vendor finance had been a fundamental part of the transaction because it enabled Next Stage to fund the transaction entirely from debt, with no contribution by Next Stage or its shareholders of any equity. Mr Maitland observed that even the deposits had been funded by debt. Secondly, in relation to the vendor finance, his evidence was that the terms of the vendor finance 'were highly concessional'.[535] Mr Maitland gave evidence that, having received the First Offer, he consulted with a number of financial advisors and, having received that advice, and also based on his own knowledge and experience, he formed the view that a bank would not lend the $22 million, and nor would a non-bank lender.[536] Mr Maitland also gave evidence that the plaintiff, being a special purpose vehicle, had no assets or income which it could apply to cover any shortfall created by the withdrawal of vendor finance and the immediate shareholders of Next Stage, being Trivett and Next Stage Living Group Pty Ltd, were also special purpose vehicles with no assets or income.[537]

565 In relation to the prospect of Mr Salvo funding settlement in the absence of the vendor finance, Mr Maitland's evidence was as follows:

To the extent that Salvo would have been willing to fund settlement on 1 June 2020 through Mr Salvo if the Newground facility had not been extended, it was only willing to do so on the basis that the Plaintiff could have re-financed after settlement.

In other words, Mr Salvo's funding was intended to be a temporary mechanism to ensure that settlement was able to complete on 1 June 2020 and the transaction was not lost due to an issue with mezzanine funding. It was not intended as a long-term investment and equity for the life of the project.[538]

566 Mr Maitland also gave evidence that, in the more than nine months since the transaction had been terminated, the Salvo group had pursued other investment and development opportunities and 'has no desire or appetite to provide any funding to the plaintiff, either directly or indirectly'.[539] Mr Maitland's evidence was that, since June 2020, the Salvo group had expended approximately $24 million and committed approximately a further $112 million, in addition to pre-existing commitments and normal business expenditure.[540]

567 Mr Salvo was cross-examined on these investments and commitments, as recorded in a table which Mr Maitland prepared.[541] While the evidence on this table was somewhat unclear, the thrust of Mr Salvo's explanations was that the amount committed referred to (or at least included) a pre-agreed purchase price for which assets could be acquired (and possibly also developed) if the borrower defaulted.

568 In relation to the Second Offer, Mr Maitland's evidence acknowledged that the revised offer did, in respect of interest, go some way to financially compensating Next Stage for the withdrawal of the vendor finance. His evidence was that the second offer was nevertheless rejected because Next Stage remained unable to fund the transaction totally by debt, it remained the position that none of its shareholders were willing or obligated to provide funding or financing or third party security and, in any case, the shareholders had pursued other opportunities in the intervening period.[542] Mr Maitland also drew attention to the risk posed to the deposit under both offers, if it transpired that Next Stage, having accepted the offer, was unable to settle.[543]

569 Mr Maitland's evidence was confirmed and supported by the evidence of Mr Balsim. Mr Balsim's evidence did, however, go on to address the position of his own interests. He explained that on 1 April 2021, a family company, of which his son Joshua was the sole shareholder, had acquired the share held by Leo Trivett Pty Ltd in Trivett such that only the Salvo and Balsim families had an interest in Next Stage.[544] Mr Balsim also explained that his family and business interests had also 'moved on' to pursue other projects.[545] He gave evidence, in particular, about an investment embarked upon by his family companies to pursue specialist disability accommodation and also a warehouse development project that his family interests had committed to in October 2020.[546] Mr Balsim's evidence was that due to those new investments and endeavours, his family would not have had the time and money to invest in and manage the development of vacant land which was to have been purchased pursuant to the contract of sale had the revised offer been accepted, and also had no ability to fund contribution to any equity required to purchase the land and assets after the withdrawal of vendor finance.[547]

570 Mr Salvo also gave evidence concerning the rejection of the offers. He confirmed that Next Stage did not have any assets, income or facilities by which it could fund the transaction on the terms set out in the two offers in light of the withdrawal of vendor finance, and further, that it did not have any assets on which it could borrow. Mr Salvo's evidence also confirmed that the two immediate shareholders of Next Stage, being Trivett and Next Stage Living Group Pty Ltd, did not have any capacity to fill the funding gap caused by the withdrawal of the vendor finance or the ability to proffer security to support third party lending. In respect of his personal capacity to fund settlement,[548] notwithstanding the withdrawal of vendor finance, Mr Salvo's evidence was that he was not willing or obligated personally to fund any shortfall created by the withdrawal of the vendor finance. His evidence in his reply witness statement was briefer on this point.[549]

571 Next Stage also relied on the expert report of Mr Brdjanin. It was Mr Brdjanin's opinion that there was no prospect that Next Stage would obtain bank finance in the amount of $22 million on the basis that the amount of the loan would be well outside any bank's loan to value ratio covenants.[550] If assets acquired under the ASA and the contract of sale were included, the LVR would be approximately 75% but, in Mr Brdjanin's opinion, the assets to be conveyed under the ASA would not have been acceptable such that they would be excluded from the LVR analysis of bank finance.[551] However, Mr Brdjanin was of the view that finance to an LVR of 30% on the purchase price of the land or valuation amount (whichever was the lower) may be obtained.[552] Mr Brdjanin also gave evidence that no bank would allow a borrower to structure finance such that there was no equity contribution at all.[553]

572 Mr Brdjanin's opinion also addressed the availability of non-bank finance. His opinion was that a non-bank lender would also not agree to advance $22 million to Next Stage but might consider advancing an amount of no more than 50% of the land security contract amount or valuation amount (whichever is the lesser).[554] Mr Brdjanin's opinion was that a non-bank lender would also require an equity contribution from the borrowers,[555] although there was some ambiguity in what Mr Brdjanin considered to constitute equity in this context as his report refers to an equity position 'in the form of cash or additional securities'. Mr Brdjanin also gave expert opinion evidence as to likely interest rates and establishment fees and legal fees.[556]

573 Mr Maitland was cross-examined on the Salvo Group's approach to investing, in support of an overall thesis, advanced in closing submissions, that the absence of vendor financing was not material given that it is common for investors to have to invest equity in projects.

574 Mr Salvo's evidence on these matters was as follows:

(a) the Salvo Group typically invested in assets which it owned as to 100%, although it sometimes invested with partners as well; and

(b) more rarely, when the Salvo Group had excess cash, it would make pure third party loans but did not otherwise have a 'lending business'.[557]

575 As was apparent from the evidence of Mr Maitland, the term 'equity' was not used in a consistent or technical way in the documents and witness evidence. For example, Mr Maitland explained that where development financing is obtained it is possible to fund with close to 100% debt in some circumstances, for example where the rise in the value of underlying land is treated as 'implied equity' meaning, by way of example, that the owner of a piece of land worth $3 million, could 100% debt fund the development by having that implied $7 million in equity.[558] In essence, Mr Maitland's evidence exposed that there is not a simple blanket position in relation to whether projects of the relevant scale can be debt funded. Nor is all debt financing obtained by project sponsors necessarily reflected in the form of a debt owed by the project vehicle entity. In the case of Next Stage, funding to pay the deposits was obtained by the upstream holders of economic interests in Next Stage and applied to the deposits due under the Contract of Sale and the ASA, but not, according to Mr Maitland, reflected in an intercompany debt owed by Next Stage. Rather, according to Mr Maitland, it was 'equity into a transaction'.[559] Ultimately, the evidence was unclear on the means by which those funds were made available to Next Stage. Nonetheless, Mr Maitland accepted that 'broadly speaking' the need for an equity contribution by project sponsors is standard.[560]

576 In re-examination, Mr Maitland also gave evidence as to why it was that the vendor finance was favourable and important. As he explained, the vendor finance was generous both in terms of quantum and the fact that there was zero percent interest in the first year and then relatively low interests rates in the second and third years. The fact that the vendor finance would not grow in amount in the first year and was only subject to low interest rates in the following year allowed, in Mr Maitland's understanding, Newground to lend at a higher LVR[561].

577 Mr Balsim was also cross-examined on matters relating to equity and funding. He explained in his evidence that the approach initially made to the Salvo group was made in the context of Mr Balsim having lost his initial funder, LBA, and looking 'of course, on top of that mezzanine facility, additional equity will be required'.[562] It was in that context that Mr Balsim made reference to additional equity being required and, as with most discussion of equity in the evidence in this case, there was no clarity regarding the way in which that term was being used by Mr Balsim in his evidence. It was Mr Balsim's evidence that lenders would not lend 100% of the valuation, and he accepted a proposition put to him in cross-examination that '[t]he project sponsor, the buyer, will always have to put in equity as balance to whatever's being borrowed?---Yes, always.'[563]

578 Mr Balsim was cross-examined on his evidence that he no longer had the resources, and could not have completed the project without, vendor finance pursuant to the offers made in 2021.[564] As to the value disparity between under the Second Offer and the valuation of $46 million, Mr Balsim responded 'Well, the value 20 isn't right. 46 million, 47 million, it is 46 and 47 million. But, if you can't settle, it doesn't matter if it's 5000'.[565]

579 It was clear from Mr Salvo's evidence that, where the Salvo Group considered it to be in its interests, it would borrow money to buy and develop property, at times offering an unencumbered property as security to support finance on another project.[566] When cross-examined on the failure to accept the Second Offer, Mr Salvo's evidence in cross-examination was that it no longer suited them to take it up, that he was only one of three investors and that, without the vendor finance, 'the cash required - another 23 million or 24 million or whatever it was - was significant amount of equity we put in and it just - it changed the whole dynamics of the deal because then there would have had to be total negotiations - discussions with the people involved - I said to the deal to say well we have that equity and all that sort of stuff so - (indistinct) I said no it's not applicable'.[567]

580 Mr Salvo was also cross-examined on the financial capacity of his group to take advantage of opportunities, COVID-19 notwithstanding. Without delving into the detail of his evidence, the thrust of it was that the financial capacity of his organisation to take on new deals was generally strong, but that its capacity varied. As Mr Salvo put it 'you know there's times where there's opportunities there's no money - there's times where there's opportunities and plenty of money so it just depends on the timing and the day, the week, the month or the year'.[568] Mr Salvo also gave evidence that getting a bank loan could take six to eight weeks in general.[569] As to management capacity, while Mr Salvo accepted that the Salvo group had senior employees in addition to Mr Maitland, the team was small and relied heavily on consultants.[570] Besides mention of an accountant, it was not clear how many other senior people there were or what they did. In relation to putting in equity, the following exchange took place:

MR WILLIS: ... it's inevitable that you've always got to put some equity in ---?---Yes of course. All, all or 100 per cent, or 50 per cent or 30 per cent, just depends on what the, what our cash flow is at the time, how much money we've got sitting around and what's the most productive use of our money, right?[571]

581 On the question of mitigation, Ardmillan accepted that it bore the onus of establishing that Next Stage's conduct had been unreasonable. It submitted as follows (in summary):

(a) Next Stage's failure to mitigate does not merely reduce its damages, it means Next Stage suffered no compensable loss or damage.

(b) Next Stage's claimed lack of financial capacity to accept the offers is not credible.

(c) Next Stage's failure to accept the offer was a matter of 'choice not necessity' as its principals had the means and capacity to take up the offer. Ardmillan pointed to Next Stage's own contention that it had the necessary financial capacity to settle on 1 June 2020 in seeking to establish that it was ready willing and able to settle, having served Notices to Complete on 18 May 2020. Ardmillan highlighted that Next Stage's lack of independent means at the time the offers were made was nothing new; it was always a company with limited share capital (or paid up units on issue as trustee) and was always dependent on support of its controllers.

(d) The offers which Next Stage failed to accept, while different in terms from the original contracts, were not 'materially worse'. The discount of $6 million more than compensated for the withdrawal of vendor finance.

(e) Next Stage's contention that the proffered transaction was materially worse on the basis that the withdrawal of vendor finance would have required it to settle with a mixture of debt and equity ought to be rejected by reference to evidence given at trial. That evidence included evidence from lay witnesses and expert evidence of Mr Brdjanin that it is standard for such projects to include equity contributions.

(f) To the extent that Next Stage sought to justify non-acceptance of the offers based on having 'moved on' and the investors lacking financial capacity, that assertion should be rejected. In support of this submission, Ardmillan pointed to concessions made by Mr Salvo in cross-examination concerning his financial capacity and contended that Mr Balsim's professed lack of financial capacity should be doubted. It contended that the claimed lack of management capacity had not been substantiated.

(g) The $6 million discount against the price under the original contracts more than compensated for the loss of the vendor finance and inability to claim further damages due to the releases.

582 For its part, Next Stage contended that it had not acted unreasonably and submitted (in summary) that:

(a) The Second Offer was materially worse than the terms of the original contracts due to the withdrawal of the vendor finance. Ardmillan could have, but did not offer to perform the original contracts.

(b) Relying on Mr Brdjanin's opinion, no bank or non-bank lender would replace the whole of the withdrawn vendor finance. The most a bank would lend would be $7.815 million (reflecting an LVR of 30% applied to the price, which would be $26.05 million under the Second Offer), and the most a non-bank lender would lend would be $13.025 million (reflecting an LVR of 50% on $26.05 million), leading to a shortfall of at least $13 million. No bank or non-bank finance could be obtained without an equity contribution and priority agreement. The leasehold interest would not be accepted as security.

(c) The proposition that the $6 million would more than cover the costs arising from the loss of vendor finance and the releases was just assertion from the Bar table, unsupported by evidence.[572]

(d) If it accepted the Second Offer, it would risk the deposits (c. $3 million) if it was not able to obtain replacement finance or fund the required equity contribution, and would also have been required to give up its legal rights to claim for loss and damage arising from the additional financing costs it would incur.

(e) Neither Next Stage nor its immediate shareholders had the financial capacity to fund the shortfall. Mr Salvo was not required to, and was not prepared to, fund it personally. In addition, the investors in Next Stage had 'moved on' in the intervening 10 months before the offers were made.

583 During the course of oral closing submissions, I invited counsel for Ardmillan to identify any cases to which I should have regard that supported his argument that regard should be had to the position of the principals of Next Stage (and not just the financial capacity of the company itself as a special purpose vehicle) to accept the settlement offer. Ardmillan requested, and was granted, a short period in which to identify any relevant cases. Ardmillan submitted a five page note which stated that no direct authority had been identified. Ardmillan's note went on to contend that the obligation on Next Stage to mitigate 'necessarily requires, in the circumstances of this case, that the plaintiff's controllers act reasonably to minimise the plaintiff's loss'. Ardmillan's note went on to elaborate on the argument on the basis that Next Stage's ordinary course of business as a special purpose vehicle always involved dependence on its principals and it was not open to Next Stage, on the question of mitigation, to confine the analysis to the position of Next Stage.

584 Next Stage objected to this note being received and considered, but went on to respond to it. The basis of the objection was that it went beyond the permission granted to identify any relevant cases, and also on the basis that the contention that there was an obligation on Next Stage's principals to act reasonably was not opened, pleaded or included in the list of issues.

585 It is correct that the note submitted by Ardmillan went beyond the grant of leave. However, I do not accept that it opened a new issue. Whether or not Next Stage had mitigated its loss was a pleaded issue. Next Stage engaged with that issue in its lay witness statements by volunteering evidence concerning the way in which Next Stage's principals had 'moved on' and their unwillingness or inability (in Mr Balsim's case) to fund settlement or volunteer their assets as security. The trial was conducted on the basis that this evidence was relevant to the pleaded issue of mitigation and it was the subject of cross-examination, without objection. Next Stage's written opening submission clearly engaged with Ardmillan's reliance on the position of its principals in relation to mitigation, contending that 'there is no principle of reflective mitigation of damage that requires shareholders to fund mitigation of damage'.[573] Accordingly, I have not rejected the further note submitted by Ardmillan (to which Next Stage responded in substance in any event). Nevertheless, as is apparent from the reasons set out below, my decision on mitigation does not depend on delving into the corporate veil issues addressed by the exchange of notes.

586 The principle of mitigation operates to ensure that defendants are only liable for such loss as is properly to be regarded as having been caused by its breach, not the plaintiff's unreasonable failure to act reasonably to limit its loss.[574] The overarching principle was briefly stated by Ardmillan in its closing submissions, quoting Karacominakis v Big Country Developments Pty Ltd as follows:

A plaintiff who acts unreasonably in failing to minimise its loss from the defendant's breach of contract will have [its] damages reduced to the extent to which, had [it] acted reasonably, [its] loss would have been less.[575]

587 Whether a plaintiff has acted unreasonably is a question of fact. Failure to take up an offer to enter into a contract can constitute such unreasonable conduct,[576] although if taking up an offer would require the wronged party to continue in a relationship with the wrongdoer, the nature and status of the relationship will be relevant to whether it would be unreasonable to decline.[577]

588 Where an entity has ongoing operations, it will not be required to take action other than in the ordinary course of business; action which is 'ordinary' will generally be reasonable.[578] A plaintiff will not have failed to mitigate by failing to take action which it cannot afford.[579]

589 Next Stage referred to, and distinguished, three cases involving a plaintiff failing to proceed with a transaction by entering into a new contract.

590 The first of those cases is Payzu Ltd v Saunders,[580] in which the purchaser of goods was found to have acted unreasonably in declining the defaulting seller's offer to supply the goods on cash terms without a discount when the seller breached the contract which permitted the purchaser to buy on credit terms with a 2.5% discount. In referring to, and distinguishing Payzu, Next Stage emphasised the finding in that case that the plaintiffs were financially able to accept the replacement contract terms, and acceptance of the terms would not have precluded an action for damages for the loss sustained by virtue of the replacement contract terms being inferior.[581]

591 The second case is Solholt, in which the purchaser failed to seek to purchase a vessel which had been delivered late (leading to the termination of the original contract) where the trial judge found that the vessel owner would have accepted an offer to purchase the vessel at the original price, and without compromising any claim the purchaser may have had for delay. The Court of Appeal dismissed an appeal against the trial judge's rejection of the purchaser's damages claim to the difference between the price of the ship and its market value (which had risen). Next Stage relied on a reference in Solholt to an apparent concession by counsel for the ship seller that, if the purchaser had decided 'ship owning was no longer for them', the purchaser would be entitled to damages (and would not have failed to mitigate by seeking to purchase the vessel). However, as the purchaser remained in the business of owning ships, and there was no suggestion of any change in their intentions or circumstances,[582] the concession was not (contrary to Next Stage's submission) material to the Court of Appeal's judgment. Next Stage also distinguished Solholt on the basis that Ardmillan's offer did not leave it free to pursue damages claims but involved releases.

592 The third case is Castle Constructions Pty Ltd v Fekala Pty Ltd,[583] in which the purchaser of a property terminated the contract when the vendors failed to settle on the stipulated date. The purchaser sought declaratory relief, and damages for the loss of a profitable re-sale. The vendors cross-claimed seeking specific performance, and offered in the cross-claim to complete the contract on its terms under the court's supervision. The purchaser was found to have acted unreasonably in failing to mitigate its loss by considering the vendors' offer. Next Stage distinguished Castle Construction on the basis that the offer to complete was made quickly,[584] and was an offer to complete on the original terms.

593 In my view, Ardmillan has not discharged its burden of showing that Next Stage failed to mitigate its loss by unreasonably rejecting its offers.

594 Ardmillan's Second Offer was more favourable than its First Offer. It relied on the Second Offer in its plea that Next Stage failed to mitigate.[585]

595 The vendor finance was an important feature of the transaction Next Stage bargained for. The removal of the vendor finance from the offers meant that Next Stage did not, as Ardmillan contended, pass up an opportunity to 'retake the bargain it claims to have lost by Ardmillan's conduct'. The bargain offered to settle the dispute was very different from the bargain Next Stage lost. Even as negotiations on variations to the original contracts ensued from late November 2019 to mid-March 2020, those negotiations never departed from significant vendor finance being provided (notwithstanding Mrs Darling having raised an outright sale as another possibility, and variations to the terms of the vendor finance being negotiated). There was also no serious challenge to the evidence of Next Stage's witnesses that the fact of the vendor loan was highly favourable. It was interest-free for the first year, during which Next Stage could progress the first stage of the development. Due to the removal of the vendor finance, the terms of the Second Offer take the case outside of cases like Castle Constructions where an offer was made to a wronged party on substantially the same terms as the bargain contracted for.

596 Whatever the precise arrangements were between Next Stage and those with upstream interests concerning the basis upon which the deposit funds were made available to it, on any view, provision of the vendor finance enabled Next Stage to acquire the Property by taking out much more limited third party financing (via the mezzanine facility) than would otherwise have been the case. Provision of vendor finance would have permitted Next Stage to settle on the Contract of Sale with only an additional $1,445,000 due at settlement, from the purchase price of $26,050,000. The vendor loan of $22 million therefore accounted for close to 85% of the purchase price of the Property (although the Contract of Sale and the ASA were independent and no vendor finance was provided under the ASA). Next Stage could have funded the purchase price under the ASA through its mezzanine finance. Provision of the vendor finance also, on Mr Maitland's evidence, made it easier to obtain mezzanine funding.

597 If the evidence was that third party loan finance would have been available to Next Stage to replace the vendor finance,[586] and that it could have been arranged within the period allowed for acceptance of Ardmillan's Second Offer (to avoid exposing the deposits to jeopardy), and could have been obtained at a cost equivalent to - or at least not substantially more than - the terms of the vendor loan, then Next Stage's failure to take up the Second Offer may (subject to other arguments) have been unreasonable. But that was not the case.

598 On the contrary, and as set out above, the evidence of Mr Brdjanin was that only the Property would have been acceptable security to a bank or non-bank lender, and a bank would only advance to a maximum LVR of 30%, a non-bank lender up to 50%. The interest rates that could be obtained from a bank would be between 4 and 5%, and between 8.5% and 10.00% from a non-bank lender. There would also be establishment fees. Mr Salvo said bank finance can take six to eight weeks to be approved.[587] Even if, most favourably to Ardmillan,[588] one applied the entire discount of $6 million to the assets being acquired under the ASA (and not the Property), as Next Stage's submissions pointed out, there would still have been a shortfall in the maximum amount that could have been borrowed and the amount required to fund settlement had the offer been accepted. Ardmillan's response was to contend that it is typical for equity contributions to be required (however imprecisely the concept of equity is approached).

599 I do not consider that the evidence relied upon by Ardmillan concerning equity contributions being standard,[589] or there being no impediment to a direct equity investment, undermine Next Stage's contention that the transaction offered was materially less favourable because it would have required substantial equity contributions in order to obtain loan finance. On the contrary, the fact that Next Stage had secured (by the original contracts) a transaction which required so little equity to be contributed only serves to highlight that the transaction without vendor finance was not materially the same as, or better than, the original transaction.[590] It was not unreasonable for Next Stage not to take up the Second Offer when it did not involve the provision of significant vendor finance on favourable terms, but would have required the principals to contribute substantial further funds (whether or not technically described as equity) and/or offer other assets as security to make up the difference between the funds that could be borrowed and the price under the Second Offer.

600 On this analysis, it is not necessary to determine whether the discount of $6 million would have fully compensated Next Stage for the additional costs associated with procuring third party financing and its other damages. However, if it were necessary to do so, I would find that Ardmillan has not shown that this is the case. Calculations set out by counsel for Ardmillan in oral closings were premised on Next Stage only having to replace $13.125 million of the vendor funding,[591] based on other facilities still being available to it. However, the Newground facility was not on foot in April-May 2021, Mr Elzain's offer had been to support settlement in mid-2020 (not 2021)[592] and Mr Salvo no longer wished to support settlement, at least on the basis of a transaction without vendor finance, in April-May 2021.

601 The submission that there was available to Next Stage a way of financing acceptance of the offer which was 'bankable' proceeded using that $13.25 million borrowing figure and calculating the LVR and the original total price under both the Contract of Sale and the ASA of about $35 million.[593] The original contract figure was apparently used as the comparison on the basis that lenders' general practice of calculating LVRs by reference to contract prices (not valuations) could be avoided by structuring the transaction to artificially maintain a headline price of $35 million.[594] I am not prepared to proceed on the basis that financing would need to have been arranged on the basis of some deft drafting artificially maintaining the headline price. But there is another problem in Ardmillan's scenario, namely that it assumes, contrary to the evidence,[595] that lenders would take the value of the assets being acquired, other than the Property, into account.

602 Further, I do not accept that the financial capacity of those holding and controlling the ultimate economic interests in Next Stage (relevantly, at April 2021, Mr Balsim and Mr Salvo) is to the point. The bargain that Next Stage struck was one including advantageous vendor finance. That cannot be seamlessly substituted for the transaction offered in April 2021 on the basis that, even if Next Stage could not (or chose not to) borrow from third parties, Mr Salvo and/or Mr Balsim should have stepped in and either advanced funds by way of loan, injected significant capital or offered up other assets as security to support third party borrowing.

603 In any event, I do not accept the submission that Mr Balsim's evidence about his family's financial capacity should be doubted or rejected, as Ardmillan contended. The other investments made by Mr Balsim's family interests were made in the last quarter of 2020, well before Ardmillan's offers were made, and at a time when the transaction the subject of this proceeding had, on any view, ended some months before. Similarly, the Balsim family's purchase of Mr Aiello's interests in Next Stage does not support a contention that Mr Balsim had wealth greater than that to which he attested. If nothing else, the terms on which that acquisition was made were not explored with Mr Balsim in cross-examination.

604 Additional matters also support the conclusion that it was not unreasonable for Next Stage not to accept the Second Offer. First, the offer was made a long time after the transaction was at an end in late May 2020. This is not a case like Castle Constructions, or Payzu where an offer to all but replace a determined contract on similar terms was made close to the time of determination. Next Stage's principals had 'moved on'. Nor can the matter of management capacity be readily dismissed. It was clear from the evidence that, following the introduction of the Salvo interests, they were to have carriage of the project. Accordingly, it is the management capacity of the Salvo interests that is relevant to this issue. As Mr Salvo stated in his evidence, while his empire is large, his team is small and relies on third party consultants. It was apparent from his evidence that Mr Salvo relies heavily on his team, particularly Mr Maitland. There was no evidence that there were other senior employees with Mr Maitland's skill set (cf, there being at least an in-house accountant).

605 Secondly, while the evidence concerning dealings with the Head Landlord have not been set out in detail earlier, the documentary evidence tendered made it clear that the Head Landlord had reservations about Next Stage, to the point where it refused its consent to the assignment of the Head Lease to Next Stage.[596] It was a term of both of Ardmillan's offers that Next Stage would, in essence, be left to its own devices in dealing with the Head Landlord (cf, the obligations imposed on Ardmillan under the ASA in relation to the Head Lease). While the offers were made on terms that provided for triggering the strata subdivision of Level 3, it was Mrs Darling's evidence that executing a subdivision without cooperation is difficult.[597] While the position in relation to the Head Lease was not emphasised in Next Stage's submissions, it is another feature of the Second Offer which made the transaction proffered less favourable to Next Stage.

606 Before leaving the topic of mitigation, I should note that, while it may seem jarring that Next Stage had the capacity to settle following service of its Notices to Complete based on the support of Mr Salvo being available if needed, but lacked the capacity to accept the Second Offer, with the vendor finance still in place for the potential June 2020 settlement, the amount of financial support that Mr Salvo may have been required to offer was much more limited than the financial support that would have been required to support acceptance of the Second Offer. In view of the significant difference in the level of support that would have been required from Mr Salvo, Next Stage's ability to settle based on its Notices to Complete on 17 June 2020 is not inconsistent with its position concerning its ability to finance acceptance of the Second Offer.

Residual matters concerning the deposits and Next Stage's caveat

607 Given that I have rejected Ardmillan's contentions that the original contracts were terminated by agreement or following repudiation by Next Stage, it follows that the bases upon which it claimed to be entitled to retain the deposits fall away. Ardmillan also accepted that, if Next Stage is entitled to the return of the deposits, its entitlement supports the caveat.[598]

608 Given my conclusion that Ardmillan repudiated the Contract of Sale and the ASA, Next Stage is entitled to recover its deposits. It is unnecessary to address Next Stage's alternative arguments concerning relief against forfeiture in equity and under s 249 of the Property Law Act 1958.

609 I will hear the parties on the form of final orders to give effect to these reasons.

[1] Lot 2 on Plan of Subdivision 801065F, certificate of title volume 12083 folio 704.

[2] ASA cl 6.1; Contract of Sale cl 1.1 (definition of Settlement Date).

[3] As to the definition of the Vacant Land, see paragraph 11 below.

[4] As to the definition of the Balance of Level 3, see paragraph 11 below.

[5] First witness statements of Marina Darling dated 15 October 2020 (Darling), [2].

[6] The aged care business was operated on levels 4 and 5 of the hospital building.

[7] Stated to have been drawn in standard form from Part 2 of the standard form of contract prescribed by the former Estate Agents (Contracts) Regulations 2008; modified in some respects by the Special Conditions_._

[8] The Priority Deed was defined to have the meaning ascribed to that term in the ASA, which in turn referred to the form of priority deed set out in Annexure D of the Call Option Deed.

[9] As detailed below, the Call Option Deed permitted Ardmillan to elect to re-purchase the Assets if Next Stage (or any NSL Lender) breached various provisions.

[10] The Head Lease Assignment Deed was a deed of assignment between Ardmillan Apartments, Next Stage, Menzies and others (substantially in the form of Annexure B to the ASA, which form included guarantees given by the same entities as were guarantors under the Contract of Sale). The Head Lease Variation Deed was a deed varying the lease between the Head Landlord, Next Stage and others (substantially in the form of Annexure C to the ASA, which form included guarantees given by the same entities as were guarantors under the Contract of Sale).

[11] There was no dispute that these accounts were the accounts at CB3059_01.

[12] Who were directors of Next Stage at the time the contracts were executed.

[13] Sch 3 provided for stages 1a (villa units in the north west corner of the Property), 1b (house and land freehold lots along Derby St) and 1c (balance of the eight new apartments on Level 3).

[14] Including court book references and references to witness statements (other than where the chronology has been amplified).

[15] Maitland, [32], [36]; Darling, [78]; CB9672-9673.

[22] Further Maitland, [27]; CB5225-5225.

[23] Further Maitland, [35]; CB5243-5248.

[24] Further Maitland, [35]; CB5243-5248.

[25] Further Maitland, [39]; CB5243-5248.

[26] Maitland, [56]-[59]; CB5447-5452.

[27] Further Maitland, [56]; CB5226-5235.

[28] Further Maitland, [29]; CB5236-5237.