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[2021] VSC 79
General information, not legal advice.
Supreme Court of Victoria
2021-02-26
BLUE, AJ (sitting as a Judge of the Supreme Court of Victoria)
Original judgment source is linked above.
NEGLIGENCE - Professional negligence - Legal practitioners - Advice in relation to contract - Advice to terminate agreement for purchase of land - Consequences of termination.
1 The plaintiff ACN 115 918 959 Pty Ltd, formerly named Pearl Hill Pty Ltd, (Pearl Hill) sues its former solicitor and barristers in negligence in respect of advice to terminate an agreement for the purchase of land on the ground of repudiation by the vendor.
2 The first defendant, Hoeys Lawyers Pty Ltd, (Hoeys) was an incorporated legal practice. The second defendant, Kenneth Oliver, is and was a barrister. The third defendant, Justice Digby, was at the material times a Queen's Counsel. Justice Digby is now a Justice of this Court. I refer to him as Mr Digby QC to reflect the capacity in which he is sued without disrespect to his position as a Justice of this Court.
3 Pearl Hill entered into a construction contract with Marina Cove Pty Ltd (Marina Cove) in or after September 2005 to construct 69 houses on 69 allotments at Safety Beach on the Mornington Peninsula. Disputes arose in relation to performance of the contract. The disputes were resolved by a Heads of Agreement in October 2008. The Heads of Agreement provided, amongst other things, for the sale by Marina Cove to Pearl Hill of 33 vacant allotments at Safety Beach for $15 million (plus GST)[1] in return for the release of any liability of Marina Cove the subject of the disputes. It also addressed outstanding payments by Marina Cove to Pearl Hill and completion dates for construction of the remaining houses under the construction contract.
4 Disputes arose in relation to performance of the Heads of Agreement. On 13 May 2009 Marina Cove purported to terminate it on the ground of repudiation. Hoeys sought advice from Mr Digby QC and Mr Oliver whether Pearl Hill should itself terminate the Heads of Agreement on the ground of repudiation. Mr Digby QC advised that Pearl Hill should do so and settled letters from Pearl Hill to Marina Cove for that purpose. Hoeys advised Pearl Hill that it should send the settled letters to Pearl Hill to be sent to Marina Cove. Mr Oliver was a recipient (often by way of cc) of the emails in relation to termination but did not express an opinion concerning the question.
5 In August 2009 receivers and managers were appointed over the assets of Marina Cove. Administrators were appointed to administer its affairs. In November 2009 it was wound up.
6 Pearl Hill contends that advice by Hoeys and Mr Digby QC to terminate the Heads of Agreement was given in circumstances in which it was appreciated that there was a substantial risk that Marina Cove was in financial difficulties and that monetary remedies might have no practical value. Pearl Hill contends that the advice was negligent because it resulted in Pearl Hill losing its proprietary interest, or prospective proprietary interest, in the 33 lots. Pearl Hill contends that it should have been warned of the consequences of termination but it was not. Pearl Hill contends that Mr Oliver owed to it a duty to advise against termination but failed to do so.
7 Pearl Hill contends that, as a result of the negligence of each of the defendants, it lost the opportunity to complete the purchase of the 33 lots the subject of the Heads of Agreement and make a profit as a result of doing so.
8 The defendants deny that they were negligent. Mr Digby QC and Hoeys claim that they are protected by advocate's immunity. The defendants deny any causation of loss or any loss.
9 Pearl Hill was incorporated in August 2005. Its sole director and shareholder is and was Carmen Mimmo. It carried on business as a builder.
10 Mr Mimmo left school at the age of 16 or 17 after completing year 11 in about 1981. Ultimately he undertook an apprenticeship in the building industry and obtained a builder's licence. He was employed as a builder and then commenced business on his own account. At some stage he formed a company to undertake his building business. I infer that the predecessor to Pearl Hill was another company called Pearl Hill Developments Pty Ltd.
11 In 2005, when Pearl Hill entered into the construction contract, it had about 12 employees and 300 full-time subcontractors. Its employees included Anthony Morello, a contract administrator, and Mario Delosa, a site supervisor.
12 Mr Mimmo, his wife and/or family owned and controlled several companies that acted as trustees of family trusts and undertook property development. Those companies included A1 Paint Pty Ltd (A1 Paint); Black Ace Pty Ltd (Black Ace); Black Scorpion Pty Ltd (Black Scorpion); Carmen Rose Pty Ltd (Carmen Rose); Coastal Group Properties Pty Ltd (Coastal Group Properties); Hassa Holdings Pty Ltd (Hassa Holdings) and Manhatten Investments Pty Ltd (Manhatten Investments).
13 Hoeys was formed by John Hoey in 2002. It carried on business as an incorporated legal practice until 2017. Mr Hoey was the principal of Hoeys throughout that time. He retired from practice in 2017.
14 Mr Hoey was admitted to practice in 1995 or 1996. He undertook articles at Wainwright Ryan, a boutique building and construction firm. In 1996 he commenced employment as a solicitor at Maddock Lonie & Chisholm, where he practiced in building and construction law and local government law and practice. He left Maddocks in 2002 to form Hoeys. In his professional career, he practised predominantly in building and construction law and local government law.
15 Paul Berrill was employed by Hoeys as a solicitor from late 2008 to mid 2009. He had been admitted to practice in November 2006.
16 Mr Digby QC was admitted to practice in 1979 and signed the Bar Roll in that year. He was appointed Queen's Counsel in 1993. A large component of his practice related to building and construction law. He was appointed as a Judge of this Court in 2012.
17 Mr Oliver was admitted to practice in 1987 and signed the Bar Roll in 1991. His principal area of practice was (and is) building and construction law, predominantly in relation to domestic building work but he also occasionally dealt with commercial work.
18 Marina Cove was incorporated in September 2001. Philip Sullivan was at all material times a director of Marina Cove. Between July 2005 and October 2008 there were one or two other directors and thereafter Mr Sullivan was the sole director. It appears that Mr Sullivan also held positions at CP1 Limited and City Pacific Ltd.
19 By July 2005 Marina Cove was a wholly owned subsidiary of CP1 Limited (CP1). CP1 was a property developer whose shares were listed on the Australian Stock Exchange.
20 City Pacific Ltd (CPL) was a substantial shareholder of CP1. CPL was the responsible entity of the City Pacific First Mortgage Fund (the CP Mortgage Fund or the Mortgage Fund). CPL as responsible entity of the Mortgage Fund provided finance to CP1. CPL's shares were also listed on the Australian Stock Exchange.
21 City Pacific Project Management Pty Ltd (CPM) was a member of the City Pacific Limited Group. It undertook project management for CP1, amongst other things, in relation to the Martha Cove development.
22 Rob Donaldson was a Project Executive at CPM from not later than July 2005.
23 Theodore Axarlis commenced employment with CPL in March 2008. In June 2008 he was appointed chief operations officer of CPL. In November 2008 he was appointed chief executive officer of CP1 instead. His background was as a lawyer.
24 David Newman was engaged by CP1 in 2003 as a consultant to manage the Martha Cove development. Upon Mr Axarlis' appointment as chief operations officer of CPL, Mr Newman reported to him.
25 I refer to the companies in the City Pacific Limited Group (including CP1, CPL, CPM and Marina Cove) collectively as City Pacific.
26 The Commonwealth Bank was a principal financier of City Pacific. In particular it was the principal financier of Marina Cove's Martha Cove project and of the CP Mortgage Fund. Relevant officers at the Commonwealth Bank included Bryan Roberts and Mark Sutton.
27 By December 2008 the Commonwealth Bank had engaged PPB to advise it in relation to City Pacific and PPB was engaging in communications directly with City Pacific. Relevant officers of PPB included Alan Titterton and Campbell Jaski.
28 By June 2005 Marina Cove had commenced a development known as Martha Cove on vacant land extending inland of Safety Beach and west of Marine Drive. The development involved converting and extending an existing creek into a constructed waterway (the Martha Cove Waterway) running west from Port Phillip Bay (the main arm) and then turning south (the south arm) with five branches (the eastern arms). The development was to include:
• waterfront dwellings with attached berths or dedicated berths on shared jetties;
29 The Martha Cove development was intended to be constructed in stages. Stage 1 comprised 79 houses, 60 apartments and 120 berths. A Plan of Division, comprising three sets of plans designated 'Stage No 1', 'Stage No 2' and 'Stage - ' (collectively the Stage 1 division plans) was prepared by Watsons Pty Ltd (Watsons). Watsons was a civil engineer, surveyor and town planner. The Stage 1 division plans were allocated Plan of Division number PS 435310J. They created 79 housing allotments and 120 berths and created or recognised a superlot or superlots on which it was intended to construct the apartments.
30 The housing allotments in Stage 1 included the following 69 allotments (the 69 allotments):
• allotments 1 to 6 on the north side of the main arm having frontages to Sharpley Avenue and the Martha Cove Waterway (lots 1 to 6);
• allotments 7 to 17 on the north side of the main arm having frontages to Admiralty Court and the Martha Cove Waterway (lots 7 to 17);
• allotments 18 to 39 on the south side of the main arm having frontages to Seaspray Close and in some cases also to the Martha Cove Waterway (lots 18 to 39);
• allotments 40 to 51 on the south side of the main arm having frontages to Evans Street and the Martha Cove Waterway (lots 42 to 51); and
• allotments 52 to 69 on the south side of the main arm having frontages to Clipper Quay and the Martha Cove Waterway (lots 52 to 69).
31 Marina Cove intended to construct a house on each of the 69 allotments. It commissioned the preparation of plans and specifications for four types of houses, designated Beach House 1 to Beach House 4 (BH1 to BH4) on lots 18 to 27 and 51. It commissioned the preparation of plans and specifications for 10 types of houses, designated Water Front 1 to Water Front 10 (WF1 to WF10) on the balance of the 69 allotments. It also commissioned the preparation of three alternative Schedules of Finishes designated Coastal, Classic and Contemporary.
32 Marina Cove sold house and land packages in Stage 1 to various purchasers. A purchaser could, depending on location, select one of the four Beach House designs or one of the 10 Water Front designs and one of the three Schedules of Finishes. The selection impacted the price payable for the house and land package. A purchaser entered into a contract to purchase an allotment and for Marina Cove to construct a house in accordance with the applicable plans and specifications. The sales were effectively sales 'off the plan'. Marina Cove had not sold a house and land package for at least two of the 69 lots at the material times but had done so for the vast majority.
33 Stage 4 may have been created after June 2005. By February 2007 it comprised Stages 4A to 4C. Stage 4 included proposed allotments 600 to 632 on the western side of the south arm having a frontage to Clipper Quay to the west and the Martha Cove Waterway to the east (Stage 4 Clipper Quay). This land was at that time comprised within three superlots designated S29 (intended to encompass lots 600 to 612) (superlot A), S31 (intended to encompass lots 613 to 622) (superlot B) and S33 (intended to encompass lots 623 to 632) (superlot C). I refer to superlots A, B and C collectively as the 3 superlots and the 33 proposed lots collectively as the 33 lots.
34 Each of the 33 lots was to have a frontage to Clipper Quay of 15 metres to the east and a rear boundary adjoining the south arm 15 metres wide. Each lot was to have a depth of 44.39 metres. The area of each lot was to be 665.85 square metres. Each lot was to have the rights to an adjacent berth (jetty or pontoon) 12 metres wide and 6 metres deep some distance off the shore.
35 Stage 2A included seven allotments numbered 666 to 672 on the western side of the south arm having a frontage to Clipper Quay to the west and the Martha Cove Waterway to the east (the Barton allotments). These allotments lay immediately to the north of the 33 lots. According to Mr Way, each of the seven allotments had the same dimensions as the 33 lots. According to Mr Kilby, each of the seven allotments had the same width of 15 metres but had a very slightly greater depth of 44.65 metres. Because allotments 632 and 672 appear to have a common boundary, I accept Mr Way's dimensions in preference to those of Mr Kilby. In any event, the difference is only four square metres and is immaterial.
36 Each of the Barton allotments had the rights to an associated berth (jetty or pontoon) 15 metres wide. Evidence was not adduced of their depth. Although they had a greater width than the berths associated with the 33 lots, they were closer to shore and therefore not in such deep water. Mr Kilby and Mr Way treated the berths associated with the Barton allotments as being similar in value to the berths associated with the 33 lots.
37 The Barton allotments were sold by Marina Cove to Barton Developments Pty Ltd in June 2006 for $800,000 each. Mr Way's report shows the sale of five of the allotments for $800,000 each in June 2006. It shows the remaining two allotments later being sold by Barton Developments to individual purchasers. I infer that Barton Developments purchased these two allotments at the same time and for the same price as the five allotments addressed directly by Mr Way.
38 In July 2005 Mr Donaldson, a Project Executive at CPM, had a conversation with Mr Mimmo concerning Mr Mimmo providing an estimated cost per square metre to construct 69 houses on the 69 allotments.
39 On 28 July 2005 Mr Donaldson sent a letter to Mr Mimmo attaching the plans and specifications for a Beach Front house and a Water Front house. He requested an estimated price per square metre for construction of the houses (including landscaping, hardscape and fencing). He said that City Pacific had been advised that there were several issues with respect to the structural specification that could be re-engineered and said that they were working on it.
41 On 31 August 2005 Mr Donaldson sent a letter to Mr Mimmo stating that Marina Cove intended to enter into a contract with Pearl Hill Developments Pty Ltd to construct one house on each of the 69 lots in accordance with the supplied schedule of plans and specifications. He said that the construction price would be $1,300 per square metre subject to four specified adjustments. He said that client-requested variations would be charged at cost plus 10% and payment would be made on completion of the variation with the claim submitted with the corresponding progress payment claim.
42 Mr Donaldson's letter said that payment would be made in the following stages for each house:
• 2.5% Retention held for 60 days or until defects have been completed.
43 Mr Donaldson said that payments would be made within 14 days of the payment certificate, to be issued by Watsons who were to act as the independent certifier. Mr Donaldson envisaged that work may commence before finalisation and execution of a formal construction contract.
44 In due course, a formal construction contract was drafted by Marina Cove's solicitors, Gadens Lawyers. A version of that contract entitled 'Pearl Hill New Homes Contract' designated 'final' in the footer was tendered (the Construction Contract). The Construction Contract included the following documents (amongst others):
• General Conditions of Contract AS 4000 - 1997 amended in specific respects;
• Annexure Part A (Annexure A) specifying the variables referred to in the General Conditions;
• Annexure Parts F and H being schedules of drawings and specifications for the 14 house types and three Schedules of Finishes;
• Annexure Part I being the Stage 1 division plans prepared by Watsons referred to above.
45 The Formal Instrument of Agreement provided that Pearl Hill would undertake the work under the Contract and Marina Cove would pay the Contract Sum to it on the terms and conditions contained in the Contract which comprised the General Conditions and other documents incorporated into the Contract.
46 The Formal Instrument of Agreement tendered is not dated or executed. Recital A to the Heads of Agreement (extracted below) recites that the written contract was not entered into until some months after the commencement of works. I infer that the documents comprising the Construction Contract were finalised in late 2005 or early 2006.
47 Given the wording of Recital A to the Heads of Agreement, it is likely that the documents comprising the Construction Contract were not actually executed by the parties. However, Pearl Hill and Marina Cove dealt with each other on the basis that a contract came into existence between them on the terms of the Construction Contract and indeed that is the effect of the recital to the Heads of Agreement. In addition, it is common ground that a contract came into existence between Pearl Hill and Marina Cove on the terms of the Construction Contract. I proceed on that basis.
48 Clause 21 of the General Conditions empowered the Superintendent to delegate functions to a Superintendent's Representative.
49 Clause 36.1 empowered the Superintendent to direct the contractor to vary the work under the contract to, amongst other things, increase, decrease or omit any part of the work; change the character, quality or dimensions of the work; or carry out additional work. This was subject to the proviso that the variation was nevertheless of the character and extent contemplated by, and capable of being carried out under, the provisions of the contract. It also empowered the Superintendent to exercise the power to decrease or omit works, and engage another contractor to undertake the deleted works, if the contractor failed to progress the work under the contract at an adequate rate.
50 Clause 36.2 empowered the Superintendent to give notice to the contractor of a proposed variation, in which case the contractor was required as soon as practicable to notify the Superintendent whether the variation could be effected and, if so, its estimate of the cost and effect on the construction program if any.
51 Clause 36.4 required the Superintendent to price each variation by reference to prior agreement, applicable contract rates or reasonable rates and the price was to be added to or deducted from the contract sum.
52 Clause 36.5 provided that, if the contractor considered that any instruction amounted to a variation that was not so described, the contractor must within seven days notify the Superintendent accordingly and provide details of the anticipated cost of the instruction. If the contractor failed to do so, the contractor would not be entitled to any adjustment of the contract sum.
53 Clause 37.1 provided for the contractor to claim payment progressively for each separable portion in accordance with item 28 in Annexure A. Item 28 provided for progress claims 'for each Dwelling' to be paid by reference to prescribed percentages by reference to the stage of the works reached for each dwelling.
54 Clause 37.2 required the Superintendent on behalf of the principal to issue a progress certificate for the amount of a claim or such lesser amount as was reasonably payable. It required the principal to pay the balance of the progress certificate to the contractor within 30 days after receipt of the progress claim.
55 Clause 37.5 provided that interest at 8% per annum was due and payable after the date of default in payment.
56 Clauses 39.2 and 39.3 entitled the principal to give to the contractor written notice to show cause within not less than seven clear days after receipt of the notice if the contractor committed a substantial breach of the contract. Clauses 39.4(a), 39.5 and 39.6 entitled the principal, if the contractor failed to show reasonable cause by the date and time stated in the notice, to take out of the contractor's hands the whole or part of the work remaining to be completed and suspend payment until the superintendent assessed the cost of completion by the principal and certified as monies due and payable the difference between that cost and the amount otherwise payable to the contractor if it had completed the work. Clause 39.4(b) entitled the principal, in the alternative, to terminate the contract if the contractor failed to show reasonable cause.
57 Clauses 39.7 and 39.8 entitled the contractor to give to the principal written notice to show cause within not less than seven clear days after receipt of the notice if the principal committed a substantial breach of the contract. Clause 39.9 entitled the contractor, if the principal failed to show reasonable cause by the date and time stated in the notice, to suspend the whole or part of the work under the contract. If the principal remedied the breach, the contractor was required to remove the suspension. If the breach was not remedied within 28 days of the date of suspension, the contractor was entitled to terminate the contract by written notice.
58 Annexure A specified variables referred to in the General Conditions including the following:
• the superintendent was specified to be CPM (item 5);
• the rate for liquidated damages under subclause 34.7 was $1,000 per week per dwelling, but such total was not to exceed $15,000 per week (item 24);
• progress payments under clause 37 were by reference to stages and percentages of completion for each house (item 28);
• a separable portion Annexure forming part of Annexure A (the Separable Portion Schedule).
59 The stages and percentages of completion for each house were:
60 The Separable Portion Schedule set out the house type, selected Schedule of Finishes, price, period of practical completion and liquidated damages for each house on each lot. The period of practical completion was always 16 months from Site Handover. The liquidated damages were always $1,000 per calendar week. By way of example, in respect of lot 1, the house type was shown as WF7r; the selected Schedule of Finishes was shown as Contemporary; and the price was shown as $468,390.
61 The total of the prices of construction of the 69 lots was $34,595,340.
62 The Separable Portion Schedule divided the 69 lots into five groups as follows:
63 Clause 1 of the General Conditions defined a 'separable portion' to mean a portion of the Works identified as such in the Contract or by the Superintendent pursuant to clause 4. Clause 4 empowered the Superintendent to direct and delineate separable portions.
64 Although the Separable Portion Schedule referred only to five separable portions, in substance it provided for a separate price, separate specifications, separate date for practical completion, separate liquidated damages and separate payments for each separate house on each separate lot. Pearl Hill and Marina Cove both acted on the basis that there were 69 separable portions rather than five separable portions. This was either the result of the proper construction of the contract, a direction issued by the Superintendent under clause 4 or the mutual agreement and conduct of the parties. This was also effectively confirmed by clause 11 of the Heads of Agreement.
65 In late 2005 Pearl Hill commenced work at Martha Cove.
66 Mr Mimmo gave evidence that, after commencement, he observed problems with the design of the houses relating, amongst other things, to the concrete footings, steel beams and architectural drawings not matching structural drawings; Marina Cove made changes to the design of the houses which caused delays to the building works; and he had ongoing discussions with Marina Cove about Pearl Hill being compensated for this.
67 Pearl Hill rendered invoices to Marina Cove for progress payments under the Construction Contract and also for additional work requested by Marina Cove. These invoices were not tendered. However, invoices rendered between 3 March and 7 May 2008 that were unpaid as at the date of the Heads of Agreement were referred to in Annexure B to the Heads of Agreement and are summarised below.
68 On 8 May 2007 Mr Donaldson sent an email to Mr Mimmo attaching a plan showing the location of the 33 lots. He quoted wholesale prices for superlot A (13 lots) of $15.94 million,[4] superlot B (10 lots) of $12.26 million and superlot C (10 lots) of $12.26 million. This translates to a price per lot of $1,226,182. No evidence was adduced about the context in which this email was sent but I infer that it was a result of interest expressed by Mr Mimmo to Mr Donaldson about purchasing one or more of the superlots.
69 On 3 and 5 March 2008 Pearl Hill rendered eight invoices to Marina Cove for a total of $476,824 for additional work requested by Marina Cove.
70 On 3 and 11 March 2008 Pearl Hill rendered invoices 1385 and 1384 respectively to Marina Cove for $72,817 for solar energy and insulation upgrades and for $739,571 for various variations (invoices 1385 and 1384).
71 On 5 March and 2 April 2008 Pearl Hill rendered eight invoices to Marina Cove for a total of $1,023,027 for progress payments to the fix or lock up stage for eight lots.
72 None of the above invoices were tendered but they are identified in Annexure B to the Heads of Agreement.
73 In April 2008 Mr Mimmo met with Mr Hoey about retaining Hoeys to advise and act for Pearl Hill in relation to invoices rendered by Pearl Hill to Marina Cove totalling $5,301,759. Mr Mimmo asked Mr Hoey whether he had building and construction experience. Mr Hoey said that he did.
74 In April 2008 Pearl Hill retained Hoeys to advise and act for it in relation to disputes with Marina Cove.
75 On 18 April 2008 Mr Hoey sent an email to Mr Mimmo advising that Marina Cove appeared to be in substantial breach of the Construction Contract; Pearl Hill could serve a notice of default requiring Marina Cove to show cause within a specified period of at least seven days why work should not be suspended; Pearl Hill could suspend work if cause were not shown; and Pearl Hill could terminate the contract if the default was not rectified within 28 days. Mr Hoey attached a draft Notice of Default.
76 On 21 April 2008 Mr Hoey sent an email to Mr Mimmo enclosing a final version of the Notice of Default requiring payment of invoices totalling $3,116,143 and requiring Marina Cove to show cause by 2 May 2008. Mr Mimmo signed the Notice of Default and it was served on Marina Cove.
77 On 6 May 2008 Mr Hoey drafted a notice of suspension. This was not tendered but was referred to in Hoeys' invoice dated 27 May 2008.
78 On 8 May 2008 Mr Mimmo signed a second Notice of Default requiring payment of invoices totalling $4,329,278 and requiring Marina Cove to show cause by 19 May 2008. It was served on Marina Cove. It was drafted by Mr Hoey.
79 In late May 2008 Pearl Hill served a notice of suspension on Marina Cove and suspended work on the ground that Marina Cove had not shown cause. The notice of suspension was not tendered but was referred to in subsequent correspondence from Marina Cove, Mr Mimmo and Mr Hoey.
80 By this point Marina Cove had completed the houses on lots 1 to 51 except for lots 40 to 43. The house on lot 40 had been completed to lock up stage. The houses on lots 52, 55, 56, 65 and 68 had been completed to the fix stage. There is no direct evidence of the stage to which the remaining uncompleted houses had been completed.
81 In June 2008 Mr Axarlis was appointed Chief Operations Officer of CPL.
82 Between June and October 2008 there were several meetings between Mr Mimmo on behalf of Pearl Hill and Mr Axarlis and Mr Newman on behalf of Marina Cove. The subject of the meetings included outstanding invoices issued by Pearl Hill to Marina Cove. The subject of the meetings included claims by Pearl Hill that errors in and changes to architectural and engineering plans caused additional costs and delays. In the course of those meetings, Pearl Hill formulated a claim for $21,865,567.
83 Between 9 and 12 September 2008, Pearl Hill issued to Marina Cove invoices for variations as a result of Marina Cove's customers' requests totalling $458,451.
84 On 16 September 2008 Mr Axarlis sent to Mr Mimmo a Discussion Paper. The Discussion Paper was not tendered but Mr Axarlis' subsequent emails of 22 and 24 September evidence that it listed the issues that needed to be resolved and proposed a resolution on a basis that included Marina Cove selling to Pearl Hill the 33 lots at a discounted purchase price of $15 million plus GST in settlement of Pearl Hill's variation and escalation claims.
85 On 22 September 2008 Mr Axarlis sent an email to Mr Mimmo attaching 'Draft 1 Proposed Terms of Settlement'. On the following day, Mr Mimmo forwarded the draft to Mr Hoey. This draft was not tendered.
86 On 24 September 2008 Mr Mimmo sent an email to Mr Sullivan complaining of continual broken promises and lack of action in respect of payment to Pearl Hill. He said that he was assured at a meeting in April that all matters relating to variations would be resolved. Pearl Hill only issued a suspension of works notice after Marina Cove failed to offer any resolution to Pearl Hill's claims despite numerous meetings and promises. He now had no option but to lodge a claim with the Victorian Civil and Administrative Tribunal. Pearl Hill was entitled to cease work and terminate the contract and, if it did so, the purchasers would not be able to finish their homes. He responded to the discussion paper including stating that the contract was based on a different set of plans and costings and work was undertaken on the guarantee that all variations would be paid for.
87 On 24 September 2008 Mr Axarlis sent an email to Mr Mimmo responding to Mr Mimmo's email to Mr Sullivan. Mr Mimmo copied it to Mr Hoey.
88 On 25 September 2008 Mr Hoey sent an email to Mr Mimmo advising that the Draft Proposed Terms of Settlement was to be a settlement of all outstanding claims (and imposing new conditions) in return for the discount offered in respect of the proposed purchase. He said that this was not what Mr Mimmo had told him he would accept. He suggested a conference on 30 September.
89 On 26 September 2008 Mr Hoey briefed Mr Oliver to advise on the Proposed Terms of Settlement and attend the conference on 30 September.
90 On 26 September 2008 Mr Mimmo and Mr Newman discussed the wording of the Proposed Terms of Settlement. Mr Newman sent an email to Mr Mimmo and Mr Axarlis attaching 'Draft 2 Proposed Terms of Settlement'.
91 By this stage, it had been agreed between Pearl Hill and Marina Cove that any further construction work on lots 40, 66 and 69 would be removed from the Construction Contract and be arranged by Marina Cove independently of Pearl Hill. It was agreed that no further payments were due to Marina Cove in respect of those three lots other than an unpaid April 2008 invoice for the lock up stage in respect of Lot 40.
92 On 26 September 2008 Mr Newman sent an email to Mr Mimmo asking, amongst other things, for proposed dates for completing the uncompleted homes. Mr Mimmo responded providing a range from one month (lots 54 and 56) to 12 months (lot 43).
93 On 29 September 2008 Mr Mimmo sent emails to Mr Hoey attaching Draft 2 and a marked up revised version of Draft 2 (Amended Draft 2).
94 On 30 September 2008 there was a conference between Mr Hoey, Mr Oliver and Mr Mimmo. No notes of the conference were tendered.
95 On 3 October Mr Hoey sent an email to Mr Mimmo attaching an amended marked up version of Mr Oliver's revised version of Amended Draft 2. This version removed references to completion of the work so that it dealt exclusively with releases and the purchase of the 33 lots.
96 On 6 October 2008 Mr Newman sent an email to Mr Mimmo and Mr Axarlis attaching 'Final 3 Proposed Terms of Settlement'. This version was not tendered.
97 On 7 October 2008 Mr Newman sent an email to Mr Mimmo and Mr Axarlis attaching a revised version of 'Final 3 Proposed Terms of Settlement'. Annexure A comprised a list of the contract price, amount paid and amount remaining to be paid for uncompleted lots still the subject of the Construction Contract (lots 41 to 43, 52 to 65 and 67 to 68) plus lot 40. Annexure B comprised a list of unpaid invoices agreed to be paid.
98 On 9 October 2008 Mr Mimmo sent an email to Mr Hoey attaching the revised version of Final 3.
99 On 15 October 2008 Mr Hoey sent an email to Mr Mimmo attaching a further amended version of Final 3. This version made several changes to Mr Newman's revised Final 3 version of 7 October.
100 On 20 October 2008 Mr Mimmo sent an email to Mr Axarlis attaching Mr Hoey's amended version of Final 3. He said that he was coming to Melbourne tomorrow to see if they had an agreement. He was fed up with the runaround. He asked if Marina Cove was trading insolvent.
101 On 21 October 2008 Mr Mimmo met with Mr Axarlis and Mr Newman. They agreed on terms of a final version of the 'Terms of Settlement'. This version differed from Mr Hoey's amended version of Final 3 in several respects.
102 Mr Newman also omitted from the document the words 'Without Prejudice', which had appeared on the drafts of the document; omitted the word 'Proposed' before the words 'Terms of Settlement'; gave the document a main title 'Heads of Agreement' above what became a subtitle 'Terms of Settlement'; and dated it 21 October 2008. Mr Axarlis executed it on behalf of Marina Cove. Mr Newman sent it by email to Mr Mimmo.
103 On 21 October 2008 Mr Mimmo telephoned Mr Hoey. No direct evidence of the content of the discussion was adduced. I infer that Mr Mimmo told Mr Hoey that he had agreed to execute, or had executed, a final version of the Heads of Agreement which contained some changes from Mr Hoey's 15 October version.
104 On 21 October 2008 Mr Mimmo executed the final version of the Heads of Agreement on behalf of Pearl Hill and returned it to Mr Newman (the Heads of Agreement).
105 The document bore the titles 'Heads of Agreement' and 'Terms of Settlement'. However, within the document itself, the document was variously referred to as 'the Deed of Settlement' (clause 3), 'this Deed' (clauses 6 and 16), 'this deed' (clause 11), 'the signed agreement' (clause 9), 'this document' (clause 16(a) and (b)) and 'these Heads of Agreement' (clause 17). In light of the various descriptions and the fact that the document contains no provision for the parties to enter into a separate deed of settlement, the references to a 'Deed of Settlement' or 'Deed' are manifestly references to the Heads of Agreement.
106 The Background to the Heads of Agreement was as follows:
107 Clauses 1 and 3 of the Heads of Agreement provided for the sale of the 33 lots for $15 million (plus GST) in the following terms:
108 Clause 13 confirmed the removal from the Construction Contract of lots 40, 66 and 69.
109 Clause 2 provided that the parties agreed that the outstanding Contract Value (excluding Purchaser Variations) in respect of the 20 homes yet to be completed by Pearl Hill plus lot 40 (excluding amounts already invoiced to April 2008 the subject of Annexure B) was $3,121,694 as referred to in Annexure A. The homes yet to be completed were on lots 41 to 43, 52 to 65, 67 and 68. Eight homes had been 90 or 92.5% completed; one home had been 75% completed; six homes had been 65% completed; three homes had been 25% completed; and one home had not yet reached base stage.
110 Clause 2 also provided that the parties agreed that the balance of the agreed outstanding amount of unpaid invoices was $1,466,978 as referred to in Annexure B. Annexure B included references to invoices 1384 and 1385 in respect of which it was agreed that $0 would be paid.
111 Clause 11 provided that, upon receiving certification from Watsons verifying a progress claim, Marina Cove would pay that amount to Pearl Hill within 14 days and otherwise Pearl Hill would be entitled to suspend the works under clause 39 of the Construction Contract in respect of the relevant home.
112 Clauses 4 and 5 provided that, in consideration of the purchase price, Pearl Hill agreed to complete the incomplete homes in accordance with a regime ranging from one month (lots 54 and 56) to 12 months (lots 43 and 58) from date of signed agreement (clause 4.1). These dates were subject to extension due to prescribed events, including causes beyond the control of Pearl Hill (clause 4.2). Pearl Hill was entitled to liquidated damages of $150 per day per home for each day's extension under clause 4.2 (clause 4.3) and Marina Cove was entitled to liquidated damages of $150 per day per home for each day's delay under clause 4.1 (clause 5).
113 Clauses 6 and 7 required Pearl Hill to rectify currently logged defects in respect of homes for which it had been paid in full within two months from execution of the Contracts of Sale (referred to in clause 3) and future defects within two months of receipt of a defects list.
114 Clause 10.3 provided for the payment by Marina Cove to Pearl Hill of $68,040 for driveways to lots 40 to 43 and 52 to 68. Clause 12 provided that, if the parties subsequently agreed that Pearl Hill was to complete the streetscape works to lots 40 to 43 and 52 to 69, they would be completed for $234,116.
115 Clause 10 provided that (subject to clause 10.3 and 12):
10.1 The outstanding Contract Amounts for each home not already paid to Pearl Hill [excluding lots 40, 66 and 69 as no further monies are to be paid on these homes save for any current unpaid invoices] as listed in Annexure A and the current agreed outstanding amounts on unpaid invoices as listed in Annexure B;
10.2 Purchaser generated variations which have been agreed to in writing by the Purchaser to be undertaken directly by the Builder and paid for by the Purchaser;
...
(a) Pearl Hill releases and forever discharges Marina Cove from all actions, suits, claims, demands, costs and other liabilities of any nature which Pearl Hill now has or at any time may have or, but for the execution of this document, might have had against Marina Cove in connection with or incidental to the Works (including but not limited to variations, errors and escalation costs associated with the subject variations and errors, relating to the Works); and
(b) Marina Cove releases and forever discharges Pearl Hill from all actions, suits, claims, demands, costs and other liabilities of any nature which Marina Cove now or at any time may have or, but for the execution of this document, could or might have had against Pearl Hill relating to the Works (including but not limited to any claims for delay or liquidated damages or any claims arising from the delays incurred as a result of the subject variations and errors relating to the Works).
117 Clause 1 of the Heads of Agreement provided for the sale of the 33 lots on an individual lot basis. At that time, the land was contained within superlots A, B and C. It was necessary for Marina Cove to lodge a plan of division subdividing the 3 superlots into 33 individual lots before settlement of the sale and purchase could occur.
118 Marina Cove instructed Gadens solicitors (Yael Furstenberg and Ruth Smith) to draft Contracts of Sale and undertake the conveyancing on its behalf. Pearl Hill instructed Maddocks solicitors (Anthony Leggiero) to act in relation to the Contracts of Sale and undertake the conveyancing on its behalf.
119 On 24 October 2008 Mr Morello sent an email to Ms Smith at Gadens saying that Mr Axarlis had requested that he provide her with the purchaser details for the 33 lots. He said that the purchaser was Coastal Group Properties and/or nominee and no charge for the nomination was to apply. He requested that she prepare contracts for the sale of lots 618 to 632 with a purchase price of $1 million (plus GST) and the remaining lots 600 to 617 at no consideration.
120 On 30 October 2008 Pearl Hill rendered to Marina Cove invoices for $75,000 and $13,745 for streetscape works and driveway works respectively in relation to specified allotments.
121 On 11 November 2008 Ms Smith sent an email to Mr Leggiero attaching a template contract of sale in response to Mr Leggiero's request. The attached template was not tendered.
122 On 12 November 2008 Mr Leggiero sent an email to Ms Furstenberg agreeing to the template contract of sale, except that settlement was to be on the later of 60 days after the day of sale (date of signing the contracts of sale) or 14 days after notification of registration of the relevant plan of division, or earlier by mutual agreement. He requested that Ms Furstenberg hold off preparing the contracts of sale until he provided the name of the purchaser of each lot or group of lots. Ms Furstenberg replied agreeing to the amendment and looking forward to confirmation of the purchasing entities.
123 On 12 November 2008 Mr Leggiero sent an email to Ms Furstenberg attaching a listing of the nominated purchasing entities (the nominated entities). It showed that Coastal Group Properties was to be the purchaser of lots 608 to 632; Black Scorpion was to be the purchaser of lots 600 and 602; Manhatten Investments was to be the purchaser of lot 605 and 606; Carmen Rose was to be the purchaser of lot 601; Hassa Holdings was to be the purchaser of lot 603, Black Ace was to be the purchaser of lot 604 and A1 Paint was to be the purchaser of lot 607.
124 On 12 November 2008 Mr Axarlis was appointed chief executive officer of CP1.
125 On 14 November 2008 Ms Furstenberg sent an email to Mr Axarlis saying that Gadens had now received the contracts of sale back from the printers and would replace the pages in the vendor statements and contracts of sale that were specific to each lot and the particular purchaser. She suggested that Mr Axarlis attend at Gadens' office on 17 or 18 November to execute the vendor statements so that they could be delivered to Maddocks on 18 November. Mr Axarlis forwarded the email to Mr Mimmo.
126 Gadens bound one set of standalone vendor statements (the vendor statements or standalone vendor statements), and two sets of a Contract of Sale (the i_ndividual_ contracts or Contracts of Sale), for each of the 33 lots. The purchase price and purchasers were the nominated entities in accordance with Mr Leggiero's requests made on 24 October and 12 November respectively.
• a first page encompassing a cooling off notice, operative clause and a date (page 1);
• Particulars of Sale and a Schedule of variables (pages 7-9);
• annexures, including as annexure M a copy of the vendor statement.
128 On 18 November 2008 Mr Axarlis dated and signed the vendor statements.
129 On 18 November 2008, 33 vendor statements and 33 individual contracts (two copies of each) were conveyed from Gadens to Maddocks.
130 On 26 November 2008 Mr Mimmo sent a letter to Mr Axarlis. He said that, since the Heads of Agreement was executed on 21 October 2008, no payments had been made of the outstanding invoices contained in Annexure B. As a result, he was reinstating invoices 1384 and 1385 and he intended to charge interest on outstanding invoices. No further work would be undertaken pending payment of the outstanding invoices. The nominated completion dates in the Heads of Agreement could not be fulfilled.
131 On 28 November 2008 Blake Dawson, acting on behalf of Marina Cove and its parent CP1, sent by facsimile a detailed letter to the Commonwealth Bank advocating consent to the proposed settlement with Pearl Hill the subject of the Heads of Agreement.
132 On 28 November 2008 Mr Mimmo sent an email to Mr Axarlis and Mr Newman, copied to Mr Hoey, asking them to sort themselves out 'pretty quick' as he had sent Hoeys instructions to recover monies and damages. It may be that Mr Mimmo's letter dated 26 November 2008 was attached to that email.
133 On 28 November 2008 Mr Axarlis spoke to Mr Mimmo. Mr Axarlis then sent an email to Mr Mimmo, copied to Mr Hoey, saying that the Heads of Agreement was subject to the financier's consent, that Marina Cove was using its best endeavours to obtain the consent to bring the agreement to fruition, and confirming Mr Mimmo's agreement not to proceed for seven days pending the Commonwealth Bank's response.
134 On 29 November 2008 Mr Mimmo sent an email to Mr Axarlis saying that he had not yet agreed not to proceed for seven days but was awaiting Marina Cove's solicitors' correspondence to the Bank which Mr Axarlis said he would show to him.
135 On 1 December 2008 Alan Titterton of PPB sent an email to Mr Axarlis seeking information for the purpose of a valuation being undertaken by David Way of Knight Frank.
136 On 1 December 2008 Mr Axarlis forwarded Mr Titterton's email to Mr Mimmo, referred to their discussion on 28 November and sought confirmation that no action would be taken pending the Commonwealth Bank's review.
137 On 2 December 2008 Mr Mimmo sent a responding email to Mr Axarlis asking for the letter from the Commonwealth Bank requesting this information. Mr Axarlis responded that he would ask PPB to confirm this.
138 On 2 December 2008 Mr Way sent a letter of valuation to Mr Titterton at PPB. He valued the 33 lots if sold individually at $30.7 million. He deducted various costs and profit totalling $15.7 million to give a value 'in one line' of $15 million (exclusive of GST).
139 On 3 December 2008 Mr Titterton sent an email to Mr Axarlis and Mr Mimmo confirming that PPB acted on behalf of the Commonwealth Bank in relation to the matter and that, on receipt of advice from Knight Frank, the Bank would confirm whether it would release its mortgages over the 33 lots in the event that the proposed sale to Pearl Hill completed.
140 On 10 December 2008 Mr Titterton sent an email to Mr Axarlis stating amongst other things:[5]
Subject to the following, I confirm that CBA consents to the proposed sale of the 33 'Western lots' in Stage 4 for the price of $15m (excluding any applicable GST):
- PPB/CBA receiving confirmation:
- satisfactory review of sale documents by PPB/CBA; and
- unconditional contracts of sale being executed by both parties prior to 24 December 2008.
141 On 10 December 2008 Mr Axarlis sent a letter to Mr Mimmo stating amongst other things:
Our financier, the CBA, have advised that, subject to the following, CBA consents to the proposed sale of the 33 "Western lots" (i.e. Lots 600 to 632 inclusive) in Stage 4 for the price of $16.5m (inclusive of GST):
1. CBA receiving confirmation:
1.1 of the settlement date;
1.2 that Pearl Hill has recommenced works on Stage 1 housing; and
1.3 that Pearl Hill has ceases/withdraws any litigation against CP1 and/or Marina Cove (as outlined in Pearl Hill's letter to [sic] 26 November 2008); and
2. satisfactory review of sale documents by CBA; and
Mr Axarlis referred to the settlement date being defined as the later of 60 days from the day of sale or 14 days from the registration of the plan of subdivision or earlier by mutual agreement. He requested that Pearl Hill confirm that works had now recommenced on site and that it would comply with the terms of the Heads of Agreement (which therefore covered the mutual release by the parties in relation to litigation and the dispute).
142 On 11 December 2008 Mr Axarlis forwarded to Mr Mimmo the email from Mr Titterton of 10 December. He asked for the requested information to be provided immediately by return.
143 On 12 December 2008 Mr Axarlis sent an email to Mr Mimmo forwarding an email from the purchasers of lots 18 and 24 complaining of defects. He said that the Bank had consented to the Heads of Agreement. These matters needed to be resolved and they needed to sit down now that the deal had been agreed by the Bank and agree the action plan one home at a time.
144 On 12 December 2008 Mr Axarlis sent an email to Mr Titterton of PPB, Bryan Roberts of the Commonwealth Bank and others attaching a copy of an individual contract (lot 618). I infer that by 18 December the Bank had satisfactorily reviewed the terms of the document pursuant to condition 2 of Mr Titterton's email because Mr Axarlis attended at Pearl Hill's office on that date intending to execute the individual contracts.
145 On 15 December 2008 Mr Axarlis sent an email to Mr Mimmo asking him to telephone him to finalise settlement, sign contracts and finish the matter. He said that it had been one week since the Bank first confirmed consent to the terms of the Heads of Agreement.
146 On 16 December 2008 Mr Morello sent an email to Mr Hoey attaching, amongst other things, the Heads of Agreement and Mr Titterton's 10 December email. He sought advice whether the PPB email was sufficient evidence of CBA's consent or whether further evidence was required. Mr Hoey replied advising amongst other things that, if Pearl Hill was concerned about the consent, it might want the consent signed by PPB and something from the Bank confirming that PPB was authorised to act on its behalf.
147 On 16 December 2008 Mr Axarlis sent an email to Mr Mimmo asking him to telephone Mr Roberts of the Commonwealth Bank. Mr Mimmo gave evidence that he does not recall speaking to Mr Roberts.
148 On 18 December 2008 Mr Axarlis and Mr Newman attended at Pearl Hill's office in Mornington for the purpose of the parties executing the 33 individual contracts. Some of the events on that day are common ground. Others are the subject of conflicting evidence. I summarise at this point the events that are common ground.
149 Mr Axarlis and Mr Newman were taken upstairs to Pearl Hill's boardroom. Present in the boardroom were at least one set of 33 bound standalone vendor statements and two sets of 33 bound individual contracts previously sent to Pearl Hill. Each standalone vendor statement and each vendor statement comprising Annexure M to each individual contract was dated 18 November 2008, signed by Mr Axarlis and stamped with his printed name. It does not matter at this point whether this was done on 18 November or 18 December (but I find that the standalone vendor statements were signed on 18 November). Each page 1 of each individual contract was dated 18 December 2008 by Mr Axarlis and/or Mr Newman.
150 Mr Axarlis asked Mr Morello for a letter confirming the matters set out in paragraphs 1.2 and 1.3 of his 10 December letter. Mr Morello went away and later returned with a draft letter. Mr Axarlis asked Mr Morello to make changes to it, which he did. The letter contained provision for signature by Mr Mimmo and copies to Mr Roberts at the Commonwealth Bank and Mr Titterton at PPB. When Mr Axarlis was content with the wording of the letter, it was placed on a Pearl Hill letterhead and signed by Mr Mimmo (the 18 December confirmation letter).
151 Mr Axarlis asked Mr Morello to send the 18 December confirmation letter by email to Mr Roberts and Mr Titterton. Mr Morello sent a copy of the letter by email to Mr Axarlis, Mr Roberts, Mr Titterton and others at 2:07pm.
152 There is a conflict on the evidence whether Mr Axarlis signed the individual contracts in respect of lots 600 to 617, which I address below. It is common ground that the individual contracts in respect of lots 618 to 632 were not signed.
153 There was a discussion about the deposit of 10% payable in respect of lots 618 to 632 (totalling $1.5 million plus GST). Mr Mimmo said that he was not prepared to pay the deposit because Marina Cove owed money to Pearl Hill that had not been paid. Mr Mimmo suggested that the individual contracts in respect of lots 618 to 632 be amended to delete reference to payment of a deposit. Mr Axarlis attempted to telephone Mr Roberts to ask him whether the Commonwealth Bank would agree to this. He was unable to reach him. He telephoned Campbell Jaski of PPB. He then told Mr Mimmo that he was unable to proceed further on that day and departed.
154 On 19 December 2008 Mr Morello sent an email to Mr Axarlis asking for an update on the amendments of the Contracts of Sale discussed the previous day. Mr Axarlis sent an email in response to Mr Morello, copied amongst others to Mr Mimmo and Mr Roberts. He said that the Commonwealth Bank's representative advised that it would consider the request to amend the Contracts of Sale to provide for no deposit and settlement within 21 days of registration of the plan of subdivision after Pearl Hill produced evidence from its financier that it had obtained finance to settle. He requested a letter of approval from Pearl Hill's financier.
155 On 19 December 2008 Mr Morello replied to Mr Axarlis. He said that Pearl Hill's previous approval from BankWest was no longer valid due to BankWest withdrawing because of the negative press associated with City Pacific. He was back to 'square one' with obtaining finance. Pearl Hill would have approval in the New Year, so they may have to wait until that happened. Mr Axarlis forwarded the email to Mr Roberts and others.
156 In December 2008 or January 2009 Mr Mimmo approached Jerry Triantos of Express Money Service Pty Ltd (Express Money Service), a finance broker, seeking approval of finance for purchase of the 33 lots. On 8 January 2009 Mr Triantos issued a letter of offer by Express Money Service to Coastal Group Properties offering to advance $22.8 million or 65% of valuation, whichever was lesser, on the security of the 33 lots for a maximum term of 12 months. The offer was subject to conditions and was effectively non-binding.
157 Mr Mimmo decided then or subsequently also to approach the National Australia Bank, Australia and New Zealand Bank and Westpac Bank with a view to possibly spreading the finance across two or three banks. At that stage, he had not decided which finance option or options he would pursue.
158 On 20 January 2009 Mr Newman sent an email to Mr Mimmo attaching a document showing fees of $122,495 required to be paid to the Council for issue of plans of subdivision of the 3 superlots into 33 lots. He asked Mr Mimmo to bring a cheque for the fees so that it could be lodged with the Council to enable release of the plans of subdivision.
159 On 23 January 2009 the National Australia Bank wrote a letter to Pearl Hill referring to finance of 18 lots proposed to be purchased by Coastal Group Properties (lots 608 to 619, 621 to 624, 626 and 627) and setting out indicative terms. The letter said that a valuation report would need to be undertaken by Charter Keck Cramer.
160 On 27 January 2009 Mr Morello sent an email to Mr Axarlis attaching the NAB letter.
161 On 27 January 2009 Mr Axarlis forwarded Mr Morello's email to Mr Roberts and Mr Titterton, enquiring whether the Bank wished to await a firm letter of offer from the NAB or would consent to Marina Cove entering into contracts on a 'subject to finance' basis. Mr Titterton replied that the Bank would not consider any further offer for the 33 lots from Pearl Hill until Pearl Hill submitted a new offer supported by an unconditional letter of finance.
162 On 28 January 2009 Mr Axarlis sent an email to Mr Morello thanking him for the 'conditional' letter of approval and saying that the Commonwealth Bank had requested an unconditional letter of approval.
163 In February 2009 Mr Mimmo approached Anastasia Panagiotas, relationship manager in the commercial division at Westpac's Laverton Business Centre, seeking finance for the acquisition of the 33 lots. Ms Panagiotas told him that Westpac would be prepared to provide an interest only short-term loan to enable him to complete the acquisition on the Bank's usual terms, subject to fulfilling the usual criteria and on the basis that the amount advanced would not exceed 65% of the value of property provided by way of security.
164 On 13 February 2009 the ANZ Bank wrote a letter of approval of an application for a loan by Mr Mimmo, subject to conditions including a signed contract of sale and a valuation. The amount of the loan is redacted on the version tendered.
165 On 18 February 2009 Mr Axarlis sent an email to Mr Mimmo attaching a letter asking him to confirm agreement to amending the proposed date of settlement under the individual contracts to the later of '30 days from the day of sale or seven days from registration of the plan of subdivision' and asking to be advised upon receiving confirmation from Pearl Hill's financier that its loan had been approved.
166 On 19 February 2009 Mr Morello replied to Mr Axarlis attaching a letter from Mr Mimmo agreeing to the amendment. The letter said that, on signing of the Contracts of Sale, plans of subdivision must be registered within seven days to avoid further delays. It said that Annexure B to the Heads of Agreement needed to be amended to include invoices 1384 and 1385.
167 On 19 February 2009 Mr Axarlis sent an email to Mr Morello. He rejected the claim in relation to invoices 1384 and 1385. He asserted that Pearl Hill was in breach of clause 3 and clause 2 of the Heads of Agreement. He requested confirmation that Pearl Hill would comply with the Heads of Agreement in all respects (save for payment of the 10% deposit), failing which Marina Cove would take all necessary action to protect its interests.
168 On 20 February 2009 Craig Kilby of Charter Keck Cramer provided a valuation report to the NAB in respect of the 18 lots the subject of the NAB letter dated 23 January. He valued the 18 lots at $19.8 million (apportioned at $1.1 million each) and on a forced sale at $17.1 million (apportioned at $0.95 million each).
169 On 23 February 2009 Mr Axarlis sent an email to Mr Mimmo, copied to Mr Morello, asking if the NAB had received Charter Keck Cramer's valuation of the 33 lots.
170 On 24 February 2009 Mr Morello replied saying that the valuation had been received. Mr Axarlis sent a responding email asking for an unconditional letter of finance that he may forward to the Commonwealth Bank seeking consent to amend the Contracts of Sale to remove the requirement for the deposit.
171 On 5 March 2009 Mr Morello sent an email to Mr Axarlis setting out contact details for the NAB manager who was dealing with Pearl Hill's loan application in response to a request from Mr Axarlis to provide the details to pass on to the Commonwealth Bank. Mr Axarlis forwarded the email to Mr Roberts and Mark Sutton at the Commonwealth Bank, saying that Pearl Hill had consented to Mr Roberts speaking to the NAB manager. He enquired whether Mr Roberts consented to entry into the Contracts of Sale at that stage, subject to removing the deposit and shortening the settlement date.
172 On 5 March 2009 Mr Sutton replied to Mr Axarlis' email saying that the Commonwealth Bank did not think it would be appropriate to contact NAB and reiterating that the Bank did not consent to entering into Contracts of Sale until they could be unconditional with an appropriate deposit being paid.
173 On 10 March 2009 CPL lodged a second mortgage over the titles to the 3 superlots.
174 On 11 March 2009 Mr Axarlis sent a letter to Pearl Hill contending that works required to achieve an occupancy permit for lot 54 were required under the Heads of Agreement to be undertaken by Pearl Hill without further charge. He said that the Heads of Agreement was premised on no further money other than that described in the Schedule being paid by Marina Cove and hence the discount of $16.5 million to Pearl Hill on the transfer of the land. He contended that Pearl Hill would not be successful for a claim anywhere near $16.5 million.
175 In March 2009 Mr Mimmo sought advice from Mr Hoey about Pearl Hill's legal position under the Heads of Agreement and the Construction Contract. Mr Hoey recommended seeking advice from Mr Digby QC and Mr Oliver concerning the action that Pearl Hill should take in relation to the contracts. Mr Hoey said that Mr Digby QC was a top building and construction barrister and had been involved in a lot of similar cases. Mr Hoey and Mr Berrill prepared a brief for that purpose.
176 Mr Mimmo told Mr Hoey that he wanted to know whether the Heads of Agreement was enforceable in order to know if he could proceed with the Contracts of Sale. He expressed concern about the financial viability of Marina Cove. He said that the price for the 33 lots under the Heads of Agreement was very good. He told Mr Hoey that Marina Cove owed money to Pearl Hill and he did not want to pay the deposit that Pearl Hill was otherwise required to pay because Marina Cove might not pay that money to Pearl Hill. He said that he wanted to deduct from the purchase price monies owing to Pearl Hill under the Heads of Agreement. Mr Hoey characterised this legally as a set off.
177 Mr Hoey considered that Marina Cove might terminate the Heads of Agreement for breach by Pearl Hill if it was not entitled to a set off, and that it was therefore imperative to obtain senior counsel's advice before acting. He decided to seek advice from counsel on the enforceability of the Heads of Agreement and the ability to set off money owed by Marina Cove against the purchase price of the 33 lots. Mr Mimmo told Mr Hoey that he believed that Marina Cove would be open to conceding a set off given that Pearl Hill could impose financial pressure on Marina Cove which was in debt to its financiers.
178 On 16 March 2009 Mr Hoey attended a conference with Mr Mimmo and Mr Oliver for two and a half hours. No evidence was adduced about the content of the conference.
179 On 21 March 2009 Mr Hoey sent an email to Mr Mimmo, copied to Mr Digby QC, attaching a draft Outline of Facts for Brief. Mr Hoey set out potential claims that Pearl Hill had against Marina Cove prior to the Heads of Agreement. He said in the Outline of Facts for Brief that a prolongation claim, estimated on a very approximate basis at $11 million, was unlikely to succeed due to the contractual bars contained in clauses 34.4 and 34.10 of the Construction Contract. Pearl Hill had claimed that design changes made by Marina Cove resulted in a more appropriate rate per square metre of $1,950 rather than the rate of $1,300 used in calculating the contract prices, resulting in a difference of approximately $17 million. Pearl Hill had served a notice of suspension of work and suspended work in May 2008 after issuing a notice of default in respect of outstanding progress claims exceeding $3.1 million.
180 Mr Hoey said in the Outline of Facts for Brief that key terms of the Heads of Agreement included the purchase of the 33 lots at a price considerably lower than their value, with a 10% deposit payable on signing the Contracts of Sale. Pearl Hill believed that, if it took action against Marina Cove, Marina Cove would be forced into liquidation. Pearl Hill considered that it would exchange its claims for a discount in the purchase price of the 33 lots. Marina Cove was refusing to sign the Contracts of Sale unless Pearl Hill produced a 10% deposit but Pearl Hill had informed Marina Cove that it wished to set off the deposit against monies owed to it under the Heads of Agreement. Pearl Hill now wished to resolve these issues in the most practical way possible.
181 Mr Mimmo telephoned Mr Hoey and said that the Outline of Facts for Brief was good.
182 On 23 March 2009 Mr Hoey sent an email to Mr Oliver attaching a Memorandum to Counsel. The Memorandum to Counsel contained essentially the same material as the Outline of Facts for Brief but re-ordered and with some relatively small wording changes. The Memorandum to Counsel was also sent to Mr Digby QC at about the same time.
183 The Memorandum to Counsel asked for advice on the practical resolution of the issues and sought advice specifically in the following terms:
Pearl Hill seeks advice, therefore, as to:
(a) whether the Heads of Agreement are enforceable; and
(b) if they are
(i) the appropriate enforcement steps Pearl Hill should take;
(ii) whether Pearl Hill can set off the amount owed to it under the Heads of Agreement against the 10% deposits due for the sale of land; and
(iii) whether Pearl Hill can claim variations for the uncompleted works which Pearl Hill has agreed to complete.
184 The last question posed by Mr Hoey related to a modification to shower screens required by the building surveyor in circumstances in which Pearl Hill had constructed the shower screens in accordance with the plans. It was relatively inconsequential.
185 On 25 March 2009 Mr Hoey and Mr Berrill attended a conference with Mr Digby QC and Mr Oliver for 45 minutes. No evidence was adduced about the content of the conference. A conference with Mr Mimmo for 31 March was arranged.
186 On 30 March 2009 Andrew Denehy of Gadens sent a letter to Mr Mimmo responding to his letter dated 13 March. He said that the Heads of Agreement was subject to financier, mortgage fund and board of directors approval in accordance with clause 15 and that consent was obtained on terms that should have been expected by Pearl Hill. He said that Pearl Hill had failed to comply with the requirements of the consent of the financier and had thereby repudiated the Heads of Agreement. He reserved Marina Cove's rights and required a response advising what steps Pearl Hill intended to take in performance of the obligations arising under the Heads of Agreement. He also alleged that Pearl Hill was in breach of the Construction Contract by suspending work and failing to proceed in a diligent manner and required under clause 39.3 that Pearl Hill show cause by 3 April 2009 why Marina Cove should not take work out of the contractor's hands or terminate the contract due to breaches by Pearl Hill. The letter was not a valid show cause notice because it only gave Pearl Hill four days in which to respond.
187 On 31 March 2009 there was a conference between Mr Digby QC, Mr Oliver, Mr Hoey and Mr Mimmo for one hour. No notes of the conference were tendered. Mr Mimmo gave evidence that there were discussions about the best way to lock Marina Cove into the Heads of Agreement so that Pearl Hill would not lose anything if Marina Cove went into liquidation. Mr Mimmo said that he wanted to ensure that Pearl Hill still received what had been promised if Marina Cove 'went broke'. Mr Mimmo's evidence in this respect was not challenged in cross-examination. Mr Digby QC, Mr Oliver and Mr Hoey did not in their evidence take issue with this evidence, which I accept.
188 On 1 April 2009 Mr Hoey sent an email to Mr Mimmo and Mr Morello seeking the numbers of the titles to the 3 superlots so that he could put caveats on them. Mr Morello responded providing the title numbers. Mr Hoey responded saying that he thought that the Heads of Agreement should be sufficient to enable a caveat to be placed on the property on the basis of Pearl Hill being a purchaser.
189 On 1 April 2009 Peter Smith of Westpac's 360 Collins Street office issued a letter to Coastal Group Properties confirming Westpac's expression of interest to assist with finance for blocks of land considered for purchase and stating that this was subject to formal valuation of the land. He requested copies of the contracts.
190 On 1 April 2009 Mr Mimmo sent an email to Mr Hoey saying that he had approval for finance for the 33 lots but could not get an unconditional letter of approval because all banks wanted to see signed contracts. He attached the NAB 23 January letter, the ANZ 13 February letter and the Westpac 1 April letter.
191 On 1 April 2009 Mr Mimmo sent an email to Mr Axarlis, copied to Mr Hoey, saying that he needed an answer on signing the individual contracts by close of business on the following day. He attached the ANZ letter and the Westpac letter.
192 On 1 April 2009 Mr Axarlis sent a responding email to Mr Mimmo, copied to Mr Hoey, saying amongst other things that, after Mr Mimmo denied on 18 December 2008 his agreement to pay the 10% deposit, Mr Axarlis spoke to the Commonwealth Bank seeking a waiver of that condition and they reserved their rights and sought an unconditional letter of finance from Pearl Hill's financier. He said that the NAB and Westpac letters did not constitute unconditional letters of finance. He sought Mr Mimmo's urgent advice as to how Marina Cove would derive the necessary comfort that Pearl Hill would complete the homes given that other entities had been nominated as purchasers of the 33 lots.
193 On 1 April 2009 Mr Hoey forwarded Mr Axarlis' email to Mr Digby QC and Mr Oliver. He said that there was a 'catch-22' because Marina Cove would not accept letters from Pearl Hill's banks and the banks would not give unconditional finance approval without signed contracts. He said that a second mortgage had been registered over the 3 superlots in favour of CPL three weeks ago which made it very suspicious as to what their intentions were.
194 On 1 April 2009 Pearl Hill rendered to Marina Cove invoices for $178,133 for the lock-up stage of lot 57 and $174,629 for the lock-up stage of lot 58, together with invoices for interest on overdue invoices.
195 On 2 April 2009 Pearl Hill sent an email to Mr Hoey forwarding Mr Morello's email to Gadens dated 24 October 2008 concerning the nomination of Coastal Group Properties as the purchaser of the 33 lots. Mr Mimmo also sent an email to Mr Hoey forwarding Mr Axarlis' email dated 14 November 2008 concerning different purchaser entities. Mr Hoey forwarded the emails to Mr Digby QC and Mr Oliver.
196 On 2 April 2009 Mr Hoey sent an email to Mr Mimmo, copied to Mr Digby QC and Mr Oliver, attaching a draft letter to Marina Cove putting it on notice that time was now of the essence and it had seven days to sign individual contracts under the Heads of Agreement. Mr Mimmo responded saying that the draft letter was fine.
197 On 2 April 2009 Mr Axarlis sent an email to Mr Mimmo saying that the Commonwealth Bank wanted to meet him on 6 April regarding the matter, he would see what they had to say and he would phone Mr Mimmo afterwards. Mr Mimmo forwarded the email to Mr Hoey.
198 On 2 April 2009 Mr Newman issued SI No 3 directing Pearl Hill that he had removed any further works in respect of lot 54. Mr Mimmo sent a responding email on 3 April taking issue. On 6 April Mr Newman sent a responding letter taking issue. His original letter and Mr Mimmo's reply were not tendered.
199 On 3 April 2009 Mr Digby QC on behalf of Mr Oliver and himself sent an email to Mr Hoey and Mr Morello, copied to Mr Oliver, attaching a settled version of Mr Hoey's 2 April draft letter.
200 On 3 April 2009 Mr Mimmo sent an email to Mr Hoey forwarding Mr Newman's 20 January email. He said that Pearl Hill was going to pay the Council fee of $122,495 and deduct it from the purchase price.
201 On 3 April 2009 Mr Mimmo sent a further email to Mr Hoey providing amounts for Mr Hoey's 2 April draft letter. He also said that the homes on lots 54 and 56 had reached practical completion, for which Pearl Hill would be entitled to be paid $142,178, but this had not yet been certified.
202 On 3 April 2009 Mr Hoey sent an email to Mr Digby QC and Mr Oliver attaching a revised draft letter for settling.
203 On 3 April 2009 Mr Oliver sent an email to Mr Hoey expressing the opinion that the set off should be confined to claims that were 'undeniably' due and hence limited to $1,022,105 in unpaid invoices listed in Annexure B and $453,947 in variations agreed but unpaid. On 5 April Mr Digby QC sent an email agreeing with that opinion.
204 On 6 April 2009 Mr Mimmo sent an email to Mr Hoey attaching Mr Newman's 6 April letter relating to lot 54.
205 On 6 April 2009 Mr Digby QC on behalf of Mr Oliver and himself sent an email to Mr Hoey and Mr Oliver, copied to Mr Mimmo, attaching the final settled version of Mr Hoey's 2 April draft letter. They also responded to a question from Mr Hoey whether amounts charged for driveways and streetscape works should be set off. They advised that these amounts should not be included because they were not yet 'unequivocally due' and, if included, the amount tendered as the deposit would, to that extent, be insufficient, placing Pearl Hill in breach. They implicitly advised that the amounts of $1,022,105 and $453,947 were unequivocally due.
206 On 7 April 2009 Mr Hoey sent by facsimile to Mr Axarlis the final version of the letter settled by Mr Digby QC and Mr Oliver as instructed by Mr Mimmo. The letter asserted that Marina Cove had no right to demand unconditional letters of approval from Pearl Hill's financiers. It said that Pearl Hill was entitled to set off against the 10% deposit the amounts of $1,022,105 and $453,947 and that Pearl Hill would pay the balance of the deposit of $173,948. It said that it had been agreed in October and November 2008 that Pearl Hill could nominate other entities to be the purchasers under the individual contracts. It required execution of the individual contracts by 9 April.
207 On 7 April 2009 Mr Hoey lodged with the Land Registry a caveat over the titles to the 3 superlots claiming an interest as purchaser pursuant to the Heads of Agreement (the April caveat).
208 On 7 April 2009 Mr Axarlis telephoned Mr Hoey and said that Marina Cove did not accept that there was a set off and Marina Cove had a bigger set off against Pearl Hill. Mr Hoey sent an email to Mr Digby QC and Mr Oliver reporting this conversation.
209 On 8 April 2009 Mr Hoey flew to Europe for three weeks. He left the Pearl Hill file in the care of Mr Berrill.
210 On 8 April 2009 Mr Axarlis sent an email to Mr Titterton and Mr Roberts, copied to Mr Sullivan and the CP1 board, attaching a letter addressed to Mr Titterton. The letter referred to an amendment made on 3 March 2009 to the Commonwealth Bank facility agreement requiring a repayment of $15 million by 31 May 2009. Mr Axarlis said that this provision arose specifically from funds expected to be received from Pearl Hill on the sale of the 33 lots. He set out the history of communications relating to execution of individual contracts in some detail. He concluded by seeking advice whether the Commonwealth Bank consented to Marina Cove entering into the Contracts of Sale in the absence of a deposit or unconditional letter of finance approval or alternatively whether the Bank did not consent to entry into the contracts. He said that, if the latter, Marina Cove sought the Bank's agreement to delete the requirement for the payment of $15 million by 31 May 2009 from the amending deed.
211 On 9 April 2009 Mr Titterton sent an email to Mr Axarlis saying that the Commonwealth Bank agreed to discharge its mortgage with respect to the 33 lots if it received $15 million, subject to the following conditions:
Mr Titterton said, for the avoidance of doubt, that the Commonwealth Bank noted that Pearl Hill would not be required to pay a deposit under the proposed Contracts of Sale, nor would it be required to provide an unconditional letter of approval of finance or other evidence of its capacity to complete its obligations.
212 On 9 April 2009 Mr Denehy wrote a letter to Hoeys responding to the letter to Mr Axarlis. He contended that a set off against the deposit was inconsistent with the tenor and express terms of the Heads of Agreement, especially if the purchaser was to be an entity other than Pearl Hill. He contended that, apart from clause 11, the Heads of Agreement did not vary the time for payment, which continued to be governed by the Construction Contract. He contended that, under clause 10.2 of the Heads of Agreement, amounts of purchaser-requested variations were not payable by Marina Cove. He said that it seemed that Pearl Hill had repudiated the Heads of Agreement and he reserved Marina Cove's rights in that respect. However, Marina Cove offered to proceed to execution of contracts of sale on the following terms:
Nevertheless, on the basis that our client's financier's will consent to the following conditions of entry into the Contract, our client is prepared to proceed if the Contracts of Sale are executed by Pearl Hill Pty Ltd (not any other corporate entity) and a settlement date of 30 days from the day of sale or 7 after the registration of the Plan of Subdivision, whichever is the later, but in any event no later than 29 May 2009 ("Sunset Date") be inserted into the contracts. In addition:
(a) Pearl Hill must immediately recommence works on stage 1 housing; and
(b) Pearl Hill must confirm in writing by return that it will cease/withdraw any litigation against CP1 and/or Marina Cove (as outlined in various items of correspondence between Pearl Hill, Marina Cove and their respective legal advisers);
(c) The sale documents must be reviewed by our client's financier prior to execution and be in a form satisfactory to our client's financier; and
(d) Conditional upon the occurrence of items (a), (b) and (c) above, unconditional Contracts of Sale must be executed by both parties on or before 24 April 2009.
213 Mr Denehy went on to address the Construction Contract. He gave notice (Marina Cove's first show cause notice) pursuant to clause 39.3 that Pearl Hill had wrongfully suspended work, failed to proceed with outstanding works in a diligent manner and refused to accept that payments were only due when milestones were reached and required Pearl Hill to show cause by 15 April why Marina Cove should not take work out of its hands or terminate the contract. On 14 April Gadens extended the time to show cause to 17 April.
214 On 14 April 2009 Mr Berrill sent emails to Mr Oliver attaching Hoeys' 7 April letter and Gadens' 9 April response and to arrange an urgent conference with Mr Mimmo and Mr Oliver.
215 On 14 April 2009 there was a conference between Mr Oliver, Mr Berrill, Mr Mimmo and Mr Delosa for one hour. Mr Berrill made notes of the discussion. Mr Berrill said that Mr Digby QC had advised that the offer be carefully considered and Mr Berrill agreed. Mr Mimmo said that he still did not accept the terms of the offer as there was still a large amount of money outstanding to which he was exposed. He said that he wanted an application made for specific performance of the Contracts of Sale or alternatively damages for breach of the Heads of Agreement plus the amount of the set off from Marina Cove.
216 Mr Oliver warned Mr Mimmo that there was a risk that, if CP1 and Marina Cove went into liquidation, Pearl Hill would lose everything. Mr Mimmo said that, in that event, he would buy the land from the liquidator for a lesser price. Mr Oliver said that the liquidator would have to use best endeavours to sell the properties at the highest price so Mr Mimmo might not obtain them at the desired price. Mr Mimmo said that, if he caused Mr Axarlis to go under, he would be happy and then try to get the properties from the liquidator.
217 Mr Oliver asked Mr Mimmo how the work was progressing. Mr Mimmo said that Pearl Hill was on-site and there were about 10 to 15 workers on site, but at this rate they would be finished by 2010. There was discussion about a conference with Mr Digby QC and Mr Mimmo reserved his decision about future action until after that conference.
218 On 14 April 2009 Mr Mimmo returned a call to Mr Axarlis. Mr Axarlis said that he had consent from the Commonwealth Bank for no deposit and instructed Gadens on 9 April to advise Mr Hoey of this.
219 On 14 April 2009 Mr Mimmo sent an email to Mr Oliver and Mr Berrill reporting his conversation with Mr Axarlis. He asked whether Mr Berrill had received a letter from Gadens of that description and if so to forward him a copy.
220 On 15 April Mr Berrill sent an email to Mr Hoey updating him on the conference and recent and forthcoming events. Mr Berrill generally sent emails to Mr Hoey giving him an update or forwarding communications every two or three days while Mr Hoey was absent from the office.
221 On 15 April 2009 there was a conference between Mr Digby QC, Mr Oliver, Mr Berrill, Mr Mimmo and Mr Delosa for one hour. Mr Berrill made notes of the discussions. A draft show cause notice was formulated to be sent to Marina Cove which Mr Digby QC and Mr Oliver would settle. Mr Mimmo said that, if the Contracts of Sale were not executed within seven days, proceedings should be initiated against Marina Cove immediately. Mr Digby QC advised Mr Mimmo that he would rather see how the issues played out over the next few weeks and try to back Marina Cove into a corner. Mr Mimmo said that there was a set off at law. Mr Digby QC agreed by nodding his head and saying yes. Mr Mimmo said that he believed that, once proceedings were filed against Marina Cove, they would immediately settle because of other pressures they were experiencing.
222 On 16 April 2009 Mr Oliver on behalf of Mr Digby QC and himself sent an email to Mr Berrill attaching a proposed letter to Gadens in response to their letter dated 9 April.
223 On 17 April 2009 Mr Mimmo sent an email to Mr Berrill, copied to Mr Oliver, and a separate email to Mr Oliver saying that his view had always been that, until both the Heads of Agreement and the Contracts of Sale were signed, the time frame to undertake work to complete the homes did not commence. He said that Mr Axarlis must have been of the same view because otherwise some of the homes would already be overdue for completion.
224 On 17 April 2009 Mr Mimmo sent three further emails to Mr Berrill, copied to Mr Oliver, setting out the stage of construction reached, and anticipated finishing date, for each home remaining to be completed. He said that the stage of construction reached was as follows:
• Lot 52: 90% from fix stage to practical completion;
• Lots 67 and 68: 75% from fix stage to practical completion;
• Lots 63, 64 and 65: 70% from fix stage to practical completion;
225 On 17 April 2009 Mr Oliver sent an email to Mr Berrill on behalf of Mr Digby QC and himself attaching the proposed responsive letter to Gadens updated with the stages of completion reached provided by Mr Mimmo together with the amount outstanding in respect of each uncompleted home.
226 On 17 April 2009 Mr Berrill sent the settled responsive letter to Gadens. In relation to Marina Cove's first show cause notice contained in Gadens' 9 April letter, the letter contended that Gadens' letter was not a valid show cause notice because it failed to give the minimum seven clear days' notice required under clause 39.3 of the Construction Contract and the purported extension by the subsequent letter dated 14 April was ineffective to remedy the invalidity. The letter took issue with Gadens' contention that, under clause 10.2 of the Heads of Agreement, amounts of purchaser-requested variations were not payable by Marina Cove. It disputed that Pearl Hill had suspended work or indicated an unwillingness to comply with the Construction Contract. It stated that Pearl Hill remained on-site, working diligently to complete the outstanding works, despite lack of payment by Marina Cove. It set out the status of construction and payments outstanding for each uncompleted home in terms of Mr Mimmo's 17 April email (with the percentages omitted).
227 In relation to execution of Contracts of Sale pursuant to the Heads of Agreement, Hoeys' letter stated:
Pearl Hill rejects the assertion that that it was not prepared or could not proceed with the purchases of the various lots for the agreed price. As your client well knows, the history of this matter is that despite Marina Cove acknowledging its indebtedness to Pearl Hill in October 2008 in the Heads of Agreement, a significant portion of the debt (in excess of $1.4 million) remained (and remains) unpaid in December 2008.
It was only because Marina Cove remained indebted to Pearl Hill for such a significant sum when the contracts of sale were finally prepared in December 2008 that discussions ensued about whether a deposit ought to be paid under the contracts of sale.
We are instructed that Theo Axarlis of Marina Cove spoke by telephone on 14 April 2009 with Nino Mimmo of Pearl Hill. Mr Axarlis told Mr Mimmo that he agreed that no deposit need be paid on execution of the contracts of sale and that Marina Cove's financiers had agreed that a deposit was not required.
There appears, therefore, to be no barrier to the execution of contracts of sale. Accordingly, Pearl Hill has instructed us to immediately commence proceedings without further notice if contracts of sale are not executed within 7 days of the date of this letter.
228 On 21 April 2009 Mr Denehy sent by facsimile a letter to Hoeys in response. He said that they took issue with various matters but it may not be necessary to address them if the issues could be resolved. He largely reiterated the offer made on 9 April and said that it would lapse if not accepted by close of business on 22 April. Otherwise, he said that there was every likelihood that litigation would result. The reiterated offer was in the following terms:
(a) The Contracts of Sale must be executed by Pearl Hill on or before 24 April 2009;
(b) While no deposit needs to be paid upon signing of the Contracts, the whole of the purchase price, that is $16,500,000 inclusive of GST must be payable no later than 29 May 2009. That purchase amount must be paid without any deduction whatsoever at all;
(c) The terms of the sale documents must be approved by our client's financier;
(d) Pearl Hill must immediately re-commence works on Stage 1 Housing in a substantial manner; and
(e) Pearl Hill must confirm in writing by return that it will cease/withdraw any litigation against CP1 and/or Marina Cove.
229 On 21 April 2009 Mr Berrill sent separate emails to Mr Mimmo, and Mr Digby QC and Mr Oliver, enclosing Gadens' letter. He suggested that a further conference be arranged with a view to drafting a statement of claim if Mr Digby QC and Mr Oliver agreed that this was the appropriate course to take.
230 On 22 April 2009 Mr Digby QC on behalf of himself and Mr Oliver sent an email to Mr Berrill. He said that the terms should be very carefully considered by Pearl Hill because the offer may be the last possibility of reaching an agreed purchase of the land. He said that Pearl Hill should draw a statement of claim so as to be in a position to commence a proceeding as soon as possible, if necessary next week. He suggested a conference on 24 April. He suggested that Mr Berrill write to Gadens seeking an extension of time to respond to the offer until 27 April.
231 On 22 April 2009 Mr Berrill forwarded the email to Mr Mimmo and sought instructions whether he agreed to the terms of the offer or wanted Hoeys to commence preparing a statement of claim. He said that he would seek an extension of time and clarification as to when Marina Cove intended to pay the amounts outstanding. He suggested that Mr Mimmo wait until receiving their response before making a decision. Mr Mimmo telephoned Mr Berrill and told him that he wanted to reject the offer and instruct Hoeys to issue proceedings. Mr Berrill arranged a conference with Mr Oliver, Mr Mimmo and himself for that afternoon.
232 On 22 April 2009 there was a conference between Mr Oliver, Mr Berrill and Mr Mimmo. It is likely that Mr Berrill prepared notes of the conference in accordance with his usual practice but no notes were tendered. It appears that Mr Mimmo reiterated his views expressed on the telephone. It was agreed that Mr Berrill would draft a letter, to be settled by Mr Oliver, to Gadens seeking an extension of time to respond to the offer until 27 April.
233 On 23 April 2009 Mr Berrill sent a letter to Gadens seeking the extension of time. He also enquired when the outstanding amounts would be paid and when the subdivision of the blocks would take place.
234 On 23 April 2009 Mr Denehy sent a letter by facsimile to Hoeys giving notice that Pearl Hill had wrongfully suspended work and failed to proceed with outstanding works in a diligent manner and requiring Pearl Hill to show cause by 1 May why Marina Cove should not exercise the rights conferred in clause 39.4 (Marina Cove's second show cause notice). Mr Berrill sent an email to Mr Digby QC and Mr Oliver attaching the letter.
235 On 24 April 2009 Mr Denehy sent by facsimile a letter to Hoeys agreeing to the extension of time to 27 April. He said that the outstanding amounts would be paid as and when they were received by Marina Cove from the purchasers. He asserted that this was discussed with Mr Mimmo at the time of entry into the Heads of Agreement. He said that the subdivision was ready to proceed and the only issue was paying the relevant fees.
236 On 24 April 2009 Mr Oliver sent an email to Mr Digby QC. He said that Mr Mimmo did not want to accept Marina Cove's offer, particularly as it said nothing about when the money owed by Marina Cove would be paid and yet required Marina Cove to withdraw all litigation 'whatever that meant'.
237 On 25 April 2009 there was a conference at Mr Digby QC's chambers between Mr Digby QC, Mr Oliver, Mr Berrill and Mr Mimmo for one and a half hours. Mr Berrill made notes of the discussion. Mr Digby QC recommended that one letter be sent to Gadens dealing with the contractual issues (Construction Contract issues) and a second letter be sent dealing with the Heads of Agreement, demanding the set off and then initiating proceedings against Marina Cove to place pressure on them. He said that he and Mr Oliver would draft the letters. Mr Mimmo said that he agreed to this course of action and wanted to initiate proceedings urgently as Pearl Hill was continuing to carry out work for which it was not being paid and it wanted to put a stop to it as it could not continue to absorb the debt. Mr Digby QC suggested that they also request a meeting between the parties and lawyers to attempt to reach a resolution. Mr Digby QC said that it was critical that Pearl Hill continue to have a presence on site so that Marina Cove could not argue repudiation. Mr Mimmo said that Pearl Hill still had a presence on site.
238 On 26 April 2009 Mr Oliver sent an email to Mr Mimmo seeking information for the letters to Gadens and statement of claim. Mr Mimmo responded on that day.
239 On 27 April 2009 Mr Berrill sent an email to Mr Mimmo attaching Gadens' 24 April letter and seeking instructions on the assertion that it was agreed that Marina Cove would pay Pearl Hill as and when amounts were paid by their purchasers. Mr Mimmo responded saying that he had expected to be paid by the end of October. He said that he had been told from time to time that Pearl Hill would be paid when Marina Cove settled with their purchasers but either payment was short or not received at all. He observed that Marina Cove would not get compliance for the subdivision plans if they did not have the money to pay the Council for compliance. Mr Berrill forwarded the email to Mr Oliver.
240 On 28 April 2009 Mr Berrill sent a letter, settled by Mr Digby QC and Mr Oliver, to Gadens in relation to the Heads of Agreement. The letter confirmed that Pearl Hill regarded the Heads of Agreement as binding on the parties and was intent on proceeding with the purchase set out in it. It disputed that the underlying basis for payment of the outstanding monies was that Pearl Hill would only be paid when Marina Cove was paid by its purchasers. It said that the outstanding amount was $1,573,672 and this sum should be set off or credited against the purchase price otherwise payable. It responded to the five terms of the offer made on 21 April. It suggested a meeting of the parties' representatives on 30 April.
241 On 28 April 2009 Mr Berrill sent a second letter, settled by Mr Digby QC and Mr Oliver, to Gadens in response to Marina Cove's second show cause notice rejecting the assertion that Pearl Hill was not on site working diligently to complete the works and setting out the stage that had been reached in respect of various lots.
242 On 28 April 2009 Mr Oliver sent an email to Mr Digby QC attaching a draft statement of claim, which was settled by Mr Digby QC and Mr Oliver on 29 April.
243 On 29 April 2009 Mr Denehy sent by facsimile a letter to Hoeys responding to his second 28 April letter and taking issue with the assertions in it.
244 On 29 April 2009 Gadens sent an email to Mr Berrill responding to his first 28 April letter. He said that any set off was unacceptable. He said that Gadens had instructions to accept service of the proposed proceeding. He said that, given the position, any meeting as suggested by Mr Berrill did not seem useful. Mr Berrill forwarded the email to Mr Digby QC and Mr Oliver.
245 On 29 April 2009 Mr Digby QC sent an email to Mr Berrill, copied to Mr Oliver, saying that he saw no option but to issue the proceeding and maximise pressure. He said that, on the contractual front, they needed to re-focus on clever ways to place maximise pressure on Marina Cove, minimise the spend and position Pearl Hill as best they could for the contractual struggle ahead.
246 On 29 April 2009 Hoeys instituted action no 6288 of 2009 (the HOA action) by filing a writ by Pearl Hill against Marina Cove, supported by the statement of claim settled by Mr Digby QC and Mr Oliver (the HOA action). The statement of claim sought an order for specific performance of the Heads of Agreement by requiring Marina Cove to execute and complete the transfer of the 33 lots to Pearl Hill. In the alternative, it sought damages. It also sought payment of $1,879,783 in debt, comprising:
• $935,675 being the balance outstanding of the agreed invoices dated 5 March and 2 April 2008 listed in Annexure B to the Heads of Agreement;
• $458,451 for the invoices for variations dated 9 to 12 September 2008;
• $388,038 being the amount of the invoices for the lock-up stage for lots 57 and 58 dated 1 April 2009; and
• $97,620 for the invoices for streetscape and driveway works dated 30 October 2008.
247 On or shortly after 29 April 2009 Hoeys served the writ and statement of claim in the HOA action on Gadens. Although no direct evidence of service was adduced, I infer that Hoeys undertook service promptly because this was in accordance with the advice by Mr Digby QC to maximise pressure on Marina Cove and the instructions of Mr Mimmo.
248 On 30 April 2009 there was a conference between Mr Digby QC, Mr Oliver, Mr Berrill and Mr Mimmo. Mr Berrill made notes of the discussion. There was discussion about what could be holding Marina Cove back from negotiating. Mr Berrill recorded that Mr Mimmo said that he 'believed that [Marina Cove was] too far gone financially and suspected that, even without the set off, Marina Cove could not pay the GST on the amount'. Mr Digby QC said that, if Pearl Hill gave up its claim for the set off, there would be much less to be argued. Mr Mimmo said that he was not willing to do that as there were a lot of other works not even invoiced that Marina Cove got for free.
249 There was discussion at the conference about the works that had been undertaken by Pearl Hill. Mr Digby QC requested that Mr Mimmo send to Hoeys a list of works it had been carrying out and any reasons why they were being delayed by Marina Cove. He said that he believed that the next step was for Pearl Hill to issue a show cause notice of its own to attempt to bring the Construction Contract to an end. He said that he was mystified why Marina Cove would refuse to negotiate because, if the project ended now, they would have to get a new builder to finish a substantial amount of work. Mr Mimmo said that there was around $5 million to $8 million worth of work to be done and there would be issues regarding warranties and certification if it were undertaken by another builder. Mr Digby QC advised Mr Mimmo of the importance of keeping a presence on the site and keeping records of what works were being carried out.
250 On 30 April 2009 Mr Mimmo sent an email to Mr Berrill, copied to Mr Oliver, asking if Pearl Hill should suspend work under the Heads of Agreement for non-payment of the invoices in respect of lots 57 and 58.
251 On 1 May 2009 Mr Berrill sent an email to Mr Mimmo repeating the advice given by Mr Digby QC at the conference that it was important that Pearl Hill continue to progress works to avoid an argument that it had defaulted.
252 On 1 May 2009 Mr Berrill sent a letter, drafted by Mr Oliver and settled by Mr Digby QC, to Gadens in response to Marina Cove's second show cause notice. The letter contended that Gadens' letter was not a valid show cause notice. It set out the status of construction for each lot (in the same terms as the 17 April letter) and attached a schedule showing details of activities and resources being applied by Pearl Hill to proceed with and diligently progress the works. It contended that Marina Cove was in breach of the Construction Contract because it had failed to pay the 1 April invoices for the lock-up stage for lots 57 and 58 totalling $388,038.
253 On 1 May 2009 Mr Mimmo signed and posted a Pearl Hill show cause notice to Marina Cove, drafted by Mr Oliver and settled by Mr Digby QC, alleging that Marina Cove was in breach of the Construction Contract by failing to pay:
• $935,675 being the balance of the amounts referred to in Annexure B to the Heads of Agreement [which had been invoiced on 3 March and 2 April 2008];
• $458,451 for purchaser generated variations [which had been invoiced on 9 to 12 September 2008];
• $388,038 being lock-up stage progress payments for lots 57 and 58 [which had been invoiced on 1 April 2009];
• $82,500 for streetscape works for lots 52 to 57 [which had been invoiced on 30 October 2008]; and
• $15,120 for driveway works for lots 52, 54, 55 and 56 [which had been invoiced on 30 October 2008].
The notice required Marina Cove to show cause by 13 May why Pearl Hill should not exercise its right referred to in clause 39.4.
254 On 1 May 2009 the ASX sent by email to CP1 a letter referring to its quarterly report for the period ending 31 March 2009; noting its negative cash flows for the quarter and closing cash of only $1.2 million; enquiring whether it expected that it would have insufficient cash to fund its activities in future; requesting comment on its compliance with listing rules 3.1 and 12.2; and requiring a response by 5 May.
255 On about 6 May 2009 Mr Hoey returned from holidays.
256 On 6 May 2009 Mr Oliver sent an email to Mr Digby QC containing a draft email that he proposed to send to Mr Hoey/Mr Berrill. The draft email said that Mr Oliver had noticed that the 1 May show cause notice erroneously referred to clause 39.4[6] rather than clause 39.9 of the Construction Contract. He recommended that a fresh show cause notice be served requiring a response by 18 May and attached a draft revised show cause notice containing the corrected clause reference.
257 On 7 May 2009 Mr Berrill issued a show cause notice in the same terms as the 1 May notice, except that it referred to clause 39.9 rather than clause 39.4 of the Construction Contract and required a response by 18 May, and served it on Marina Cove (the Pearl Hill show cause notice).
258 On 13 May 2009 at 4.54 pm Mr Axarlis sent by facsimile a letter to Mr Mimmo. In the letter Mr Axarlis denied that Pearl Hill had shown cause as to why Marina Cove was not entitled to exercise its rights under clause 44 of the Construction Contract to either terminate the contract or take the work out of the hands of Pearl Hill. He said that Marina Cove gave notice that pursuant to clause 39 it was taking the remaining work out of the hands of Pearl Hill and would make other arrangements for the remaining works to be completed. He said that, once completed, an assessment would be made by the superintendent as to what amount may then be payable by one party to the other.
259 Mr Axarlis said that, in the alternative, Marina Cove would delete the remaining works from the contract pursuant to clause 36.1, an assessment of the adjustment to the contract sum would be made after the works had been completed and the superintendent would provide a suitable notice.
260 In relation to the Heads of Agreement, Mr Axarlis said:
Additionally to the foregoing and as previously advised, Pearl Hill's conduct in connection with the Contracts for the Sale of Lots 600 to 632 was in breach of the HOA and that breach amounted to repudiation. In the circumstances, Marina Cove has decided to elect to accept and hereby accepts that repudiation. Accordingly, the HOA are now at an end.
Mr Axarlis' reference to 'Pearl Hill's conduct in connection with the Contracts for the Sale of Lots 600 to 632' as previously advised was a reference to Pearl Hill's assertion of a right to set off monies owing to it by Marina Cove.
261 On 13 May 2009 at 5.09 pm Pearl Hill sent a copy of the letter to Mr Hoey by email. At 5:15pm Mr Hoey forwarded the email (with the attached Marina Cove letter) to Mr Digby QC and Mr Oliver.
262 On 14 May 2009 at 10:50am Mr Denehy sent by facsimile a letter to Hoeys contending that, under clause 39.5 of the Construction Contract, Marina Cove was entitled to use materials, equipment and other things intended for the works. He also said that Pearl Hill was not entitled to visit the home sites.
263 On 14 May 2009 at 11:12am Mr Mimmo sent an email to Mr Hoey attaching a copy of the invoices for lots 57 and 58 and inquiring how to claim the amounts outstanding. He also said that Marina Cove did not get permits to start those homes until January 2007 and then contaminated groundwater was found, which had to be rectified by Marina Cove, so Pearl Hill could not re-commence until mid 2007.
264 On 14 May 2009 at 3:25pm Mr Denehy sent by facsimile a letter to Hoeys requesting return of the keys and saying that otherwise Marina Cove would change the locks.
265 On 14 May 2009 at 3:55pm Mr Hoey sent an email to Mr Mimmo, copied to Mr Digby QC and Mr Oliver, in reply to Mr Mimmo's 11:12am email and attaching the two Gadens letters. He said amongst other things:
I am waiting to speak to John Digby before responding as we will need to decide whether to accept their conduct as repudiating the construction contract and/or heads of agreement...
I will speak to you after speaking to John
266 On 14 May 2009 at 5:39pm Mr Hoey sent an email to Mr Digby QC and Mr Oliver attaching a draft letter he was 'thinking of sending'.
267 On 15 May 2009 at 12:14am Mr Digby QC sent an email to Mr Hoey, copied to Mr Oliver, responding to his second email and attaching the settled letter. He said:
I advise that our client refrain, for the time being, from bringing the Building Contract to an end (I note that it is possible that Marina Cove has already done so, although this of course depends on whether it has a present entitlement in this regard?)
Whenever the Pearl Hill contractual Show Cause Notice matures, Pearl Hill should terminate the Contract via the termination mechanism set out in the Contract, and the next day also terminate at common law on the basis of Marina Coves repudiation in taking the works out of Pearl Hills' hands and also on all other possible grounds, including non payment to Pearl Hill.
At the same time as the common law rescission is communicated to Marina Cove in relation to the Building Contract, the Heads of Agreement should be terminated for specified fundamental breaches by Marina Cove, including that Marina Cove has wrongfully purported to terminate the HOA by letter dated 13 May 2009.
268 On 15 May 2009 at 6:47am Mr Hoey sent an email to Mr Digby QC, copied to Mr Oliver, in which he said:
Thanks for that John. 2 further issues may also need consideration...determining whether there is merit in a summary judgment application and whether if we terminate HOA we can still seek specific performance of the sale contracts...
269 On 15 May 2009 at 11:37am Mr Digby QC sent a responding email to Mr Hoey, copied to Mr Oliver, in which he said, amongst other things:
Termination will preclude specific performance of the sales contracts. It is possible that Marina Cove has effectively terminated the HOA, although I think that this is unlikely.
The prospect of obtaining specific performance (which I considered when drafting the email (and settling the letter) last night, is I believe, very unlikely to be granted, however I have not made a detailed evaluation of this potential claim by our client.
The assessment specific performance issue (although I do not think my assessment above will change) should perhaps be formally evaluated prior to termination by Pearl Hill of the HOG [sic].
270 On 15 May 2009 at 3:26pm Mr Hoey forwarded Mr Digby QC's second (11:37am) email to Mr Mimmo without comment.
271 On 15 May 2009 at 3:37pm Mr Hoey forwarded Mr Digby QC's first (12:14am) email to Mr Mimmo without comment.
272 On 15 May 2009 at 3:47pm Mr Hoey sent an email to Mr Digby QC and Mr Oliver saying:
Just spoken to Nino and told him we are sitting tight till next week so that we will be able to terminate on our default notice as well as their repudiation. He will after termination write to various homeowners (we will settle) advising that he is ready willing and able to be engaged direct to finish their homes...
I told him we would speak to him next Monday or Tuesday...
273 Mr Hoey's timesheet records that he had two telephone conversation with Mr Mimmo on 15 May (both Mr Mimmo phoning him), one of three units (up to 18 minutes) and one of one unit (up to 6 minutes). No file note by Mr Hoey of his conversations with Mr Mimmo was tendered. Mr Hoey gave evidence that he does not now recall what was said.
274 On 15 May 2009 Mr Hoey sent by facsimile a letter to Mr Denehy, being his draft 14 May letter settled by Mr Digby QC, refuting that Marina Cove was entitled to take the works out of the hands of Pearl Cove or to terminate the Construction Contract or Heads of Agreement. (The reference to termination of the Construction Contract was erroneous.)
275 On 15 May 2009 at 4:05pm Mr Newman sent by facsimile a letter to Mr Mimmo in which, acting as superintendent's representative, he deleted all remaining works from the Construction Contract pursuant to clause 36.1(a), expressed to be in the alternative to termination of the contract. At 4:17pm Mr Mimmo sent an email to Mr Hoey attaching the facsimile. At 5:00pm Mr Hoey replied, saying that it appeared that they were concerned that they had not legally terminated. (The reference to termination of the Construction Contract was erroneous.)
276 On 19 May 2009 at 9:59am Mr Hoey sent an email to Mr Digby QC and Mr Oliver, copied to Mr Mimmo, attaching two draft letters from Mr Mimmo to Marina Cove. He said:
The time for showing cause under our notice was yesterday (you will recall they sent us a letter on 12 May 2009 denying the allegations in any event). The contract requires us to now suspend the work for 28 days before we can terminate (clause 39.9). This seems to me to have been superseded by the actions of Marina Cove in taking the remaining works out of our client's hands. It has now reached the stage where our client in my view, must accept their conduct as repudiatory both in respect of the construction contract and in respect of the Heads of Agreement.
I have drafted two separate letters to Marina Cove which are attached. As the consequences of our client's steps in this matter are grave in that it involves many millions of dollars I think it best that before taking this step we have your views and/or comments and/or amendments to the letters if required.
277 On 19 May 2009 at 7:59pm Mr Mimmo sent an email to Mr Hoey. He inquired whether he should seek an injunction from the Supreme Court on Marina Cove to stop them engaging a new builder until the dispute was finalised. He asked whether the letters dated 19 May with his name on them were supposed to be sent or be signed, and said that they were still at his office.
278 Mr Hoey's timesheet records that he had a telephone conversation with Mr Mimmo on 19 May (Mr Mimmo phoning him) of five units (up to 30 minutes). No file note was tendered. Mr Hoey gave evidence that he has no recollection of the conversation.
279 On 20 May 2009 at 8:00am Mr Hoey sent a responding email to Mr Mimmo. He said that Mr Mimmo could not stop Marina Cove engaging another builder. He said that the letters sent on 19 May were only drafts that were not to be sent and would be amended.
280 On 20 May 2009 at 12:49pm Mr Digby QC sent an email to Mr Hoey and Mr Oliver, copied to Mr Mimmo, attaching the two 19 May letters to Marina Cove settled by him. He said:
I have considered the issues raised in your email under reply and attached settled letters which reflect my advice on these matters. In addition to the proposed settled letters, however two clear days after these letters go out purporting to effect a common law rescission of the contract, I advise that a further letter go under clause 39.9, marked "without prejudice" and noting that Marina Cove have prevented and frustrated the possibility of Pearl Hill suspending the whole or part of the works (WUC) and accordingly, in the event that Pearl Hill has not effectively already brought the building contract to an end (which Pearl Hill refutes) Pearl Hill hereby and expressly "without prejudice" to its earlier letter dated 20 May 2009 (check dates letters go out) notifying that the building contract was at an end, Pearl Hill hereby terminates the building contract under clause 39.9 and in pursuance of its Notice dated... issued to Marina Cove under clause 39.7 of the building contract.
281 On 20 May 2009 at 2:22pm Mr Hoey sent an email to Mr Mimmo attaching the two settled letters. He said:
Nino attached are the 2 letters to go to Marina cove terminating the contract and terminating the Heads of Agreement both should be sent today. You will see that they are addressed to Marina Cove at 3 different addresses as well as the fax... Please send copies to all addresses and the fax (just to be certain)... In two days we will send another one as suggested by John Digby...
Please confirm when these have been sent.
282 On 20 May 2009 Mr Mimmo sent by facsimile and post a letter to Marina Cove in relation to the Heads of Agreement. It said:
We refer to the Heads of Agreement dated 21 October 2008 ('the HOA') and your letter dated 13 May 2009.
In your letter you make it clear you are terminating the HOA. You have no right to do so as Pearl Hill Pty Ltd ('Pearl Hill') had not repudiated same. In fact, Pearl Hill had made it abundantly clear to you that it was ready willing and able to perform its obligations under the HOA. As you are aware we initiated Supreme Court proceedings in an effort to resolve amongst other things, the dispute regarding our right of set off in respect of the deposit and were seeking specific performance.
By unilaterally terminating the HOA as you have done, you have clearly evinced an intention not to be bound by HOA, and you have repudiated the HOA.
Take Notice therefore that Pearl Hill accepts your repudiation and regards the HOA as being at an end.
283 On 20 May 2009 Mr Mimmo sent by facsimile and post a second letter to Marina Cove in relation to the Construction Contract. It said that Marina Cove had failed to show cause in response to Pearl Hill's show cause notice and had not remedied the breaches set out in that notice. It referred to Marina Cove's 13 May letter advising that it had taken all work out of Pearl Hill's hands. It contended that this was a fundamental breach of the Construction Contract. It said that it was clear from Marina Cove's conduct that it did not intend to be bound by the Construction Contract and had repudiated it. It said '[w]e hereby accept your repudiation and regard the contract is at an end'.
284 On 20 May 2009 at 4:21pm Pearl Hill sent an email to Mr Hoey attaching the two signed letters faxed and posted.
285 Mr Hoey's timesheet records that he had two telephone conversation with Mr Mimmo on 20 May (both Mr Mimmo phoning him), one of three units and one of one unit. No file notes were tendered. Mr Hoey gave evidence that he has no recollection of the conversations.
286 Between 13 May, when Marina Cove sent its letter purporting to take the remaining works out of the hands of Pearl Hill pursuant to the Construction Contract and terminate the Heads of Agreement, and 20 May when Pearl Hill sent letters terminating both contracts, there was no meeting between Mr Hoey and Mr Mimmo and no conference with or between counsel.
287 On 21 or 22 May 2009 Mr Oliver gave some consideration to the issue of terminating the contracts. He telephoned Mr Hoey and said that Pearl Hill could not get specific performance of the land contracts if the Heads of Agreement and Construction Contract were terminated. Mr Hoey responded that they had already been terminated. No file note by Mr Hoey of this conversation was tendered. However, Mr Oliver gave evidence of it, which was not challenged or contradicted.
288 On 25 May 2009 Mr Axarlis sent by facsimile a letter to Mr Mimmo refuting his first letter of 20 May 2009 (concerning the Heads of Agreement).
289 On 25 May 2009 there was a conference between Mr Digby QC, Mr Hoey, Mr Mimmo and Mr Oliver for one hour. No notes of the discussion at the conference were tendered. There was discussion about the further letter that Mr Digby QC had advised on 20 May be sent.
290 On 26 May 2009 at 9:19am Mr Hoey sent an email to Mr Mimmo attaching the further letter to Marina Cove discussed at the conference. He asked Mr Mimmo to send it by post to the three addresses and by facsimile as well. Mr Mimmo sent the letter and sent an email to Mr Hoey confirming this.
291 On 26 May 2009 at 11:03am Marina Cove sent by facsimile a letter to Mr Mimmo refuting his second letter of 20 May 2009 (concerning the Construction Contract).
292 On 26 May 2009 Mr Mimmo and Mr Hoey had a discussion about Mr Mimmo sending an email to Mr Sullivan proposing a resolution of the HOA action by the parties signing contracts of sale of the 33 lots with no deposit, payment of $16.5 million by Pearl Hill at settlement and an agreed time for Marina Cove to make outstanding payments due to Pearl Hill. No file note by Mr Hoey of the conversation was tendered but Mr Mimmo gave evidence of his recollection of it during cross-examination without challenge and its content is further inferred from Mr Hoey's 1:05pm email.
293 On 26 May 2009 at 1:05pm Mr Hoey sent an email to Mr Mimmo, copied to Mr Digby QC and Mr Oliver. He included in the body of the email a draft without prejudice email from Mr Mimmo to Mr Sullivan. Before that draft, Mr Hoey said that he thought that the draft might be okay, but wanted to run it by Mr Digby QC first. He also said that Mr Mimmo may or may not agree on paying the full $16.5 million. The draft email to Mr Sullivan commenced as follows:
As you know we have had to start supreme court proceedings against marina cove primarily as a result of the refusal by marina cove to sign the contracts of sale. What I propose to resolve these issues and get back on track is for you to sign the contracts of sale for the land at the agreed price $16,500,000 (inclusive of GST) as settlement of the disputes referred to in the heads of agreement without requiring a deposit from us. The full amount would then be payable upon settlement. Settlement would then take place within 30 days of the subdivision, and you authorise us to take over the subdivision process and take from the settlement price, the costs of the subdivision.
294 On 26 May 2009 at 1:09pm Mr Hoey sent an email to Mr Digby QC and Mr Oliver asking Mr Digby QC to look at the 1:05pm email. He said that Mr Mimmo had spoken to Mr Sullivan, Mr Mimmo believed that Mr Sullivan had not been told what had been happening regarding non-payments and Mr Mimmo was invited to send something to try to resolve it.
295 Apart from Mr Hoey's 1:09pm email, there is no other evidence that Mr Mimmo spoke to Mr Sullivan around 26 May 2009. Mr Hoey's email referred to at [293] above contains no reference to a telephone conversation and reads as if there had been no introductory conversation between Mr Mimmo and Mr Sullivan on the topic. Likewise, the email that Mr Mimmo apparently sent to Mr Sullivan on 27 May 2009 referred to at [299] below contains no reference to a telephone conversation and reads as if there had been no introductory conversation on the topic. That email contains a statement that Mr Mimmo did not think that Mr Sullivan had been told everything, which appears to be inconsistent with Mr Hoey's understanding of a prior conversation in which Mr Mimmo had already told Mr Sullivan that. Mr Hoey did not send to Mr Mimmo a copy of his email to Mr Digby QC and Mr Oliver referred to at [294] above.
296 Aside from Mr Mimmo's email apparently sent on 27 May 2009, there was no further communication between Mr Sullivan and Mr Mimmo. If Mr Sullivan had approached Mr Mimmo as Mr Hoey understood, it may be expected that there would have been some follow-up communication. Mr Hoey may have misunderstood the conversation with Mr Mimmo and Mr Mimmo may not have been referring to a past conversation with Mr Sullivan but rather to a prospective future conversation. On balance, this is likely and I so find.
297 On 26 May 2009 at 4:16pm Mr Digby QC sent an email to Mr Hoey, copied to Mr Oliver, containing a settled version of the proposed email to Mr Sullivan. The principal amendment made by Mr Digby QC was to insert at the end of the sentence ending 'without requiring a deposit from us' the words '(Pearl Hill would set off that part of [sic] Marina Cove owes it to date as the Deposit)'.
298 On 27 May 2009 at 2:06pm Mr Hoey sent an email to Mr Mimmo containing the proposed email to Mr Sullivan as settled by Mr Digby QC but he removed the additional words that had been inserted by Mr Digby QC referred to above. In his covering explanation, Mr Hoey said, amongst other things:
John had amended it to provide that the deposit was to be set off, but as I understand it you wanted it to say no deposit and full amount payable by you on settlement (the $16.5m) so I have taken that amendment out.[7]
299 On 27 May 2009 at 5:54pm Mr Mimmo apparently sent an email to Mr Sullivan asking for an 'off the record' meeting to talk about settlement. If Mr Sullivan received the email, he did not apparently respond. At all events, there were no further communications between Mr Mimmo and Mr Sullivan.
300 Mr Mimmo said in evidence that, although he does not now recall sending an email to Mr Sullivan in terms of Mr Hoey's draft, he believes that he would have done so because that accords with his general practice. However, for the reasons given below, I find that Mr Mimmo did not send to Mr Sullivan an email in terms of Mr Hoey's draft.
301 On 28 May 2009 CP1 sent a letter to the Australian Stock Exchange saying that Marina Cove was required to pay $15 million to its financier before 31 May 2009, it had entered into a legally binding agreement for the sale of land at the Martha Cove development, the purchaser had unexpectedly defaulted and this had resulted in the termination of the agreement, which would have provided sufficient funds to meet the payment. It said that the board of CP1 was in discussions with its financier regarding the timing of the payment and would make a further announcement as soon as practicable.
302 On 2 June 2009 CP1 sent a further letter to the Australian Stock Exchange saying that Marina Cove's financier had requested Marina Cove to provide a proposal regarding stages 4A, 4B and 4C of the development and how it proposed to remedy the non-compliance and had requested it to remedy the non-compliance no later than 30 June 2009.
303 On 28 June 2009 Mr Mimmo sent an email to Mr Hoey, copied to Mr Digby QC and Mr Oliver, complaining of lack of progress
304 On 2 July 2009 Mr Mimmo sent an email to Mr Hoey saying that in early 2006 Mr Donaldson agreed that Pearl Hill would be paid an average price of $1,950 per square metre as a lump sum once they got to Clipper Quay homes. Mr Hoey telephoned Mr Donaldson, who said that a rate of $1,950 per square metre was discussed but he could not recall any agreement that it would be paid.
305 On 13 July 2009 Mr Mimmo send an email to Mr Digby QC asking him to telephone him. He said that he needed to know from him where they were at and he was quite disappointed with Mr Hoey. Mr Digby QC spoke to Mr Mimmo and arranged a conference with Mr Hoey and Mr Oliver, for which Mr Digby QC would not charge.
306 On 21 July 2009 there was a conference between Mr Digby QC, Mr Oliver, Mr Hoey and Mr Mimmo. No notes of the discussion were tendered. Mr Hoey prepared a document entitled 'Position Today' in preparation for the conference.
307 On 31 July 2009 all employees of CP1 and CPL were dismissed because CP1 was insolvent. This included Mr Axarlis, who was dismissed as chief executive officer of CP1.
308 On 3 August 2009 there was a conference between Mr Digby QC, Mr Oliver and Mr Mimmo. Mr Oliver sent an email to Mr Hoey, copied to Mr Mimmo and Mr Digby QC, summarising the discussion at the conference. The discussion related primarily to proposed amendments to the statement of claim.
309 On 4 August 2009 Ian Carson, Daniel Bryant and Grant Sparks of PPB were appointed by the Commonwealth Bank as receivers and managers over the assets of Marina Cove and CP1. No direct evidence was adduced concerning the status of CPL but it is likely, and I infer, that receivers were appointed in respect of CPL at the same time.
310 On 4 August 2009 Mr Mimmo sent an email to Mr Digby QC, Mr Oliver and Mr Hoey saying that he had been told that CPL, CP1 and Marina Cove were in receivership.
311 In August 2009 Mr Hoey briefed a junior barrister with expertise in insolvency to junior Mr Digby QC. Subsequently, Mr Hoey also briefed a Queen's Counsel who had expertise in insolvency.
312 On 12 August 2009 there was a conference between Mr Digby QC, Mr Oliver, the junior barrister with insolvency expertise, Mr Hoey and Mr Mimmo for one hour. No notes of the discussion were tendered.
313 On 14 August 2009 Kenneth Sellers and Matthew Muldoon of BRI Ferrier were appointed administrators of Marina Cove.
314 On 16 September 2009 Hoeys sent a letter to PPB saying that they acted for Pearl Hill; Pearl Hill claimed an interest in the 3 superlots arising pursuant to the Heads of Agreement; the Heads of Agreement was a specifically enforceable contract for the sale of land giving rise to an equitable interest; and caveats had been lodged in that regard. This was a reference to the April caveat.
315 On 16 September 2009 Mr Hoey lodged a series of caveats over the titles to the land the subject of one or more of the 3 superlots claiming an interest as purchaser pursuant to contracts of sale dated 18 December 2008 by A1 Paint, Black Ace, Black Scorpion, Carmen Rose, Coastal Group Properties, Manhatten Investments and Hassa Holdings, in respect collectively of lots 600 to 617 (the September caveats).
316 On 16 September 2009 Hoeys sent a second letter to PPB saying that they acted for the companies referred to in the previous paragraph, which had entered into contracts of sale with Marina Cove in respect of various of lots 600 to 617; each contract was a specifically enforceable contract for the sale of land and gave rise to an equitable interest in the land; and caveats had been lodged in that regard.
317 On 29 September 2009 Deacons, acting for the receivers and managers, sent by facsimile a letter responding to Hoeys' two letters by seeking information in relation to each letter.
318 On 20 October 2009 Hoeys sent by facsimile Deacons a letter providing the information requested.
319 On 29 October 2009 Deacons prepared a written statement by Mr Axarlis, which he signed.
320 On 10 November 2009 Deacons hand delivered a letter to Hoeys responding to Hoeys' two 16 September letters taking issue with the contentions that Hoeys' clients had a caveatable interest. In relation to the first letter, they said amongst other things that the Heads of Agreement did not constitute a contract for the sale of the land and hence did not give rise to an equitable interest and, even assuming that the Heads of Agreement was binding and it was not open to Marina Cove to terminate it (both of which were denied), it still did not confer a caveatable interest because consent of the Bank and others had not been obtained. In relation to the second letter, they said amongst other things that Mr Axarlis denied that he signed any of the Contracts of Sale and enclosed a copy of his 29 October statement.
321 On 12 November 2009 Mr Axarlis and Mr Newman swore affidavits that were filed in the caveat proceeding. They were not tendered at the trial in this action.
322 On 13 November 2009 Marina Cove instituted a proceeding by originating motion in this Court against Pearl Hill and the companies referred to at [315] above seeking an order under sub-s 90(3) of the Transfer of Land Act 1958 (Vic) removing Pearl Hill's April caveat and the other companies' September caveats (number 10094 of 2009) (the caveat proceeding).
323 On 18 November Marina Cove was wound up and Messrs Sellers and Muldoon were appointed liquidators.
324 On 7 December 2009 Mr Delosa swore an affidavit that was filed in the caveat proceeding. The affidavit was not tendered at the trial in this action.
325 On 7 and 9 December 2009 Mr Mimmo swore affidavits that were filed in the caveat proceeding. Certain paragraphs of his first affidavit were received in evidence at the trial in this action. The second affidavit was not tendered at the trial in this action.
326 On 9 and 11 December 2009 Mr Axarlis swore affidavits that were filed in the caveat proceeding. Certain paragraphs of each affidavit were received in evidence at the trial in this action.
327 On 10 December 2009 Mr Newman swore an affidavit that was filed in the caveat proceeding. Certain paragraphs were received in evidence at the trial in this action
328 On 14 December 2009 Cavanagh J heard argument on Marina Cove's application for removal of the caveats. Pearl Hill and the other defendants were represented by the specialist insolvency senior and junior counsel retained by Hoeys in and after August 2009. Cavanagh J granted the application and delivered ex tempore reasons for making the order.[8] The principal reason was that, on any view, the Heads of Agreement, under which the claimed interests directly or indirectly arose, had been terminated, either by Marina Cove on 13 May or by Pearl Hill on 20 May 2009. In respect of the September caveats, it was accepted by all parties that the contracts of sale were an 'all or nothing transaction' such that by no individual contract was enforceable unless all 33 contracts were executed as part of 'the overall arrangement set up by the Heads of Agreement'.
329 On 14 December 2009 Mr Hoey telephoned Mr Mimmo to inform him of the result of the hearing. Mr Hoey made a file note of the telephone conversation. Mr Hoey recalled the conversation but effectively no more of its content than was recorded in his file note. Mr Mimmo was not asked any questions about the conversation recorded in Mr Hoey's file note. Mr Hoey told Mr Mimmo that Cavanagh J granted Marina Cove's application for removal of the caveats. Mr Mimmo said that he was not happy. They discussed repudiation but Mr Hoey did not recall what was said on that topic. Mr Mimmo reiterated that he was not happy. Mr Hoey told Mr Mimmo that the Judge said that nothing survived. Mr Mimmo said that he did not want to terminate. Mr Hoey asked Mr Mimmo why he did not say that at the time. Mr Mimmo said that he was following Mr Digby's advice.
330 During that conversation or another conversation at about the same time, Mr Mimmo told Mr Hoey that he had 'stuffed up'. Mr Hoey said that, if that was the case, Mr Mimmo would have to sue him.
332 Pearl Hill also called Ms Panagiotas and Mr Triantos to give evidence. They gave evidence concerning their dealings with Mr Mimmo in relation to finance for the acquisition of the 33 lots and other dealings with Mr Mimmo.
333 Each of Mr Digby QC, Mr Oliver, Mr Hoey and Mr Berrill gave evidence.
334 The defendants also called Mr Axarlis and Mr Newman to give evidence concerning the Martha Cove development and their dealings with Pearl Hill and the Commonwealth Bank/ PPB.
335 Pearl Hill engaged Mr Kilby to undertake a valuation as at May 2009. He valued the 33 lots on a retail basis at $31.35 million ($950,000 each) and $21.18 million after expenses and allowing a profit margin of $3.96 million.
336 The defendants engaged Mr Way to undertake a valuation as at May 2009 (amongst other dates). He valued the 33 lots on a retail basis at $26.40 million ($800,000 each) and $15.40 million after expenses and allowing a profit margin of $5.74 million.
338 The parties also tendered several lever arch folders of documentary evidence.
339 I address at this point my general assessment of Mr Mimmo, Mr Digby QC, Mr Oliver, Mr Hoey, Mr Berrill, Mr Axarlis and Mr Newman.
340 I address the evidence given by Ms Panagiotas and Mr Triantos below when addressing the likelihood that Pearl Hill would have obtained finance to complete the purchase of the 33 lots.
341 I address the evidence given by Mr Kilby and Mr Way below when addressing the value of the 33 lots.
342 The parties all recognise in their closing addresses that the witnesses gave evidence 10 years after the communications and events in question and, in the circumstances, the contemporaneous documents (including the file notes made by Mr Berrill) are in general likely to be the best evidence of what occurred. It is likely, if not inevitable, that each witness engaged in reconstruction to a greater or lesser extent in giving their evidence and it would have been difficult for a witness to separate reconstruction from recollection.
343 The defendants invite me to find that Mr Mimmo was not an honest or reliable witness. Having carefully considered Mr Mimmo's evidence, the other evidence adduced at trial, my impressions of Mr Mimmo when he was giving his evidence and the detailed submissions made by the defendants, I accept that Mr Mimmo was an honest witness (albeit there are some specific aspects of Mr Mimmo's evidence addressed below in respect of which I find that his recollection (or reconstruction) was erroneous).
344 A major, but not the only, plank of the defendants' submissions concerning the honesty of Mr Mimmo's evidence relates to the attendance of Mr Axarlis and Mr Newman at Pearl Hill's office on 18 December 2008 to execute the Contracts of Sale. This includes, but is not limited to, the question whether Mr Axarlis executed the contracts in respect of lots 600 to 617. I address this topic at length because of the detail of the defendants' cross-examination and submissions on it.
345 Pearl Hill made it plain in its opening address that it does not rely on execution of Contracts of Sale in respect of lots 600 to 617 as any part of its case against the defendants. It accepts that (as held by Cavanough J) execution of contracts for the sale of the 33 lots was an all or nothing proposition. Unless contracts were executed for the sale of every one of the 33 lots, a contract for the sale of any one lot was ineffective. Pearl Hill did not adduce evidence in chief from Mr Mimmo concerning execution of Contracts of Sale in respect of lots 600 to 617 or otherwise concerning the events at the meeting on 18 December 2008. In these circumstances, the question whether Contracts of Sale were executed is relevant primarily to credit (and otherwise to background). Mr Mimmo's evidence about the attendance of Mr Axarlis and Mr Newman was given during cross-examination by senior counsel for Hoeys.
346 Mr Mimmo gave evidence that he saw Mr Axarlis and Mr Newman arrive at about 10am, they were met by Mr Morello and they were shown upstairs by Mr Morello to the boardroom. Two bound copies of the 33 individual contracts and one bound copy of the standalone vendor statements were present in the boardroom. Mr Axarlis and Mr Newman spent some time in the boardroom with the documents. Mr Mimmo was not present in the boardroom during this period but was present in his office, which is immediately adjacent to the boardroom.
347 Mr Mimmo's evidence in respect of this period is consistent with the evidence of Mr Axarlis and Mr Newman. There is a minor difference in that Mr Mimmo said that he greeted Mr Axarlis and Mr Newman upon their arrival; whereas they said that they did not see him during this period. Either version might be correct and, whichever is correct, it does not impact on the credit or reliability of any of the three witnesses.
348 Mr Axarlis and Mr Newman gave evidence that they dated the Contracts of Sale with the date '18 December 2008'. They both gave evidence in chief that they dated the standalone vendor statements (Mr Axarlis saying that they dated them '18 December 2008') and Mr Axarlis signed them, but their recollection in this respect was incorrect as was acknowledged by Mr Axarlis in cross-examination (addressed below). They both gave evidence that they dated the vendor statements contained within the bound individual contracts and Mr Axarlis signed them. Although it is possible (if not likely) that Mr Axarlis had already dated and signed this version (as well as the standalone version) on 18 November 2008, nothing turns on this question and I proceed on the basis that the dating and signing occurred on 18 December 2008.
349 Mr Mimmo gave evidence that he signed the acknowledgement of receipt on behalf of the purchaser of the vendor statements in the standalone vendor statements and those contained within the Contracts of Sale in respect of the 33 lots. The effect of the evidence given by Mr Axarlis and Mr Newman was that they did not see Mr Mimmo sign these documents in their presence. No significant attention was paid during cross-examination of any of the witnesses to this question and it is not significant for the credit of the witnesses whether or not this in fact occurred. Taking into account that the documents are in fact signed by Mr Mimmo acknowledging receipt on behalf of the purchasers, it is likely, and I find, that Mr Mimmo's evidence that he did this on 18 December is correct.
350 Mr Mimmo gave evidence that Mr Axarlis told Mr Morello that the Commonwealth Bank required a letter from Pearl Hill. At some stage Mr Morello produced a draft letter. Mr Morello showed it to Mr Axarlis. Mr Axarlis asked Mr Morello to add something to it (which may have addressed Pearl Hill stopping litigation). Mr Morello amended the letter. Mr Morello showed the amended version to Mr Axarlis. Mr Axarlis said that he was happy with it. Mr Morello brought the letter into Mr Mimmo's office. Mr Mimmo signed it and it was returned to Mr Axarlis. Mr Axarlis asked Mr Morello to send the signed letter off to someone, which Mr Mimmo accepted may have been the Commonwealth Bank.
351 Mr Mimmo's evidence in respect of the letter required by Mr Axarlis (leaving aside its timing and who was present) is consistent with the evidence of Mr Axarlis. Mr Newman gave evidence that he had no recollection of any discussion about such a letter. There is a minor potential difference between the evidence of Mr Mimmo and Mr Axarlis in that Mr Mimmo said that he heard the conversation between Mr Axarlis and Mr Morello about the letter; whereas Mr Axarlis said that Mr Mimmo was not present in the boardroom during those conversations. This evidence is not inconsistent because Mr Mimmo may have heard the conversation from the boardroom in his office. In any event, if it were regarded as inconsistent, it is a minor difference. Either version might be correct and, whichever is correct, it does not impact on the credit or reliability of the witnesses.
352 Mr Mimmo gave evidence that Mr Axarlis signed the Contracts of Sale of lots 600 to 617 and his signature was witnessed by Mr Delosa. Mr Axarlis denied that he signed any contracts. Mr Newman said that he did not see Mr Axarlis sign any contracts. Mr Mimmo gave evidence that Mr Axarlis took the signed contracts with him. Mr Axarlis (and Mr Newman) denied this. I return to this evidence below.
353 Mr Mimmo gave evidence that Mr Axarlis asked him for a cheque for the 10% deposit. Mr Mimmo asked Mr Axarlis when Marina Cove was paying Pearl Hill monies owed to it which exceeded the deposit. He said that, if Mr Axarlis was paying him, he would pay the deposit to Mr Axarlis. Otherwise he was not prepared to pay the deposit. Mr Mimmo suggested that the Contracts of Sale that required a deposit be amended and initialled to provide for no deposit. Mr Axarlis said that he could not agree to an amendment without obtaining the consent of the Commonwealth Bank. Mr Axarlis attempted unsuccessfully to ring someone from the boardroom. Mr Mimmo's evidence as to the content of the conversation during this period is largely consistent with the evidence of Mr Axarlis.
354 There are some differences between the evidence of Mr Mimmo and Mr Axarlis as to the content of the conversation on the topic of the 10% deposit but they are the type of differences that might be expected between the accounts of two witnesses each attempting to describe a conversation to the best of their recollection. For example, Mr Axarlis gave evidence that he told Mr Mimmo that his lawyer had negotiated the contract over many months to include the 10% deposit and that Mr Mimmo said that the contracts were wrong and his lawyer had acted without instructions. Mr Mimmo denied this when it was put to him in cross-examination. I consider that it is inherently unlikely that the conversation occurred as narrated by Mr Axarlis because the Heads of Agreement was not negotiated by Mr Hoey over many months and in any event it was plain beyond argument that a 10% deposit was required. There may have been a conversation on the topic of the contractual terms somewhere between Mr Axarlis' version and Mr Mimmo's version. In addition, Mr Mimmo gave evidence that Mr Newman was not present during this conversation; whereas Mr Axarlis and Mr Newman gave evidence that he was. I return to this difference in the evidence below.
355 Mr Mimmo, Mr Axarlis and Mr Newman all gave evidence that Mr Axarlis and Mr Newman left the Pearl Hill office at about 12 midday. However, Mr Mimmo gave evidence that Mr Axarlis returned after lunch without Mr Newman and some of the events on that day summarised above occurred after that return. Mr Axarlis denied this.
356 Mr Mimmo gave evidence that he and Mr Axarlis both knew that execution of the Contracts of Sale was an all or nothing proposition and he believed that this was discussed, although he did not recall what was said and in any event it went without saying. Mr Axarlis gave evidence that he considered that execution, and settlement, of the Contracts of Sale was an 'all or nothing' proposition.
357 I accept Mr Mimmo's evidence that he believed that execution of the Contracts of Sale was an 'all or nothing' proposition and that Pearl Hill could not enforce any one executed contract unless all 33 contracts were executed. I accept Mr Axarlis' evidence also on this point. This was self-evident in any event because obviously Mr Mimmo could not acquire some or all of lots 600 to 617 for no consideration without acquiring the remaining lots for $1 million (plus GST) each so that the total purchase price was $15 million (plus GST).
358 It is common ground that Mr Axarlis did not sign any of the Contracts of Sale in respect of lots 618 to 633.
359 Extracts from certain affidavits or witness statements of Mr Mimmo, Mr Axarlis and Mr Newman prepared in late 2009 were tendered insofar as they addressed the events on 18 December 2008. There are some differences between the account of each witness and their earlier affidavits or witness statements.
360 In making a finding concerning the events of 18 December 2008, I consider it inherently unlikely that Mr Mimmo forged Mr Axarlis' signature on the Contracts of Sale of lots 600 to 617 or was a party to such a forgery. If I am to reject Mr Mimmo's evidence that Mr Axarlis signed those contracts on 18 December 2008, it necessarily follows that Mr Mimmo relied on contracts having been signed in the caveat proceeding knowing that Mr Axarlis' purported signature was a forgery. If it was a forgery, Mr Mimmo was exposed to the very substantial risk of being found out and a very serious criminal proceeding being brought against him.
361 Mr Axarlis was not asked until October 2009 to turn his mind to the question whether he signed any of the Contracts of Sale, being a year after the events in question. Assessed objectively, if only some of the Contracts of Sale had been signed, it would have been of no significance to a person in Mr Axarlis' position because execution of all 33 Contracts of Sale was an all or nothing proposition and moreover Pearl Hill had not sought to rely on execution of only some of the Contracts of Sale in the intervening period. In addition, Mr Axarlis was from October 2008 the chief executive officer of CP1 and it is apparent that he had many other matters about which to be concerned over the period from December 2008 to July 2009 and thereafter.
362 Mr Axarlis did not give evidence that the signatures on the Contracts of Sale in respect of lots 600 to 617 did not appear to be his signature. Mr Newman said that the signatures looked similar to Mr Axarlis' signature but referred to Mr Axarlis' practice of placing his stamp on legal documents and said that the absence of the stamp makes him think that Mr Axarlis did not sign the contracts. I address the question of the stamp below.
363 Mr Axarlis' recollection of the documents he signed on 18 December 2008 was on any view inaccurate. In his evidence in chief, he said that on 18 December 2008 he and Mr Newman wrote the date '18 December 2008' on all of the vendor statements and he then signed all of the vendor statements. Mr Axarlis made a statement to the same effect in his 29 October 2009 statement, in which he said that this was the first time that he had seen complete vendor statements and contracts in executable form, he and Mr Newman dated all of the vendor statements with the date '18 December 2008' and he then signed all of the vendor statements. In his affidavit sworn on 9 December 2008 he explicitly said that he did not go to Gadens' office to sign the vendor statements.
364 However, the vendor statements in fact bear the date '18 November 2008'. The email from Ms Furstenberg to Mr Axarlis sent on 14 November 2008 demonstrates that it was arranged for Mr Axarlis to attend at Gadens' office on 18 November to execute the vendor statements so that they could be delivered to Maddocks. The email from Mr Leggiero to Mr Mimmo sent on 18 November 2008 demonstrates that the vendor statements were in fact delivered to Maddocks on that date. On the basis of this evidence, I find that Mr Axarlis in fact signed the standalone vendor statements in Gadens' office on 18 November, and not 18 December, 2008. Mr Axarlis acknowledged this in cross-examination and also in his affidavit sworn on 11 December 2009.
365 I accept that Mr Axarlis genuinely believes, and believed when he gave his signed statement on 29 October 2009, that he did not sign any of the Contracts of Sale. However, I find that in fact he did sign Contracts of Sale in respect of lots 600 to 617 and forgot that he had done so, just as he forgot that he signed the standalone vendor statements on 18 November 2008.
366 I reject the defendants' submissions that there was no logical reason for Mr Axarlis to sign the Contracts of Sale in respect of lots 600 to 617 before signing the balance. It is perfectly logical for Mr Axarlis to have signed the contracts in numerical order, starting with the contract for lot 600. I find that, when Mr Axarlis reached the contract in respect of lot 618, he and Mr Mimmo had the detailed conversation about payment of a deposit and the conversation resulted in Mr Axarlis ceasing to sign any more contracts and therefore not signing the Contracts of Sale in respect of lots 618 to 632. This is consistent with Mr Mimmo's acceptance in cross-examination that there was no logical reason to sign the nil consideration contracts and not the $1 million consideration contracts: rather it was an artefact of the numerical order of the contracts and the discussion about the deposit being prompted by Mr Axarlis reaching the contract in respect of lot 618.
367 When Mr Axarlis was asked whether it was possible that this was the sequence of events, he said:
Um, to the best of my recollection today. I just don't recall that. Is it a mere possibility at the time? I guess - I guess it could've been. But to stand here today under oath, I just can't recollect that that was the case.
368 When Mr Newman was asked whether it was possible that this was the sequence of events, he said:
It is a possibility... The only thing I would say is it doesn't have his name stamped. Which he was quite fastidious in doing. In the signing of a legal document. But that would be the only thing I would say in relation to that.
All right. It's really the absence of that that makes you think ‑ ‑ ‑?‑‑‑Yes.
‑ ‑ ‑ that didn't happen?‑‑‑Correct.
369 Mr Axarlis gave evidence that it was his usual practice to have a stamp containing his printed name affixed adjacent to his signature on formal documents; he did so next to his signature on the vendor statements; and no such stamp appears adjacent to his signature on the Contracts of Sale in respect of lots 600 to 617. However, if the signing process was interrupted by the deposit discussion in accordance with Mr Mimmo's evidence, it is not surprising that Mr Axarlis had not yet proceeded to the point of affixing his stamp.
370 Mr Axarlis' signature on the Contracts of Sale in respect of lots 600 to 617 purports to be witnessed by Mr Delosa. Mr Mimmo gave evidence that Mr Delosa (and not his other employees) was present in the boardroom when Mr Axarlis signed the contracts. Mr Axarlis gave evidence that Mr Delosa was not present at any stage on 18 December 2008. However, Mr Newman gave evidence that Mr Delosa was present on 18 December (although obviously he did not say that he was present when Mr Axarlis signed the contracts). I accept Mr Mimmo's evidence that Mr Delosa was present when Mr Axarlis signed the Contracts of Sale in respect of lots 600 to 617.
371 It is possible that Mr Axarlis did return alone (without Mr Newman) on 18 November 2008 and it was then that he signed the contracts of sale in respect of lots 600 to 617. First, all three witnesses agreed that Mr Axarlis and Mr Newman departed the Pearl Hill office at about midday. Mr Mimmo's evidence that Mr Newman had to attend a meeting was not challenged or contradicted. Mr Axarlis gave evidence that he asked Mr Morello to email the letter signed by Mr Mimmo on 18 December to the Commonwealth Bank and this was before the discussion about the deposit. The email was sent at 2:07pm. It is likely that the email was sent while Mr Axarlis was present at Pearl Hill's office. There was no challenge to, or contradiction of, Mr Mimmo's evidence that the letter was sent while Mr Axarlis was present at Pearl Hill's office. Secondly, Mr Newman had no recollection of any discussion about the letter, which tends to suggest that the discussion was not in his presence (bearing in mind that he could also have forgotten it). In Mr Mimmo's 7 December 2009 affidavit, he said that the bulk of the discussion and drafting and finalisation of the letter occurred after Mr Axarlis returned. Thirdly Mr Newman's recollection of where he went and what he did during the balance of the day before returning to Melbourne was vague.
372 On the other hand, Mr Newman gave evidence that during the meeting Mr Mimmo said that he was not going to pay the deposit, Mr Axarlis attempted to call someone from the Commonwealth Bank and Mr Axarlis would not sign the contracts after this. Mr Newman had no recollection of Mr Mimmo giving any reason for not paying the deposit; whereas Mr Axarlis (and Mr Mimmo) gave evidence that there was detailed discussion about this. It is possible that Mr Newman has reconstructed what was told to him after the meeting by Mr Axarlis into a recollection of what said during the meeting.
373 On balance, I find that Mr Axarlis did return alone to Pearl Hill's office on the afternoon of 18 December 2008. However, this is not crucial to my assessment of Mr Mimmo's credit for the following reasons.
374 Alternatively, if (as is possible) Mr Newman was present at the Pearl Hill office when Mr Axarlis signed the Contracts of Sale in respect of lots 600 to 617, I find that he was either not paying attention or does not now recall it. He gave evidence that his purpose in attending at the Pearl Hill office was only to give Mr Axarlis an extra pair of hands. If he was present throughout all of the meeting(s), it is evident that he does not recall important aspects of the discussion, including discussion about the 18 December letter required for the Commonwealth Bank and discussion about the reasons for Mr Mimmo not paying a deposit. Mr Newman also said in his statement, inaccurately, that Mr Axarlis signed the standalone vendor statements in his presence on 18 December.
375 The purchasers under the Contracts of Sale in respect of lots 600 to 607 were A1 Paint, Black Ace, Black Scorpion, Carmen Rose, Manhatten Investments and Hassa Holdings. The contracts in respect of lots 600 to 607 bear the signature of Mr Mimmo's wife, Rosina, and sons, Luke and/or Anthony, and each is witnessed by Mr Dodds. Mr Mimmo gave evidence that these contracts had already been executed by his wife and sons on behalf of the corporate purchasers before 18 December 2008. Mr Mimmo gave evidence that, by contrast, he was the sole director of Coastal Group Properties and he could have signed as director of that company in respect of lots 608 to 617 at any time. He did not have a clear recollection when he signed those contracts on behalf of Coastal Group Properties and said that he may have signed them on 18 December, although he may also have signed them before then.
376 I have no reason to reject Mr Mimmo's evidence that the contracts in respect of lots 600 to 607 had already been executed on behalf of the purchaser before 18 December 2008. Signing the balance of the contracts in the name of Coastal Group Properties could be undertaken at any time because it only required Mr Mimmo's signature. It would have been logical for Mr Mimmo to obtain the signatures of members of his family in respect of lots 600 to 607 in advance. It would also have been logical for Mr Mimmo to sign on behalf of Coastal Group Properties as purchaser in respect of lots 608 to 617 on 18 December 2008 because they had been executed by the vendor but not in respect of lots 618 to 633 because they had not. Mr Axarlis and Mr Newman gave evidence that none of the contracts had been executed on behalf of the purchaser. I consider it is likely that they are mistaken in their recollection in this respect.
377 The defendants point to the fact that Mr Mimmo gave evidence that Mr Delosa took a photocopy of the contracts that had been executed by Mr Axarlis on behalf of Marina Cove. He gave evidence that Mr Axarlis took the originals with him. By contrast, Mr Axarlis gave evidence that he did not take any original contracts with him. Mr Newman gave evidence that, when he left with Mr Axarlis, Mr Axarlis did not take any original contracts with him. I accept that Mr Axarlis did not in fact take the original executed contracts with him. However, it is evident that Mr Mimmo's evidence that Mr Axarlis took the originals was based on the originals not being at Pearl Hill's offices. There are various reasons why the original contracts might not have been located by Pearl Hill on a subsequent occasion. I find that Mr Mimmo is mistaken in this respect.
378 The defendants point to the fact that, in his 7 December 2009 affidavit, Mr Mimmo said that he told Mr Axarlis that he would not sign the 18 December letter prepared by Mr Morello unless Mr Axarlis signed the individual contracts in respect of lots 600 to 617, which were of the most value to him, and that Mr Axarlis did so before he signed the letter. When Mr Mimmo gave his account (in initial cross-examination) of the events of 18 December at the trial of this action, he did not refer to any such occurrence. When shown his affidavit, Mr Mimmo said that he did say that these contracts were of the most value to him. He accepted that execution of only some of the contracts would not be effective unless all of the contracts were executed but said that these contracts were of the most value to him probably because Mr Axarlis had to come up with the rest of the contracts for the deal to be good. I find that Mr Mimmo's recollection of the discussion with Mr Axarlis was erroneous in this respect and that the Contracts of Sale in respect of lot 600 to 617 were signed first merely because they came first in the numbering sequence. It is not possible to make a definitive finding about the precise sequence of the preparation of the letter compared to execution of the contracts, particularly bearing in mind that the letter was not sent by email until 2:10pm.
379 The defendants point to the fact that Pearl Hill did not call Mr Delosa to give evidence that he witnessed Mr Axarlis' signature on the Contracts of Sale in respect of lots 600 to 617. They contend that an inference should be drawn that his evidence would not have been of assistance to Pearl Hill. This would have been of significance if the execution of the Contracts of Sale had been a substantive and important issue in the case, despite the fact that Mr Mimmo gave evidence that Mr Delosa was no longer employed by Pearl Hill and he had not spoken to him for five or six years. However, the execution of the contracts is relevant only to credit (and in a secondary sense to background). In those circumstances, I am not prepared to draw an adverse inference from the fact that Mr Delosa was not called to give evidence.
380 The defendants also point to the fact that Mr Mimmo's wife and sons, who were directors of the companies who were to purchase lots 600 to 607 and whose signatures appear on those contracts, and Mr Dodds, whose signature appears as a witness to their signatures, were not called to give evidence and invite me to draw a similar inference. I decline to do so for the same reason. I also decline to draw an adverse inference from the fact that Mr Morello was not called to give evidence.
381 The defendants point to the fact that Mr Mimmo did not tell Mr Hoey about the execution of the Contracts of Sale in respect of lots 600 to 617 until late August or early September 2009. They submit that there were numerous instances when Mr Mimmo would have been expected to mention this if it had occurred. For example, they point to the fact that Mr Hoey's draft Outline of Facts for Brief sent to Mr Mimmo for his approval stated that Marina Cove was refusing to sign the Contracts of Sale unless Pearl Hill paid a 10% deposit. However, accepting Mr Mimmo's evidence that he believed that execution of the Contracts of Sale was an all or nothing proposition, objectively from Mr Mimmo's perspective the statement was accurate. The same applies to the other instances identified by the defendants.
382 The defendants point to correspondence between Mr Axarlis and Mr Mimmo (or Pearl Hill) which they contend is inconsistent with some of the Contracts of Sale having been executed. For example, on 28 January 2009 Mr Morello sent an email to Mr Axarlis asking when he was 'coming in to sign the contracts'; on 18 February 2008 Mr Axarlis sent a letter to Mr Mimmo referring to the contracts 'awaiting execution' and amending the settlement date; and on 19 February 2009 Mr Mimmo sent a letter to Mr Axarlis (in response) in which he agreed to amending the date of settlement to the later of 30 days from 'the day of sale (signing of contracts)' or seven days from registration of the plans of subdivision. Again, accepting Mr Mimmo's evidence (and Mr Axarlis' evidence) that they believed that execution of the Contracts of Sale was an all or nothing proposition, the correspondence is perfectly understandable.
383 The defendants also point to correspondence between Mr Mimmo and Mr Hoey, Mr Berrill and Mr Hoey, and the wording of the statement of claim. For example, in Mr Hoey's letter to Mr Axarlis dated 7 April 2009, copied to Mr Mimmo, Mr Hoey rebutted a postulated concern by Marina Cove about entities other than Pearl Hill being the purchasers of the 33 lots by referring to Marina Cove's prior agreement to this. This correspondence is also perfectly understandable having regard to the circumstances referred to above. In addition, given the lack of significance of execution of only some of the Contracts of Sale, there is no reason why that execution would have been at the forefront of Mr Mimmo's mind during his subsequent dealings with Mr Axarlis and his lawyers. In this respect, neither Mr Hoey nor Mr Mimmo gave evidence of the conversations between them about the executed contracts over the period between August and December 2009, other than Mr Mimmo mentioning the fact of the executed contracts.
384 The defendants make various other submissions, leaving aside the events of 18 December 2008, inviting me to find that Mr Mimmo was not an honest, or reliable, witness. I do not address in detail all of those submissions but have taken them all into account.
385 Some of the submissions made by the defendants relevant to credit are relevant to substantive issues in the case, such as Mr Mimmo's understanding or lack of understanding about the effect of termination of the Heads of Agreement. I address those matters, to the extent that they are relevant and of sufficient importance, in the context of the substantial issues addressed below. I also take them into account in relation to the credit of Mr Mimmo.
386 Mr Mimmo gave evidence in cross-examination that he knew that the purchaser of each of lots 52, 54, 55 and 56 did not have to pay Marina Cove until their house was finished. It was put to him that this was one of the 'pressure points' that he applied to 'string things out'. He denied this. I have no reason to reject Mr Mimmo's denial as knowingly false.
387 Mr Mimmo gave evidence that he knew that Marina Cove was under pressure by its financiers and needed his purchase monies. It was put to him in cross-examination that he knew that he had Marina Cove 'over a barrel'. He denied this. Again, I have no reason to reject Mr Mimmo's denial in relation to his state of mind. Objectively assessed, Marina Cove's conduct, which is summarised in detail above, did not reflect an acceptance that it was in a desperate, or weak, bargaining position.
388 It was put to Mr Mimmo in cross-examination that he did not inform Mr Hoey in the first half of 2009 of the executed Contracts of Sale. He said that he told Mr Hoey of them when Mr Hoey asked if he had any signed contracts and he then delivered them to Mr Hoey. He was asked when that occurred and he initially said 'January, ah, February, March', at which point he was interrupted and it was put to him that he was saying that he told Mr Hoey in February or March, to which he answered that he was not sure when it was and he would have to look. When it was put to him that he mentioned it to Mr Hoey shortly before Mr Hoey lodged the caveats on behalf of Black Scorpion and the other companies, he agreed.
389 I do not accept the defendants' submission that Mr Mimmo gave false evidence in relation to the timing of his mentioning the executed Contracts of Sale to Mr Hoey. It is very common for a witness to recall that one event (such as informing Mr Hoey of the executed contracts) occurred proximate to another event (such as Mr Hoey lodging caveats) but to be uncertain as to the month (or even the year) when that event occurred. This is especially the case when Mr Mimmo was asked about events that occurred 10 years previously and in circumstances where many relevant events were occurring at that time that were the subject of his evidence.
390 The defendants submit that Mr Mimmo gave inconsistent evidence, such as on the topic whether he had read Mr Hoey's written witness statement. It is common for honest and reliable witnesses during the course of cross-examination (particularly a lengthy cross-examination over several days) to refine or correct earlier evidence or give different answers to questions expressed in different terms that are regarded by the cross-examiner as not being the same. My assessment of Mr Mimmo's evidence is that his evidence fell into this category and did not indicate that his evidence was false or overall unreliable.
391 The defendants submit that Mr Mimmo was evasive. I take into account that Mr Mimmo has no legal expertise in circumstances in which the subject of the case was legal advice, nearly all of the other lay witnesses (including the defendants and Mr Axarlis) had legal expertise, and many of the questions asked of Mr Mimmo in cross-examination were liable to have a different meaning to a layperson compared to a lawyer. My overall assessment is that Mr Mimmo was not an evasive witness.
392 The defendants submit that Mr Mimmo differed in his answers to questions by cross-examining counsel compared to answers to questions by the Court. It is common for honest and reliable witnesses to answer questions differently when asked by the Court. My assessment is that Mr Mimmo's answers in this respect do not reflect adversely on his credit.
393 It was put to Mr Mimmo in cross-examination that in September 2009 he met with Mr Axarlis and said that he had some signed Contracts of Sale and, if Mr Axarlis agreed to execute them, there would be some personal financial gain to be had by pushing the issue with the receivers. Mr Mimmo said that he had no recollection of meeting Mr Axarlis at all after August 2009 or of any such conversation. When Mr Axarlis was called to give evidence, no evidence was led from him about such a conversation.
394 My overall assessment, taking into account my observations of Mr Mimmo when giving his evidence, the substance of his evidence, the other evidence adduced at trial, and the various submissions made by the defendants summarised above and otherwise, is that Mr Mimmo was an honest witness. I also accept that he was a generally reliable witness, subject to two caveats. First, a caveat applies to all of the lay witnesses that their recollection of events not the subject of contemporary records that occurred 10 years earlier was substantially impaired. Secondly, like the defendants, Mr Mimmo obviously has a self-interest in the outcome of the case and it is necessary to bear in mind the possibility of self-interest unconsciously affecting recollection or reconstruction.
395 I address separately under the Causation heading Mr Mimmo's evidence concerning how hypothetically he would or might have acted if the circumstances had been different.
397 Mr Hoey tended to give evidence that downplayed his role and responsibility in relation to events and decisions and magnified Mr Mimmo's role and responsibility in relation to them. In many respects, my assessment was and is that Mr Hoey was reconstructing rather than giving his recollection. My assessment is that in this respect he was unconsciously influenced by his self-interest.
398 Mr Berrill was an honest, disinterested and reliable witness. He made file notes of each conference with counsel and Mr Mimmo. In general, he accepted that the subject matter of what he recorded in his file notes was the limit of his recollection of discussions. There is no real challenge to his evidence.
399 In contrast to the position in respect of Mr Berrill, virtually no file notes by Mr Hoey were produced or tendered. Mr Hoey gave evidence that his general practice was to make a file note of an important conversation, such as a conference with counsel or client. He speculated that, when his file was later copied for Mr Mimmo, his file notes may have been lost or destroyed. This is inherently unlikely because Mr Berrill's file notes were retained and yet there are no file notes when Mr Hoey had the conduct of the file both before and after April 2009. I strongly suspect that Mr Hoey's practice, at least in relation to this file, of making file notes was sporadic. However, his evidence about making file notes was not challenged in cross-examination and I give him the benefit of the doubt in this respect.
400 Mr Oliver was an honest and reliable witness. There is no real challenge to his evidence by Pearl Hill, except his evidence regarding why he did not respond to emails concerning termination of the Heads of Agreement, which I address specifically below.
402 Mr Digby QC engaged in reconstruction as to his thought processes in relation to his advice in March to May 2009 and the associated discussions in conference. Mr Digby QC acknowledged that he was engaging in reconstruction. Given the passage of time and the fact that this was only one of many matters in which he was senior counsel before and since, a greater or lesser degree of reconstruction was inevitable. In assessing his evidence concerning these matters, I bear in mind that, despite his best endeavours, his evidence may have been influenced by self-interest.
403 The main topic addressed by the evidence of Mr Axarlis and Mr Newman was the events of 18 December 2008. I have addressed their evidence in this respect above.
404 In general terms, the balance of the evidence given by Mr Axarlis and Mr Newman was uncontentious.
405 Although Mr Axarlis was cross-examined at some length on collateral credit issues, Pearl Hill does not ultimately submit that he was not an honest witness. I regard him as a generally reliable witness in the same manner as I regard Mr Mimmo as a generally reliable witness.
406 Mr Newman was an honest, straightforward and reliable witness.
407 It is common ground that each defendant owed a duty of care in tort to Pearl Hill to exercise reasonable care and skill in the performance of their retainer and specifically in relation to advice about termination or non-termination of the Heads of Agreement in May 2009. It is common ground that it was an implied term of the contract between Pearl Hill and Hoeys that Hoeys would exercise reasonable care and skill in the performance of the retainer and its contractual duty is concurrent with its tortious duty.
408 It is also common ground that each defendant had and was held out as having expertise in building and construction law. I find that each defendant professed to have special skill in building and construction matters. It follows that the standard of care applicable is that of an ordinary skilled person exercising and professing to have that expertise.[9]
409 Pearl Hill contends that each defendant was negligent in two overlapping respects.
410 The first respect relates to the advice to terminate the Heads of Agreement (and the Construction Contract). Pearl Hill's case against Mr Digby QC and Hoeys is that their advice to terminate was negligent because it was not considered advice that took into account advantages and disadvantages of termination; involved, without justification, a drastic change to the strategy adopted by Pearl Hill on the advice of its lawyers to preserve its ability to purchase the 33 lots at a substantial discount; resulted in the loss by Pearl Hill of its proprietary claim in circumstances in which it was considered that monetary claims against Marina Cove might have no value; and was not in the interests of Pearl Hill.
411 Pearl Hill accepts that Mr Oliver gave no advice on termination. Its case against Mr Oliver is that he failed to warn Pearl Hill of the inadequacy of Mr Digby QC's advice in breach of his duty of care.
412 The second aspect of Pearl Hill's case is that each defendant failed to ensure that Pearl Hill was adequately warned that a consequence of termination of the Heads of Agreement was the loss of its proprietary claims.
413 In considering whether each defendant was negligent, it is obviously necessary to have regard to the circumstances at the time, including prospective future events, and not have regard to actual future events (in other words, not to use hindsight in making the assessment).
414 When it is alleged that advice given by a barrister or solicitor is negligent, a distinction must be drawn between a failure to exercise reasonable care on the one hand and the exercise of a judgment on which reasonable minds might differ on the other hand. The mere fact that another barrister or solicitor, exercising reasonable care, might have given different advice does not necessarily entail that advice given by the barrister or solicitor in question was negligent.[10]
415 It has been observed that, before a matter or issue is decided, the result is a matter of possibilities, predictions and probabilities; whereas after it is decided, it is a matter of certainty. In this section of my reasons for judgment addressing negligence, I address the questions from the perspective of the barristers and solicitors at the time in the realm of possibilities, predictions and probabilities.
416 The advice by the defendants was given in the context of the common law governing the rights of a party to terminate a contract and the consequences of a termination as it stood in May 2009. Insofar as I address the law in this section (although I use the present tense for ease of expression), I address the law as it was (or was understood) as at May 2009.
417 A party has a right to terminate a contract if the other party has repudiated its obligations thereunder, committed a breach of an essential term or committed a sufficiently serious breach of an intermediate term.[11] In addition, if the contract confers a right to terminate in defined circumstances, a party has a right to terminate the contract if the requisite circumstances exist.[12] Although an express right to terminate may be construed as impliedly excluding rights to terminate at common law, there is a presumption that this is not intended.[13]
418 Generally a party cannot terminate at common law if the party is itself repudiating, in breach of an essential term of, or in sufficiently serious breach of an intermediate term such as to deprive the other party of the substantial benefit of the contract.[14] The mere fact that a party is in breach of a non-essential terms does not, without more, prevent it from terminating the contract.[15] It may be appropriate to have regard to whether one party's breach was caused by the other party's breach.[16]
419 If a right to terminate arises, the innocent party may elect to terminate or to insist on performance of the contract.[17] A party is not required to elect immediately upon becoming aware of the facts that give rise to the right to terminate but can defer election provided that the party does not engage in conduct amounting to an election.[18] Conduct communicated to the other party that is justifiable only if an election had been made in favour of performance or termination will amount to such an election.[19] Once a party has elected to terminate or affirm the contract, it cannot undo the election, although the parties can by agreement reinstate the contract.[20]
420 The effect of termination under the common law on the rights and obligations of the parties is complex. The following rules are subject to the contract, expressly or impliedly, providing otherwise.
421 A broad distinction is drawn between past and future as at the time of termination. On the one hand, both parties are discharged from future or further obligations, as from the time of termination, under the contract.[21] If the contract on its proper construction provides for a term to operate after termination, it will do so.[22] On the other hand, rights and obligations (including those arising from partial performance of the contract and causes of action accruing as a result of breaches) of both parties that have already accrued at the time of termination are unaffected by termination.[23]
422 In McDonald v Dennys Lascelles Ltd,[24] Dixon J (with whom Rich and McTiernan JJ agreed) said:
When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected.
...when a contract... is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.[25]
423 In addition, the innocent party can recover damages for the value (if any) of the loss of future or further performance resulting from the termination.[26]
424 In addition, a party may be able to recover in restitution for benefits conferred on the other party by part performance of the contract. At the time of termination, one party may have partly performed its obligations under the contract and not received or become entitled to receive consideration from the other party under the contract. For example, a purchaser under a contract for the sale of land may have paid instalments of the purchase price but not received or become entitled to receive transfer of the land in return. An artist may have performed work on a commissioned portrait but not received or become entitled to receive payment in return.
425 In general terms, and subject to the terms of the contract providing otherwise, a party who has paid money under a contract but not received, or become entitled to receive, any consideration under the contract for the payment is entitled to recover the money in restitution after termination of the contract.[27] Although the cause of action was originally regarded as quasi-contract (money paid where total failure of consideration), the cause of action is now regarded as restitution. Generally, the mere fact that the plaintiff is the defaulting party against whom the contract was terminated does not preclude a party claiming in restitution if the requisite elements of restitution are established.[28]
426 Generally, there must be a total failure of consideration (in the sense of performance) for the payment.[29] In this respect, a distinction is drawn between an 'entire' contract involving a single or entire obligation and a 'severable' or 'divisible' contract involving multiple severable or divisible obligations.[30] In Baltic Shipping Co v Dillon[31] Mason CJ (with whom Brennan J and Toohey J relevantly agreed) said:
An entire contract or, perhaps more accurately, an entire obligation is one in which the consideration for the payment of money or for the rendering of some other counter-performance is entire and indivisible.[32]
427 The examples given above relating to sale of land and the commissioning of a portrait involve an entire obligation (pay the purchase price and transfer the land or painting). A contract for the sale of multiple goods (such as wheat at a price per ton or widgets at a price per widget) involves severable or divisible obligations (payment of the unit price and delivery of the goods). In the case of a severable contract, the question whether there is a total failure of consideration is asked and answered in relation to individual units.[33]
428 In general terms, and subject to the terms of the contract providing otherwise, a party who has provided services under a contract but not received, or become entitled to receive, any payment or other consideration under the contract is entitled to recover in restitution an amount on account of the provision of the services after termination by that party of the contract.[34] Although the cause of action was originally regarded as quasi contract (quantum meruit), the cause of action is now regarded as restitution. It is not necessary to consider the entitlement of the defaulting party against whom the contract was terminated but it is difficult to see any reason in principle why the position should be different to that in respect of the recovery of money addressed at [425] above.[35]
429 Again, it is necessary to distinguish between entire obligations and severable obligations.[36] If the plaintiff is entitled under the contract to performance of a severable component of the work, the plaintiff's rights after termination (even if the plaintiff was the party against whom the contract was terminated) will arise directly under the contract and no issue of restitution will arise.[37]
430 In Renard Constructions (ME) Pty Ltd v Minister for Public Works[38] an arbitrator found that the Minister had repudiated a construction contract and the contractor had validly terminated for repudiation. The arbitrator made an award of $285,025 calculated on the basis of reasonable remuneration in restitution (then described as quantum meruit). The award exceeded the contract price for the work. The Minister sought leave under the Commercial Arbitration Act 1984 (NSW) to cross-appeal against the award on a question of law, namely whether the contract price represented a ceiling for the award in restitution. Meagher JA (with whom Priestley JA and Mahoney JA relevantly agreed) held that contract price did not represent a ceiling, saying:
The law is clear enough that an innocent party who accepts the defaulting party's repudiation of a contract has the option of either suing for damages for breach of contract or suing on a quantum meruit for work done. An election presupposes a choice between different remedies, which presumably may lead to different results. The nature of these different remedies renders it highly likely that the results will be different. If the former remedy is chosen the innocent party is entitled to damages amounting to the loss of profit which he would have made if the contract had been performed rather than repudiated; it has nothing to do with reasonableness. If the latter remedy is chosen, he is entitled to a verdict representing the reasonable cost of the work he has done and the money he has expended; the profit he might have made does not enter into that exercise. There is nothing anomalous in the notion that two different remedies, proceeding on entirely different principles, might yield different results. Nor is there anything anomalous in the fact that either remedy may yield a higher monetary figure than the other. Nor is there anything anomalous in the prospect that a figure arrived at on a quantum meruit might exceed, or even far exceed, the profit which would have been made if the contract had been fully performed... The most one can say is that the amount contractually agreed is evidence of the reasonableness of the remuneration claimed on a quantum meruit; strong evidence perhaps, but certainly not conclusive evidence. On the other hand, it would be extremely anomalous if the defaulting party when sued on a quantum meruit could invoke the contract which he has a repudiated in order to impose a ceiling on amounts otherwise recoverable.[39]
431 In Iezzi Constructions Pty Ltd v Watkins Pacific (Qld) Pty Ltd[40] the subcontractor claimed against the head contractor in restitution on a pro rata basis by reference to the contract price for the works and no issue of a ceiling by reference to the contract price arose. The Queensland Court of Appeal held that a 'pay only when paid' clause in the contract did not apply to the claim in restitution. The members of the Court cited with approval the judgment of Meagher JA in Renard Constructions.
432 The decision of the New South Wales Court of Appeal in Renard Constructions was criticised by academic writers as being contrary to principle.[41] However, being a decision on the quantification of a restitutionary claim at common law, it was binding on other intermediate courts of appeal and trial judges unless convinced it was plainly wrong.[42]
433 In Kane Constructions Pty Ltd v Sopov[43] and Kane Constructions Pty Ltd v Sopov (No 2)[44] Warren CJ followed Renard insofar as it held that the contract price was not a ceiling, noting that the matter was not pressed by the defendant.[45] As to the assessment of reasonable remuneration, Warren CJ excluded a claimed profit and overhead component, saying in the first judgment:
The plaintiff also included in the quantum meruit claim a component for overhead and profit margin of 10 per cent on the purchase order and sub-contract payments. In my view, the margin does not arise. In the determination of a claim based on quantum meruit the approach of the courts is to assess an amount on the basis of work actually done and on the basis that it is fair and reasonable in the circumstances. It does not seem to me that a component of a margin is one contemplated by the authorities in the context of assessing a claim based on quantum meruit. It is the actual cost of the work done that is intended to be the subject of the assessment on a quantum meruit. A profit margin seems to me to lie more properly with contractual damages rather than on a quantum meruit. Accordingly, no allowance is included in the assessment on the quantum meruit for a profit margin as claimed by the plaintiff.[46]
In my reasons, I specifically determined that no allowance was to be included in the assessment on the quantum meruit for a profit margin as claimed by the plaintiff. I indicated that the plaintiff can recover on the basis of a quantum meruit by way of an assessment of the fair and reasonable value of the work. However, in assessing what is the fair and reasonable value of the work, the Court should be cognisant, albeit not exclusively, of the parties' entitlements under the contract, since these entitlements must properly form part of the measure.
...
As Mason, P said in Trimis v Mina:
"Restitution respects the sanctity of the transaction, and the subsisting contractual regime chosen by the parties as the framework for settling disputes. This ensures that the law does not countenance two conflicting sets of legal obligations subsisting concurrently".
More recently, in ASIC v Edwards, Barrett, J. said that:
"The parties shared intentions and the remuneration basis they contemplate are a clear indicator of what, as between them, is reasonable remuneration. This is so not only in cases where a contract is silent and there is implied a promise that reasonable remuneration will be paid but also in a quantum meruit case where reasonable remuneration is the essence of the restitutionary right".
It follows then from such a framework, as Professor Beatson has observed in his learned article, Restitution and Contract: Non-Cumul?, that:
"The terms of the contract and its nature are of vital importance to the existence and extent of any restitutionary claim".
Furthermore, while I accept that by the innocent party electing, as a remedy, to sue on a quantum meruit, as opposed to suing for damages for breach of contract, a different result may emerge; I nevertheless do not consider that restitutionary remedies should be seen as subverting the bargains made between contracting parties and thereby overthrowing the contractual allocation of risk. To do so, in my view, represents a backward step and misconstrues the real purpose of restitutionary remedies. [47]
434 The plaintiff appealed against Warren CJ's assessment and approach on assessment. As at May 2009, the appeal had been heard by the Court of Appeal and judgment had been reserved.
435 On 13 May 2009 Mr Axarlis sent a letter to Mr Mimmo:
• giving notice that pursuant to clause 39 of the Construction Contract it was taking the remaining work out of the hands of Pearl Hill and would make other arrangements for the remaining works to be completed and saying that, in the alternative, Marina Cove would delete the remaining works from the contract pursuant to clause 36.1 of the Construction Contract;
• asserting that Pearl Hill's conduct in connection with the Contracts of Sale amounted to a repudiation of the Heads of Agreement, which Marina Cove accepted, and that accordingly the Heads of Agreement was now at an end.
On 13 May 2009 Mr Digby QC received an email from Mr Hoey attaching a copy of Mr Axarlis' letter.
436 On 14 May 2009 Gadens sent two letters to Hoeys referring to Mr Axarlis' letter. Mr Digby QC received a copy of Mr Hoey's email to Mr Mimmo, attaching the Gadens letters. Mr Hoey said amongst other things:
I am waiting to speak to John Digby before responding as we will need to decide whether to accept their conduct as repudiating the construction contract and/or heads of agreement...
I will speak to you after speaking to John
This was a request for advice whether Pearl Hill should terminate the Construction Contract and/or Heads of Agreement.
437 On 15 May 2009 Mr Digby QC sent a responding email saying amongst other things:
I advise that our client refrain, for the time being, from bringing the Building Contract to an end (I note that it is possible that Marina Cove has already done so, although this of course depends on whether it has a present entitlement in this regard?)
Whenever the Pearl Hill contractual Show Cause Notice matures, Pearl Hill should terminate the Contract via the termination mechanism set out in the Contract, and the next day also terminate at common law on the basis of Marina Coves repudiation in taking the works out of Pearl Hills hands and also on all other possible grounds, including non payment to Pearl Hill.
At the same time as the common law rescission is communicated to Marina Cove in relation to the Building Contract, the Heads of Agreement should be terminated for specified fundamental breaches by Marina Cove, including that Marina Cove has wrongfully purported to terminate the HOA by letter dated 13 May 2009.
438 On 15 May 2009 Mr Digby QC received an email from Mr Hoey seeking advice whether, if Pearl Hill were to terminate the Heads of Agreement, it could still seek specific performance of the sale contracts. Mr Digby QC sent a responding email saying amongst other things:
Termination will preclude specific performance of the sales contracts. It is possible that Marina Cove has effectively terminated the HOA, although I think that this is unlikely.
The prospect of obtaining specific performance (which I considered when drafting the email (and settling the latter [sic]) last night, is I believe, very unlikely to be granted, however I have not made a detailed evaluation of this potential Claim by our Client.
The assessment specific performance issue (although I do not think my assessment above will change) should perhaps be formally evaluated prior to termination by Pearl Hill of the HOG [sic].
439 On 19 May 2009 Mr Digby QC received an email from Mr Hoey attaching draft letters of termination of the Heads of Agreement and Construction Contract. Mr Hoey said:
The time for showing cause under our notice was yesterday (you will recall they sent us a letter on 12 May 2009 denying the allegations in any event). The contract requires us to now suspend the work for 28 days before we can terminate (clause 39.9). This seems to me to have been superseded by the actions of Marina Cove in taking the remaining works out of our client's hands. It has now reached the stage where our client in my view, must accept that the conduct as repudiatory both in respect of the construction contract and in respect of the Heads of Agreement.
I have drafted two separate letters to Marina Cove which are attached. As the consequences of our client's steps in this matter are grave in that it involves many millions of dollars I think it best that before taking this step we have your views and/or comments and/or amendments to the letters if required.
This was a further and final request for advice whether Pearl Hill should terminate the Construction Contract and/or Heads of Agreement.
440 On 20 May 2009 Mr Digby QC sent a responding email saying:
I have considered the issues raised in your email under reply and attached settled letters which reflect my advice on these matters. In addition to the proposed settled letters, however two clear days after these letters go out purporting to effect a common law rescission of the contract, I advise that a further letter go under clause 39.9, marked "without prejudice" and noting that Marina Cove have prevented and frustrated possibility of Pearl Hill suspending the whole or part of the works (WUC) and accordingly, in the event that Pearl Hill has not effectively already brought the building contract to an end (which Pearl Hill refutes) Pearl Hill hereby and expressly "without prejudice" to its earlier letter dated 20 May 2009 (check dates letters go out) notifying that the building contract was at an end, Pearl Hill hereby terminates the building contract under clause 39.9 and in pursuance of its Notice dated... issued to Marina Cove under clause 39.7 of the building contract.
441 Mr Digby QC's advice on 15 May, reiterated on 20 May 2009, was expressed in bald terms that Pearl Hill should terminate both the Heads of Agreement and the Construction Contract. It was expressed in stark terms that suggested that there was no question that this was the course that Pearl Hill should take. It did not refer to the possibility of an alternative of not terminating either contract. It did not refer to any advantages or disadvantages of terminating or not terminating either contract.
442 Because Mr Digby QC's advice was expressed in such stark terms, it conveyed that there were only advantages and no disadvantages in terminating the contracts; and that there were no considerations for Pearl Hill, as the ultimate recipient of the advice, to make beyond or before acting on the advice and sending the letters.
443 This was reinforced by the fact that Mr Digby QC conveyed the advice by email and did not suggest a conference or other discussion with Mr Hoey or Mr Mimmo about the decision to terminate each contract before that action was taken. It was also reinforced by the fact that Mr Digby QC attached to his 20 May email settled letters having the effect of terminating each contract without suggesting that there was any question about sending the letters.
444 The content and manner of the advice given was such that it would have been supposed by a barrister in Mr Digby QC's position that Pearl Hill would simply act on the advice to terminate without further substantive consideration. Mr Mimmo had attended five conferences with Mr Digby QC between 25 March and 30 April 2009 to discuss matters less momentous than terminating the contracts. If there had been any question whether or not termination was desirable, Mr Mimmo would reasonably be expected to consider that a conference would be convened to discuss it.
445 Mr Digby QC's advice also conveyed that the considerations leading to the advice to terminate applied equally to termination of the Construction Contract and the Heads of Agreement. The considerations relating to termination of the Heads of Agreement were not identical to the considerations relating to termination of the Construction Contract. First, Marina Cove had purported to terminate the Heads of Agreement but it had not purported to terminate the Construction Contract: it had merely purported to take out of Pearl Hill's hands the work remaining to be completed pursuant to clause 39 and alternatively the Superintendent had deleted all remaining work pursuant to clause 36.1(a). Secondly, the question whether Marina Cove had repudiated the contract (or Pearl Hill was entitled to terminate it on other grounds) was different in respect of the Heads of Agreement and Construction Contract. Thirdly, it would clearly have been open to Pearl Hill to terminate the Heads of Agreement without terminating the Construction Contract. Fourthly, whether it would have been open to Pearl Hill to terminate the Construction Contract without affecting the Heads of Agreement was not as simple and required consideration.
Advantages and disadvantages of termination of Heads of Agreement
446 It is convenient to consider first termination of the Heads of Agreement on a standalone basis.
447 There were, on the circumstances known or that ought to have been known to Mr Digby QC, disadvantages to Pearl Hill in terminating the Heads of Agreement. Consideration whether Pearl Hill should terminate it necessarily required identification of the advantages and disadvantages of termination and an evaluation of the advantages as against the disadvantages. Therefore, any advice from counsel required identification of the advantages and disadvantages, an assessment of their relative weight or value, and (depending on that relative assessment) advice to the client to adopt one course or the other, but leaving it to the client to make the ultimate decision.
448 There were three potential disadvantages of termination of the Heads of Agreement
449 The first disadvantage of termination of the Heads of Agreement, being the advantage to Pearl Hill under clauses 1 and 3 of the Heads of Agreement, known or that should have been known to Mr Digby QC was that the purchase of the 33 lots under the Heads of Agreement was at a substantial discount.
450 In the Memorandum to Counsel sent to him by Mr Hoey on about 23 March 2009, Mr Hoey said:
Our client had a number of different claims relating to this development, which was settled by Heads of Agreement dated 21 October 2008.
Mr Hoey set out potential claims by Pearl Hill against Marina Cove with a potential value of millions of dollars that were settled by the Heads of Agreement. He then said:
As part of the negotiations our client, rather than taking action against Marina Cove which it believed might force Marina Cove into liquidation, agreed to exchange certain of its claims for a discount in the purchase price of land owned by Marina Cove. Pearl Hill signed the document entitled "Heads of Agreement" on 21 October 2008...
Some of the key terms of the Heads of Agreement are as follows:
Mr Hoey pointed out that the Heads of Agreement contained mutual discharges (which had the effect of Pearl Hill releasing the potential claims summarised in the Memorandum) and in addition Pearl Hill agreed to forgo two of its outstanding invoices, totalling approximately $810,000, as a 'deal sweetener'.
451 It was apparent from the Memorandum to Counsel that Pearl Hill considered in October 2008 that it was financially advantageous to it to give up its claims against Marina Cove under the Construction Contract in return for a substantial discount on the purchase price of the 33 lots.
452 If there were significant potential advantages to Pearl Hill in terminating the Heads of Agreement, it was necessary to weigh them against the potential advantage of Pearl Hill acquiring the 33 lots at a substantial discount. This in turn required an assessment of the value of that discount. Before giving advice about termination, it was necessary for senior counsel to inquire about the value of the discount.
453 Mr Hoey gave evidence that Mr Mimmo instructed him that he believed that the 33 lots were worth $40 to $45 million. An inquiry by senior counsel of Mr Hoey or Mr Mimmo is likely to have elicited the response that Mr Mimmo believed that this was the value of the land. If Mr Mimmo had been asked for evidence of the value of the land, and hence of the discount, he is likely to have referred to Mr Donaldson's 8 May 2007 email and Mr Axarlis' 11 March 2009 email.
454 Recital B to the Heads of Agreement referred to claims by Pearl Hill against Marina Cove for $21.86 million that were resolved under the Heads of Agreement. Effectively the consideration for the resolution of those claims was the sale of the 33 lots at a discounted price. While the mere reference to the quantum of the claims afforded no basis on which the value could be assessed, the fact that they were of this order suggested that the discount was substantial.
455 Mr Donaldson informed Mr Mimmo in an email in May 2007 that the wholesale price of the 33 lots was $40.46 million. Mr Axarlis said in an email to Mr Mimmo on 11 March 2009 that Marina Cove was selling the 33 lots to Pearl Hill at a discount of $16.5 million. As Marina Cove was engaged in a program of selling allotments at Martha Cove at the time, it may be expected that it would have been relatively easy to ascertain the asking prices of comparable allotments. This potential ease in turn lent veracity to Mr Axarlis' statement in his email.
456 In assessing the value of this first potential advantage, it was necessary to assess the value of the countervailing right, if any, Pearl Hill might have on termination to seek damages against Marina Cove for loss of the value of the bargain, being the amount of the discount of the purchase price of the 33 lots. The value of such a right was problematic. First, termination of the Heads of Agreement would have discharged the release contained in clause 16 barring Pearl Hill making claims under the Construction Contract or otherwise against Marina Cove. The release was the consideration for the sale of the 33 lots at a discount. Pearl Hill could not claim both the discount and preserve its pre-existing rights. Indeed, the interrelationship between the two may have defeated the bargain being assessed as having a net value (at least in monetary terms). Secondly, if (as appeared likely) Marina Cove did not have the financial capacity to meet a monetary judgment, a claim in damages would have been a hollow remedy.
457 The second disadvantage of termination of the Heads of Agreement known or that should have been known to Mr Digby QC was that the purchase of the 33 lots at a substantial discount, unlike any money claims that might be pursued on termination, was not dependent on Marina Cove's financial position, or more specifically its ability to pay all of its creditors (including in particular Pearl Hill) in full.
458 In the Memorandum to Counsel, Mr Hoey identified this advantage in the following terms:
... our client, rather than taking action against Marina Cove which it believed might force Marina Cove into liquidation, agreed to exchange certain of its claims for a discount in the purchase price of land owned by Marina Cove.
Pearl Hill is reluctant to pay the 10% deposit as it does not have confidence that it will receive the monies still owed to it.
460 During the conference at Mr Digby QCs chambers on 31 March 2009, there were discussions about the best way to lock Marina Cove into the Heads of Agreement so that Pearl Hill would not lose anything if Marina Cove went into liquidation. Mr Digby QC said that, if Marina Cove went into liquidation, Pearl Hill would still be entitled to enforce the Heads of Agreement provided that it kept performing its obligations.
461 During the conference at Mr Digby QC's chambers on 15 April 2009, Mr Mimmo said, according to Mr Berrill's file note, that he believed that, once proceedings were filed against Marina Cove, they would immediately settle because of other pressures they were experiencing at the time. This would or should have been understood as a reference to financial pressures.
462 During the conference at Mr Digby QC's chambers on 30 April 2009 Mr Mimmo said that he believed that Marina Cove was too far gone financially and suspected that, even without the set off, Marina Cove could not pay the GST on the sale price of the 33 lots.
463 Mr Mimmo's assessment, as reported by Mr Hoey in the Memorandum to Counsel, was that Marina Cove was in a parlous financial condition as at October 2008 when the Heads of Agreement was negotiated. His assessment, as reported directly to Mr Digby QC at the April conferences, was that it was now in an even more parlous financial condition.
464 Objective circumstances known by, or available on inquiry to, Mr Digby QC supported Mr Mimmo's assessment. First, the Heads of Agreement itself contained an acknowledgement by Marina Cove that Pearl Hill was entitled to be paid invoices that had been rendered in March and April 2008 totalling $1,466,978 (set out in Annexure B). There was no ostensible reason for Marina Cove not to have paid those invoices other than its being in a poor financial position. Even when Pearl Hill suspended work at the end of April 2008 as a result of the non-payment, Marina Cove still did not pay them over the following six months despite the fact that it was obviously in its interests for Pearl Hill to return to work and complete the houses.
465 Secondly, Marina Cove still had not paid $935,675 of the amount of those invoices as at 1 May 2009, being over six months after execution of the Heads of Agreement and this amount was demanded as part of Pearl Hill's show cause notice settled by Mr Digby QC and issued on that date. The excuse advanced by Marina Cove that these amounts were not due until the homes were completed and Marina Cove received payment from its purchasers was manifestly inconsistent with the terms of the Construction Contract. It was also manifestly inconsistent with clause 2 of the Heads of the Agreement. The fact that Marina Cove advanced such a transparently unjustifiable excuse suggested that the real reason for non-payment was its poor financial position.
466 Thirdly, on 20 January 2009 Marina Cove asked Mr Mimmo to pay the Council fee of $122,495 required for the issue of plans of subdivision. Mr Mimmo was prepared to pay the Council fee and deduct it from the purchase price of the 33 lots. He informed Mr Hoey of this on 3 April 2009. The obligation to obtain the subdivision clearly lay on Marina Cove. This request by Marina Cove for funding of the Council fee by Pearl Hill indicated that Marina Cove could not fund, or was at the least having difficulty funding, the fee.
467 Fourthly, on 3 December 2008 Mr Titterton sent an email to Mr Mimmo confirming that PPB acted for and was advising the Commonwealth Bank and thereafter, to the knowledge of Mr Mimmo, PPB were clearly closely advising the Bank in relation to its debt owed by Marina Cove. The engagement of a specialist insolvency firm by a bank and active advice by that firm to the Bank was an indicator that Marina Cove was having financial difficulties.
468 Fifthly, Mr Denehy's email to Mr Berrill on 29 April 2009 conveyed that the original conditions to consent to the Heads of Agreement imposed by the Commonwealth Bank had not been met and that the Bank would require further conditions. The extent to which Marina Cove's financier could and did dictate the terms of consent to the Heads of Agreement and its involvement in negotiations suggested that the Bank was deeply concerned about Marina Cove's financial position.
469 Sixthly, when questioned in cross-examination about Pearl Hill's concern for Marina Cove's financial position, Mr Oliver gave evidence that there was a 'pervasive concern' about Marina Cove being unable to pay. When asked to clarify, Mr Oliver said that there was a general concern about the financial viability of Marina Cove over March and April 2009.
470 The third potential disadvantage of termination of the Heads of Agreement known or that should have been known to Mr Digby QC was that it would remove the release contained in clause 16(b) by Marina Cove in favour of Pearl Hill of any claims it had against Pearl Hill in connection with the works.
471 In order to assess the value of that disadvantage, it was necessary to assess the potential value of claims by Marina Cove against Pearl Hill arising out of performance of the works at least up to October 2008 when the parties entered into the Heads of Agreement. Marina Cove had been alleging that Pearl Hill was in breach of the Construction Contract and Pearl Hill was exposed to a claim for damages as a result of delay. Mr Digby QC did not have sufficient information to make an assessment about liability or quantum in relation to such a claim by Marina Cove.
472 There were two potential advantages of termination of the Heads of Agreement but they were linked to a greater or lesser degree to the position under the Construction Contract.
473 The first potential advantage of termination of the Heads of Agreement was that it would remove the obligation imposed by clause 4 of the Heads of Agreement on Pearl Hill to complete the houses on lots 41 to 43, 52 to 65, 67 and 68. However, unless the Construction Contract was also terminated, Pearl Hill would have remained under an obligation imposed by that contract to complete the houses. This was complicated, and the value of the advantage reduced, by Marina Cove's taking of the work out of Pearl Hill's hands and locking Pearl Hill out of the sites, and by the expiration of Pearl Hill's show cause notice.
474 In order to assess the value of this first potential advantage, it was necessary to consider at least four matters. First, the cost to Pearl Hill of completing the houses compared to the balance of the contract price for the works remaining to be paid. Secondly, the prospect of Marina Cove having the financial wherewithal to pay for the completion. Thirdly, the effect of Marina Cove having locked Pearl Hill out of the sites. Fourthly, the effect of Pearl Hill prospectively suspending works under clause 39 of the Construction Contract pursuant to the Pearl Hill show cause notice of 7 May which expired on 18 May 2009.
475 In relation to the first matter, the remaining component of the contract price for the works as at the date of execution of the Heads of Agreement in October 2008 had been $3,121,694 million (as set out in annexure A to that Agreement). Since then, Pearl Hill had rendered invoices totalling $352,762 in respect of the houses on lots 57 and 58 and undertaken further works on most if not all of the remaining houses. Assuming that Marina Cove had the financial capacity to pay, by completing the works Pearl Hill would have been entitled to charge Marina Cove $2,768,932. Mr Mimmo had given instructions on the extent of completion of various stages for the houses (apart from lots 41 to 43) on 17 April 2009 as set out at [224] above. Further work had been undertaken since then. In order to quantify the cost of completion, it would have been necessary to take instructions from Mr Mimmo on the cost to Pearl Hill to complete (which was not the same as the cost to Marina Cove of engaging another builder to complete). These instructions were not taken. Mr Digby QC was not therefore in a position to assess this first matter. However, given that Pearl Hill was only entitled to render invoices on achieving the defined stages, it is inherently unlikely that the cost to Pearl Hill of completing the houses would have exceeded $2 million and more unlikely that it would have exceeded the $2.79 million that Pearl Hill would be entitled to receive for completion. Accordingly, in the absence of obtaining instructions from Mr Mimmo, there was no basis to assess that Pearl Hill would suffer any financial loss by completing the works provided that Marina Cove had the financial wherewithal to pay.
476 In relation to the second matter, for the reasons given above, there were good reasons to believe that Marina Cove was experiencing substantial financial difficulties. However, one mitigating factor of the financial risk in this specific context was that, upon Pearl Hill completing the homes, Marina Cove would become entitled to payment by its purchasers and this would enhance (but not of course guarantee) the prospect of Pearl Hill receiving payment. Two further mitigating factors were the third and fourth matters addressed immediately below.
477 In relation to the third matter, as from 13 May 2009 Marina Cove was not asking Pearl Hill to complete the homes and, on the contrary, had locked Pearl Hill out of the sites. If Pearl Hill had pursued performance of the purchase of the 33 lots under the Heads of Agreement, Marina Cove may or may not have allowed or required Pearl Hill to resume work on the uncompleted houses.
478 In relation to the fourth matter, on 18 May 2009 Pearl Hill's show cause notice expired. Marina Cove had no justification for having failed to pay the balance of $935,675 being the balance of the invoices for stages rendered on 5 March and 2 April 2008. It had accepted a liability to pay these invoices in clause 10.1 of the Heads of Agreement and apparently never asserted that they were not payable. It had made a faint suggestion that the monies were not due until completion of the homes and receipt by Marina Cove of payment by its purchasers. This was manifestly contrary to clause 37 of the Construction Contract. It was also manifestly contrary to the Heads of Agreement, which contained no hint that the monies payable under clause 10.1 were only to be paid on completion of the homes and receipt by Marina Cove of payment by its purchasers. It follows that Pearl Hill would have been entitled to suspend work under clause 39 of the Construction Contract (even if it were otherwise required to undertake that work under the Construction Contract) unless and until it received payment at least of $935,675. Pearl Hill also had good prospects of suspending work until it received payment of $388,038 being the amount of the invoices for the lock-up stage for lots 57 and 58 dated 1 April 2009.
479 There was a potential temporal difference between Pearl Hill's obligation to complete the uncompleted homes under the Heads of Agreement compared to its obligation under the Construction Contract. The obligation under the Construction Contract was to progress the works in accordance with the approved construction program and complete each home within 16 months from site handover, subject to extensions for contingencies. The obligation under the Heads of Agreement was to complete the homes within the times specified for each lot in clause 4.1 subject to extensions for contingencies. Mr Digby QC did not have the requisite information to assess whether Pearl Hill would be better off under the Heads of Agreement regime/timetable or the Construction Contract regime/timetable.
480 Considered as a whole, Mr Digby QC had insufficient information to assess the value of this first potential advantage of termination but such information as was available to him suggested that that value was small.
481 The second potential advantage of termination of the Heads of Agreement was that it would remove the release contained in clause 16(a) by Pearl Hill of any claims it had against Marina Cove in connection with the works.
482 In order to assess the value of this potential advantage, it was necessary to consider at least two matters. First, the potential value of claims by Pearl Hill against Marina Cove arising out of performance of the works at least up to October 2008 when the parties entered into the Heads of Agreement. Secondly, the prospect of Marina Cove having the financial wherewithal to pay any such claims.
483 In relation to the first matter, Mr Digby QC did not have the requisite information to assess the value of such claims. There were general instructions contained in the Memorandum to Counsel that Marina Cove had made design changes/corrections, Pearl Hill would have quoted an additional $650 per square metre based on the final design, and that Marina Cove was responsible for delays in giving possession of the site and obtaining planning permits causing an increase in Pearl Hill's costs. These instructions were vague and woolly and an entirely inadequate basis on which to form any view about either liability or quantum in respect of Pearl Hill's prospects of recovering monies under the Construction Contract.
484 In relation to the second matter, if Marina Cove lacked the financial capacity to pay Pearl Hill the cost to complete the homes, it certainly lacked the financial capacity to pay any other monetary claim by Pearl Hill.
485 In a purely monetary sense, for the reasons given above, Mr Digby QC did not have the necessary information to value the advantages and disadvantages and hence was not in a position to weigh them and advise that the balance favoured, or clearly or overwhelmingly favoured, termination.
486 The assessment of monetary advantages was necessarily impacted, and overshadowed, by the question of Marina Cove's financial capacity. If Marina Cove lacked the financial capacity to pay, the advantage to Pearl Hill of purchasing the 33 lots at a discount was magnified because it was not dependent on Marina Cove's financial capacity. Conversely, the financial advantage of termination enabling Pearl Hill to pursue monetary claims against Marina Cove was diminished.
487 Mr Mimmo had weighed the advantages and disadvantages of entering into the Heads of Agreement in October 2008 and determined that it was in the interests of Pearl Hill to enter into it. I accept Pearl Hill's contention that this was a strategy consciously adopted by Mr Mimmo. This strategy, and Mr Mimmo's assessment of the advantages of entering into the Heads of Agreement were explicitly conveyed to counsel by Mr Hoey's Memorandum to Counsel of 23 March 2009 in the passage extracted at [450] above. This strategy was recognised during the conferences with senior counsel between 30 March and 30 April 2009, including advice by Mr Digby QC to Mr Mimmo to keep performing his work obligations so as to preserve the Heads of Agreement (and Construction Contract). It was implemented by the issue of the writ and statement of claim on 29 April 2009. Mr Oliver gave evidence that the approach up until May 2009 had been to enforce the terms of settlement contained in the Heads of Agreement.
488 Insofar as termination of the Heads of Agreement standing alone was concerned, nothing had ostensibly changed between October 2008 and May 2009 to decrease the value of the advantages, or increase the value of the disadvantages, of the Heads of Agreement. The events after October 2008 only increased the reasons to believe that Marina Cove lacked the financial capacity to meet substantial monetary claims by Pearl Hill and hence increased the advantages and diminished the disadvantages of the Heads of Agreement.
489 Subject to one caveat, an assessment of advantages and disadvantages of termination of the Heads of Agreement must necessarily have been premised on the assumption that it had not already been terminated by Marina Cove on 13 May 2009. If it had already been terminated, Pearl Hill had no election to make and neither the advantages nor the disadvantages canvassed above would arise. The caveat is that, even if Marina Cove had effectively terminated the Heads of Agreement, the reaction of Pearl Hill was still relevant to the future course of events. If Pearl Hill affirmed the Heads of Agreement and sought to have it performed, there was a possibility that Marina Cove might withdraw its termination if the conditions were such that it would be perceived to be (and perhaps more importantly the Commonwealth Bank would perceive it to be) in its best interests. Conversely, if Pearl Hill itself purported to terminate the Heads of Agreement, this would reinforce Marina Cove's action and make the prospect of future performance remote.
490 On the assumption that Marina Cove had not effectively terminated the Heads of Agreement, a relevant consideration in providing advice to Pearl Hill was Pearl Hill's prospects of obtaining performance of the sale of the 33 lots by either a decree of specific performance or agreement by Marina Cove to proceed with the sale notwithstanding its purported termination. As to the former, on the same assumption, the starting point was that prima facie a court of equity will grant a decree of specific performance of a contract for the sale of land provided that the plaintiff is ready willing and able to perform its obligations. The sticking point between Marina Cove and Pearl Hill after 9 April 2009 when Marina Cove no longer insisted on payment of a deposit had been that Pearl Hill was claiming an entitlement to set off accrued debts against the purchase price and Marina Cove was disputing that entitlement. This is addressed below. The prospects of obtaining specific performance are also addressed below.
Advantages and disadvantages of termination of Construction Contract
491 It is convenient to consider next termination of the Construction Contract on a standalone basis (that is, on the assumption that the Heads of Agreement remained extant despite its purported termination by Marina Cove and the postulated termination by Pearl Hill of the Construction Contract).
492 The first potential advantage of termination of the Construction Contract (without termination of the Heads of Agreement) was that it would have discharged Pearl Hill from the obligation to complete the uncompleted houses (and discharged Marina Cove from the obligation to pay Pearl Hill for such completion work).
493 The value of this potential advantage was small because Pearl Hill could instead have suspended work on or after 18 May 2009 pursuant to its show cause notice and hence would not have been exposed to the risk of completing the work without receiving commensurate payment. Alternatively, if Marina Cove's taking of the work out of the hands of Pearl Hill on 13 May 2009 was valid, Pearl Hill was not obliged to undertake the remaining work (although there may have been financial consequences).
494 The second potential advantage of termination of the Construction Contract (without termination of the Heads of Agreement) was that Pearl Hill would have had a right in restitution to recover reasonable remuneration for work undertaken on each completed house over and above the last completed stage for which it had invoiced Marina Cove. This was relatively small in monetary terms and would have been of no value if Marina Cove did not have the financial wherewithal to pay. In addition, in accordance with the approach adopted in Kane Constructions,[48] Marina Cove would have been entitled to offset the cost of any defects (which liability was effectively preserved under the Heads of Agreement) and any entitlement to liquidated damages accruing after October 2008 (any previous liability being discharged under clause 16 of the Heads of Agreement).
495 On the assumption that the Heads of Agreement remained extant, clause 16 of the Heads of Agreement precluded either party bringing a claim in contract, restitution or otherwise in respect of performance or non-performance of the Construction Contract to October 2008.
496 The value of these two advantages was therefore relatively minor.
497 The potential disadvantage of termination of the Construction Contract (without termination of the Heads of Agreement) was the risk that, if Pearl Hill was not entitled to terminate it, its purported termination would have comprised a repudiation, entitling Marina Cove in turn to terminate it. In that event, Pearl Hill would be liable for any loss caused by its wrongful termination.
Possibility of termination of Construction Contract alone
498 The above analysis assumes that it was possible for Pearl Hill to terminate the Construction Contract without destroying the Heads of Agreement. Whether this was possible turns on the proper construction of the Heads of Agreement.
499 On the one hand, the principal provisions of the Heads of Agreement were for the sale of the 33 lots, coupled with payment of the Annexure B invoices, coupled with the mutual releases in respect of rights and obligations under the Construction Contract. Although the Heads of Agreement also contained provisions for completion of the uncompleted houses, those provisions were clarifications of or variations to the provisions in the Construction Contract which governed such completion. On the proper construction of the Heads of Agreement, if the Construction Contract were terminated and the parties' future or further obligations in respect of the uncompleted houses were thereby discharged, it is likely that the provisions in the Heads of Agreement relating to the uncompleted houses would simply fall away consequentially without affecting the principal provisions summarised above.
500 However, although not likely to succeed, it was arguable that the continuing operation of the Heads of Agreement was premised on the continuing operation of the Construction Contract and termination of the Construction Contract would remove an essential substratum of the Heads of Agreement.
501 The risk that termination of the Construction Contract might destroy the Heads of Agreement required the exercise of caution and required an analysis of the advantages and disadvantages of termination of both contracts.
Advantages and disadvantages of termination of both contracts
502 I turn to consider the advantages and disadvantages of termination of both the Construction Contract and the Heads of Agreement (the contracts).
503 The principal potential disadvantage of termination of the contracts was that Pearl Hill would lose the ability (or opportunity) to purchase the 33 lots at a substantial discount. As outlined above, to assess the value of the benefit to Pearl Hill of that ability (or opportunity), it was necessary to assess the value of the discount and also the financial ability of Marina Cove to meet an alternative monetary liability. On the face of the instructions to Mr Digby QC, the discount was substantial and the concerns about Marina Cove's financial ability were real. As summarised above, further information was available to Mr Digby QC if he had sought instructions concerning these two matters. That information would have assisted in quantifying the discount and confirmed that there was a solid basis for the concerns about Marina Cove's financial ability.
504 In weighing this disadvantage of termination, it would be necessary to make an assessment of Pearl Hill's prospects of obtaining performance of the Heads of Agreement insofar as it provided for the sale and purchase of the 33 lots if the Heads of Agreement was not terminated. Such performance might be obtained either by a decree of specific performance or by Marina Cove agreeing to proceed with the transaction despite its purported termination of the Heads of Agreement.
505 First, it would be necessary to assess whether Marina Cove had effectively terminated the Heads of Agreement on 13 May 2009. The termination was on the ground that Pearl Hill's assertion of a right to set off monies owing to it by Marina Cove against the deposit and possibly later against the purchase price (when Marina Cove did not insist on payment of a deposit) was a repudiation of its obligations under the Heads of Agreement. Consideration of this issue would have required an assessment whether Pearl Hill had a right of set off.
506 Mr Digby QC had given positive advice in relation to set off of the balance of the Annexure B debt (which totalled $935,675 as at 7 May 2009 when Hoeys issued the Pearl Hill show cause notice) and $458,451 for the variations invoiced on 9 to 12 September 2008. This advice was contained in the draft letter to Marina Cove that Mr Digby QC and Mr Oliver settled on 6 April 2009 stating that Pearl Hill was entitled to set off those amounts in the context that, if there was not a valid set off, this conduct was capable of comprising a breach and repudiation of the Heads of Agreement.
507 In the emails from Mr Oliver of 3 April 2009 and Mr Digby QC of 5 April 2009, they advised effectively that the set off should be made, describing the entitlement to set off as arguable but not clear-cut. This was in the context that their advice on set off had been sought in Mr Hoey's Memorandum to Counsel dated 23 March 2009. This was also coupled with Mr Digby QC having nodded and said yes when Mr Mimmo said that there was a set off during the conference on 15 April 2009 and Mr Digby QC's opinion expressed in his second email of 15 May 2009 that, although it was possible that Marina Cove had effectively terminated the Heads of Agreement, he thought that this was unlikely. The effect of the 6 April advice was that the amounts of $935,675 and $458,451 were unequivocally due. Considered objectively, that advice was correct for the reasons given at [995] and following below.
508 A set off is available in equity when there are money claims by and against each party (whether liquidated or unliquidated) and the title of the first party to its debt or claim is impeached by the debt or claim of the second party.[49] The title is impeached if there is a sufficiently close connection between the two claims, including if the second party's claim flows out of and is inseparably connected with the dealings and transactions giving rise to the first party's claim.[50] Given the close connection between the payment for the 33 lots and the payment of the invoices, this test was satisfied.
509 There was nothing in the Heads of Agreement that expressly or implicitly excluded a right of set off. Clause 1 merely provided for the sale and purchase of the 33 lots for $16.5 million inclusive of GST and did not address its manner of payment or negate a set off in respect of its payment. Likewise, clause 3 provided for payment of the deposit on signing of the contracts of sale and the balance on the day of settlement, it did not address manner of payment or negate a set off.
510 Marina Cove had made an unfounded assertion on 24 April 2009 that Pearl Hill was only to be paid when Marina Cove received payment from its purchasers. There was nothing in the Construction Contract or the Heads of Agreement or elsewhere capable of supporting that assertion.
511 Marina Cove had in November-December 2008 been prepared to allow Pearl Hill to nominate other entities as the purchasers of the 33 lots under individual contracts of sale. However, there was nothing that bound Marina Cove to this and on 9 April 2009 Marina Cove informed Pearl Hill that it insisted on its rights under clauses 1 and 3 of the Heads of Agreement that Pearl Hill itself be the purchaser. Pearl Hill did not, and could not, take issue with this. Accordingly, there was the necessary identity of parties for the purposes of set off. This is considered objectively in further detail at [988] and following below.
512 Although the defendants in this action contend that there were other grounds on which Marina Cove might have relied in retrospect to justify termination of the Heads of Agreement, they were not advanced by Marina Cove and Mr Digby QC was not directly called upon to consider them. Those grounds are considered objectively at [891] and following below.
513 Secondly, assuming that Marina Cove had not effectively terminated the Heads of Agreement, it would be necessary to assess Pearl Hill's prospects of obtaining a decree of specific performance. Mr Digby QC said in his second email on 15 May 2009 that specific performance was, he believed, very unlikely to be granted but he said that he had not made a detailed evaluation and it should perhaps be formally evaluated prior to termination. The prospect of obtaining specific performance would depend on the terms on which Pearl Hill sought the decree and called for an interactive dialogue with Mr Hoey and Mr Mimmo concerning that question. Assuming that Mr Mimmo was prepared to proceed with the purchase of the 33 lots without seeking to set off monies owed by Marina Cove and assuming that the mortgagees CBA and CPL were still willing to discharge their mortgages at settlement upon receipt by Marina Cove of the purchase price, the prospects of obtaining a decree of specific performance were good. A contract for the sale of land falls in a category of contracts that equity will specifically enforce provided that it is otherwise appropriate to do so. The defendants contend that a court would not grant specific performance because future building works would require supervision by the court. However, by reason of Marina Cove having taken the remaining work out of the hands of Pearl Hill under the Construction Contract on 13 May 2009, no such supervision would have been required. If Marina Cove reversed its position and insisted on Pearl Hill completing the works, it could not rely on that as a bar to specific performance. In any event, the primary aspect of the Heads of Agreement was the sale of the 33 lots and associated releases and the building works continued to be governed by the Construction Contract with the Heads of Agreement merely providing for completion dates for the houses. Accordingly, this consideration would not have prevented the gratn of a decree of specific performance.
514 Thirdly, it would be necessary to assess Pearl Hill's prospects of obtaining performance of the sale and purchase of the 33 lots under the Heads of Agreement by the consent of Marina Cove. The vast majority of litigation does not proceed to hearing and determination by the court but is resolved by the consensus of the parties. There was a substantial prospect that Marina Cove would agree to performance of the sale and purchase of the 33 lots pursuant to the Heads of Agreement despite its purported termination. It was open to the parties to agree to act on the basis that the Heads of Agreement had not been terminated. As long as Pearl Hill did not terminate the Heads of Agreement, Marina Cove remained exposed to the risk that Pearl Hill would obtain a decree of specific performance. If it considered that it was in its interests to do so, and its mortgagees concurred, Marina Cove would have so acted. Once Pearl Hill terminated the Heads of Agreement, the spectre of a decree of specific performance would no longer be hanging over Marina Cove's head. Although the parties could still have agreed to reinstate the Heads of Agreement, the prospect of this occurring would be very much reduced after both parties had acted to terminate the Heads of Agreement.
515 The principal potential advantage of termination of the contracts was that Pearl Hill would not be bound by the release, contained in clause 16 of the Heads of Agreement, of any pre-existing claims against Marina Cove under the Construction Contract or otherwise. Mr Digby QC was not in a position to assess the value of any such pre-existing claims.
516 The focus up to 13 May 2009 had been on the rights of Pearl Hill under the Heads of Agreement. The Memorandum to Counsel dated 23 March 2009 had sought advice on Pearl Hill's rights under the Heads of Agreement and ability to enforce it. It did not seek advice concerning Pearl Hill's rights under the Construction Contract or otherwise in the event of termination of the Heads of Agreement. The statement of claim dated 29 April 2009 settled by Mr Digby QC and Mr Oliver in the HOA action sought enforcement of the Heads of Agreement and not the Construction Contract. The only consideration given to the Construction Contract was in relation to show cause notices issued by both parties in the context of the continuing existence of the Heads of Agreement.
517 Mr Digby QC had not been called on to provide any advice in relation to the rights Pearl Hill would have under the Construction Contract or otherwise in the absence of the releases contained in the Heads of Agreement. He did not provide any advice thereon when advising termination or otherwise.
518 Mr Hoey in his Memorandum to Counsel had referred to two potential claims under the Construction Contract that had been released by the Heads of Agreement. One claim was based on alleged discrepancies between the plans and specifications on which the Construction Contract was based and the plans and specifications to which the houses were built. It was said that Pearl Hill considered that an appropriate rate per square metre based on the 'as built' plans and specifications would have been $1,950 rather than $1,350. Mr Digby QC had no information on which an assessment could be made of the prospects or value of the claim based on those alleged discrepancies.
519 First, it would have been necessary to obtain instructions on the nature and extent of any alleged discrepancies. No information concerning this had been provided.
520 Secondly, it would have been necessary to obtain instructions on communications between the parties on the topic of discrepancies and action taken or not taken under the Construction Contract or otherwise, including whether the superintendent directed a variation or Pearl Hill made a claim for variation under clause 36. It appears from the Memorandum to Counsel that it was unlikely that such a direction or claim for variation was made and, if so, this would have precluded Pearl Hill making a claim under the Construction Contract. It appears from the Memorandum to Counsel that it was unlikely that there was a collateral contract for any payment by reason of discrepancies. A claim by Pearl Hill in restitution may have been possible. However, this would have required consideration of the fact that the contract contained separable portions, the houses on 47 lots had been completed, those on a further three lots had been deleted by consent from the contract and staged amounts had been paid or invoiced in respect of the remaining 19 houses. These matters would have necessitated consideration whether all the work undertaken in respect of the completed or deleted houses and in respect of the remaining houses up to the last completed stage had become the subject of accrued rights barring a restitution claim.
521 Thirdly, it would have been necessary to obtain instructions on the quantum of any claims considered to be tenable. No information to assess quantum had been provided (the reference to $1,950 per square metre in itself was incapable of forming a basis on which an assessment as to quantum could be made).
522 Fourthly, it would have been necessary to assess whether Marina Cove had validly taken the work out of Pearl Hill's hands because, if it had done so, Pearl Hill would not have been entitled to terminate the Construction Contract on the ground of repudiation.
523 Fifthly, it would have been necessary to assess the prospects of recovery of a monetary judgment given Marina Cove's financial position. Such information as was available to Mr Digby QC indicated that Marina Cove was in a poor financial position and was probably unable to meet a substantial monetary judgment.
524 A second potential advantage of termination of the contracts was that Pearl Hill would not be required to complete construction of the unfinished houses. For the reasons given above, Mr Digby QC did not have sufficient information to assess the value of this advantage but it was likely to be relatively insignificant.
525 The defendants contend that there was a third potential advantage of termination of the contracts in that Pearl Hill would not be exposed to a monetary claim by Marina Cove for the difference between the balance of the contract sum not invoiced by Pearl Hill and the cost to Marina Cove of completing the works using another contractor. However, the action by Marina Cove in taking the work out of Pearl Hill's hands on 13 May 2009 was either effective or not effective. If it was effective, Pearl Hill was not entitled to terminate the Construction Contract on the ground of repudiation and in any event termination would not avoid exposure by Pearl Hill to such a monetary claim. If it was ineffective, it was in breach of contract and Marina Cove was not entitled to make the monetary claim. In any event, Mr Digby QC did not have information on which to assess the quantum of any such claim by Marina Cove.
526 In weighing the advantages and disadvantages of termination, the financial capacity of Marina Cove to meet a monetary judgment was critical. The less financial capacity that Marina Cove had, the less weight could be afforded to the principal potential advantage of termination, being a monetary claim by Pearl Hill against Marina Cove unimpeded by the release contained in clause 16 of the Heads of Agreement. The less financial capacity that Marina Cove had, the greater the weight to be afforded to the proprietary nature of the purchase of the 33 lots at a discount pursuant to the Heads of Agreement.
527 Before giving advice whether the contracts should be terminated, it was necessary for Mr Digby QC to obtain instructions concerning Marina Cove's financial capacity. Because of the iterative nature of obtaining instructions on this question and the other questions identified above, it was necessary to engage in a dialogue with Mr Hoey and Mr Mimmo rather than simply reaching a unilateral view and giving advice to act in accordance with it.
528 In Mr Digby QC's evidence in chief, contained in his two written statements, he addressed only the chronological narrative of his involvement in the matter. That narrative addressed events by reference to contemporaneous documents as opposed to independent recollection, with the exception of reference in Mr Digby QC's statement in reply to the witness statement of Mr Mimmo in respect of three matters that Mr Digby QC did not recollect occurring or did not accord with his usual practice and one matter that he did not recollect but was likely based on his usual practice. In his evidence in chief, Mr Digby QC did not address his thought processes, and in particular those relating to his advice to terminate the contracts.
529 In cross-examination, Mr Digby QC said that he had dealt with a very large number of matters. As he was giving evidence of events that occurred 10 years ago, it is likely that he would have had very little independent recollection of the events and, upon reading contemporaneous documents, there would have been a limit to the extent to which his recollection was refreshed as opposed to his reconstructing what was likely to have occurred. For example, Mr Digby QC gave evidence that he did not recall Mr Berrill at all, whether he had worked with Mr Oliver before March 2009 or what documents were contained in the brief that accompanied the Memorandum to Counsel. He gave evidence that he had no independent recollection of the conferences that he attended including those for which Mr Berrill produced file notes. He also said that it was now difficult for him to separate his mental process on looking again at what had been said 10 years previously from his mental processes at the time. None of this is surprising and it is only to be expected.
530 Mr Digby QC said that, although he did not have a specific recollection, he almost certainly would have been encouraging Mr Mimmo to do all he could to ensure that he 'could not be sacked' in relation to the contracts by failing to perform on site. He said that he wanted, in assisting Mr Mimmo in the practical way Mr Mimmo wanted his legal team to act, to do all they could to try to tease out a solution and get the Contracts of Sale effected and keep Mr Mimmo on the site performing the work.
531 In relation to his advice to terminate the contracts, Mr Digby QC said that the Contracts of Sale issues were still unresolved seven months after the Heads of Agreement was signed and, while there might have been a very small percentage prospect of being able to proceed with the purchase, it looked to be negligible to him. Mr Digby QC later described this evidence as his reconstruction of what would have been the considerations that were exercising his mind on 15 May 2009.
532 Mr Digby QC was asked whether he had assessed the potential value of the claims that had been released under the Heads of Agreement. He said that he had not and had not been provided with the extensive material that he would have thought would be required to make such an assessment. It was put to him that that would have been a relevant matter to consider and he disagreed, saying that it would have been very marginal. He was asked whether he assessed the value of quantum meruit claims after termination and he said that he did not. He said that he knew that the client had asserted a large figure in respect of the pre-October 2008 claims. He said that he did not recall discussing a quantum meruit claim with Mr Mimmo and Mr Hoey before 15 May 2009. He said that he did not think that he had evaluated the merits of a claim for damages for breach of the Heads of Agreement by Marina Cove.
533 Mr Digby QC was asked whether he had taken into consideration remarks that Mr Mimmo had made concerning the financial viability of Marina Cove. He said that he could not recall what all the considerations were at that time in relation to what he characterised as a complex puzzle and could not say that he gave specific thought to the financial viability of Marina Cove. He said variously that he was not instructed in a concrete, cogent, specific or credible way about any problems with Marina Cove's actual solvency. He said that he expected that he would have turned his mind to it but could not say that he specifically recalled doing so.
534 It was put to Mr Digby QC that it would have been better to advise Mr Mimmo of the complexity of the puzzle and leave the decision whether the contract should be determined to him rather than advising him simply to determine it. Mr Digby QC disagreed.
535 Mr Digby QC said that he did not recall having, and accepted that there was no record of, any communications with Mr Mimmo or Mr Hoey in relation to the complex puzzle between 13 and 20 May 2009.
536 Mr Digby QC said that he did not believe that he had any telephone conversations with Mr Hoey over the period between March and May 2009.
537 Mr Digby QC said that his reasons for being pessimistic about specific performance being granted were that no deposit had been paid for six months; there was no clarity about the purchasing entities; there was no consent of the financiers; Marina Cove had purported to terminate the Heads of Agreement; there were allegations that he was not in a position to evaluate about non-performance by Pearl Hill of its building obligation; and there appeared to be a problem with the client being able to obtain finance for the purchase. Mr Digby QC said that these reasons were not ones that he now recalled but were reconstructed on his reading the contemporaneous documents prior to giving evidence. It was put to Mr Digby QC that he had not given any previous evaluative assessment of those matters, which he accepted.
538 Mr Digby QC was asked to identify the pros and cons of termination. He said that he gave his response by way of reconstruction. He identified the con of termination as being the loss of the chance of purchasing the 33 lots but assessed that chance as being small. He identified the pro as being the prospect of a quantum meruit claim.
539 Mr Digby QC was asked whether between 15 and 20 May 2009 he thought that it might have been in the interests of Mr Mimmo to have advised him to give up his claim for set off and affirm the Heads of Agreement rather than terminating it and he said no.
540 Mr Digby QC's advice to terminate both contracts was expressed in crisp and unequivocal terms: Pearl Hill should terminate the contracts. There was, on the instructions Mr Digby QC had been given, a substantial potential disadvantage to Pearl Hill in terminating the contracts, namely the loss of obtaining performance of the purchase of the 33 lots under the Heads of Agreement at a substantial discount. It was the obtaining of that very benefit that had led Mr Mimmo to enter into the Heads of Agreement in the first place and trade away whatever rights Pearl Hill had under the Construction Contract or otherwise.
541 In the circumstances, before giving any advice whether or not to terminate the contracts, the exercise of reasonable care by a senior counsel in the position of Mr Digby QC required the identification and evaluation of the potential advantages and disadvantages of termination, which in turn required the seeking of factual and other instructions from Hoeys and Pearl Hill.
542 For the reasons given above, Mr Digby QC simply did not have the necessary information and instructions to advise Pearl Hill that it was in its best interests to terminate the contracts.
543 It was not open to counsel exercising reasonable care in the position of Mr Digby QC to dismiss the potential advantage of obtaining performance of the purchase of the 33 lots under the Heads of Agreement at a substantial discount.
544 First, Mr Digby QC was not in a position to form an opinion that the prospects of obtaining performance were so remote that they should be dismissed from consideration. The only ground on which Marina Cove relied in terminating the Heads of Agreement was that Pearl Hill was not entitled to set off amounts owing by Marina Cove against the deposit or purchase price for the 33 lots. For the reasons given above and below, objectively assessed as at May 2009 from the perspective of Mr Digby QC, Pearl Hill was entitled to a set off. If Pearl Hill was entitled to set off monies against the purchase price at settlement, Marina Cove was not entitled to insist (as it did) on payment of the deposit or purchase price at settlement in full without a set off.
545 Mr Digby QC in his evidence identified, by way of reconstruction, other potential issues in relation to specific performance. Mr Digby QC referred to the deposit not having been paid for six months: this had been practically superseded in April 2009 when Marina Cove indicated that payment of a deposit was no longer required (provided Pearl Hill gave up its set off). Mr Digby QC referred to there being no clarity about the purchasing entities: this was clarified when Marina Cove told Pearl Hill on 9 April 2009 that it required Pearl Hill to be the purchaser in accordance with the terms of the Heads of Agreement. This was not raised by Mr Hoey or Mr Mimmo in instructions to counsel as being a problem. Mr Digby QC referred to a problem with the client being able to obtain finance for the purchase. This was not raised by Mr Hoey or Mr Mimmo in instructions to counsel as being a problem. Mr Digby QC referred to allegations by Marina Cove about non-performance by Pearl Hill of its building obligation but accepted that he was not in a position to evaluate those allegations (and Marina Cove had taken the works out of Pearl Hill's hands on 13 May 2009). If any of these four matters was of concern, it was a matter that required instructions from Mr Mimmo.
546 Mr Digby QC referred to the fact that Marina Cove had purported to terminate the Heads of Agreement: this begs the question whether it had been entitled to terminate, about which Mr Digby QC had expressed the opinion that this was unlikely.
547 Secondly, even if the prospects of Pearl Hill obtaining a decree of specific performance were small, termination of the Heads of Agreement would have drastically reduced the prospects of Marina Cove agreeing to proceed with the sales of the 33 lots under the Heads of Agreement.
548 Thirdly, even if the prospects of obtaining performance (by decree or agreement) were not high, it was necessary to take into account the amount of the discount on the purchase price because lesser prospects of a large benefit might be superior to greater prospects of a small or valueless benefit. A request for instructions about the discount would have led to instructions that the discount was believed to be of a value of at least $15 million.
549 Fourthly, whatever value was placed on the advantage of obtaining performance of the purchase of the 33 lots under the Heads of Agreement at a substantial discount, advice concerning the desirability of termination required a comparison between that advantage of non-termination with the value of the advantages of termination. For the reasons given above, Mr Digby QC was not in a position to assess the value of the advantages of termination and, further, such advantages would be diminished, if not eliminated, if Marina Cove was in a poor financial position.
550 Fifthly, it was essential in the circumstances for Mr Mimmo to participate in the decision whether or not to terminate the contracts. Ultimately the weighing of advantages and disadvantages was a matter for him and he may have given them different weight to the weight given by Mr Digby QC. Mr Mimmo had entered into the Heads of Agreement in the first place when his alternative course was to terminate the Construction Contract following his April 2008 suspension of work pursuant to clause 39. The decision in May 2009 was a direct reversal of that choice. Even if it would have been open, upon obtaining the requisite instructions, to recommend in favour of or against termination for identified reasons, it was not open on the information that Mr Digby QC possessed simply to advise that both contracts be terminated.
551 On the opposite side of the ledger, Mr Digby QC in his evidence identified, by way of reconstruction, that the principal advantage of termination was the ability to pursue a quantum meruit claim against Marina Cove. For the reasons given above, Mr Digby QC did not have the requisite information to assess prospects of success of such a claim or the likely quantum. For the reasons given above, leaving aside quantum issues, any substantial quantum meruit claim would have been problematic due to the structure of the Construction Contract providing for separate prices for each house and separate prices for each stage of construction of each house. In addition, it was critical to weigh the prospect that Pearl Hill might not recover a monetary judgment against Marina Cove due to the latter's financial position.
552 Mr Digby QC in his evidence said that he did not have concrete, cogent or credible instructions about any problems with Marina Cove's solvency. It was not open to counsel in the position of Mr Digby QC to dismiss concerns expressed by Pearl Hill concerning Marina Cove's insolvency. First, the Memorandum to Counsel had instructed that it was these very concerns that had led Pearl Hill to enter into the Heads of Agreement. Secondly, before dismissing such concerns, it would have been incumbent on counsel to seek instructions on their basis, which would have disclosed firm foundations for the concerns as summarised above. Thirdly, matters known or that should have been known to Mr Digby QC confirmed those concerns, including the fact that there was no ostensible reason for Marina Cove not to have paid the long outstanding amounts set out in Annexure B to the Heads of Agreement other than financial inability to do so. Fourthly, because these concerns were concerns expressed by Mr Mimmo, he needed to participate actively in a decision based on an assessment of those concerns rather than simply being advised to terminate the contracts.
553 For the reasons given above, on the instructions and information that had or had not been provided to Mr Digby QC, it was not open to counsel exercising the appropriate standard of care to advise Pearl Hill that to terminate the Heads of Agreement and the Construction Contract. The advice given by Mr Digby QC to that effect was negligent. Although articulation of the reasons for concluding that Mr Digby QC was negligent has been lengthy, I have approached the question on the basis of real world limitations. Whatever limitations existed on the extent of knowledge available to Mr Digby QC and the time available to consider the matter, it was not open to senior counsel exercising the appropriate standard of care to advise termination.
554 It is not necessary on the issue of negligence to determine the precise advice that would have been given by senior counsel acting non-negligently. However, I address that question below in the context of causation. I find that senior counsel acting non-negligently would have given advice as set out at [816] and following below.
555 Mr Digby QC's advice to terminate the Heads of Agreement was negligent.
556 On 14 May 2009 Mr Hoey sent an email to Mr Mimmo (copied to Mr Digby QC) attaching Gadens' two letters dated 14 May (having received on the previous day Marina Cove's letter dated 13 May). He said amongst other things:
I am waiting to speak to John Digby before responding as we will need to decide whether to accept their conduct as repudiating the construction contract and or heads of agreement...
I will speak to you after speaking to John
557 On 15 May 2009 Mr Hoey received an email from Mr Digby QC advising termination of both contracts without identifying reasons for the advice or advantages or disadvantages of termination.
558 On 15 May 2009 Mr Hoey sent an email to Mr Digby QC seeking advice whether, if Pearl Hill were to terminate the Heads of Agreement, it could still seek specific performance of the Contracts of Sale. Mr Digby QC replied, saying that termination would preclude specific performance of the Contracts of Sale.
559 On 15 May 2009 Mr Hoey forwarded Mr Digby QC's second email to Mr Mimmo without comment. Eleven minutes later Mr Hoey forwarded Mr Digby QC's first (12:14am) email to Mr Mimmo without comment.
560 On 15 May 2009 at 3:47pm Mr Hoey sent an email to Mr Digby QC and Mr Oliver saying:
Just spoken to Nino and told him we are sitting tight till next week so that we will be able to terminate on our default notice as well as their repudiation. He will after termination write to the various home owners (we will settle) advising that he is ready willing and able to be engaged direct to finish their homes...
I told him we would speak to him next Monday or Tuesday...
561 On 19 May 2009 Mr Hoey sent an email to Mr Digby QC, attaching draft letters terminating the Heads of Agreement and Construction Contract on the ground of repudiation. He said amongst other things:
It has now reached the stage where our client in my view, must accept their conduct as repudiatory both in respect of the construction contract and in respect of the Heads of Agreement.
I have drafted two separate letters to Marina Cove which are attached. As the consequences of our client's steps in this matter are grave in that it involves many millions of dollars I think it best that before taking this step we have your views and or comments and or amendments to the letters if required.
562 On 19 May 2009 Mr Hoey received an email from Mr Mimmo. Mr Mimmo enquired whether he could go down to the Supreme Court and put in an injunction on Marina Cove to stop them engaging a new builder until the dispute was finalised. He asked whether the letters dated 19 May with his name on them were supposed to go out or be signed and said that they were still at his office.
563 On 20 May 2009 at 8:00am Mr Hoey sent a responding email to Mr Mimmo. He said that Mr Mimmo could not stop Marina Cove engaging another builder. He said that the letters sent the previous day were drafts only not to be sent and that they would be amended.
564 On 20 May 2009 Mr Hoey received an email from Mr Digby QC attaching the settled letters which he said reflected his advice. Mr Digby QC also advised that a further letter be sent terminating the Construction Contract under clause 39.9 in pursuance of the 7 May show cause notice.
565 On 20 May 2009 at 2:22pm Mr Hoey sent an email to Mr Mimmo attaching the two settled letters. He said:
Nino attached are the two letters to go to Marina cove terminating the contract and terminating the Heads of Agreement both should be sent today. You will see that they are addressed to Marina Cove at 3 different addresses as well as the fax... please send copies to all addresses and the fax (just to be certain)... In two days we will send another one as suggested by John Digby...
Please confirm when these have been sent.
567 In Mr Hoey's evidence in chief, which was contained in his two written statements, he addressed the chronological narrative of his involvement in the matter. He said that, before looking at the contemporaneous documents, he had only a general recollection of the course of events involving Pearl Hill and Marina Cove. His recollection was refreshed to a certain degree by looking at the documents but there remained events and conversations of which he still had no independent recollection. Mr Hoey's narrative addressed events to a very large extent by reference to contemporaneous documents.
568 The only evidence in chief that Mr Hoey gave concerning his reaction to Mr Digby QC's advice to terminate the contracts was that there was no fact or circumstance of which he was aware that caused him to doubt or disagree with that advice.
569 Mr Hoey said in evidence in chief that Mr Mimmo was a 'hands on' type of client, wanting to be closely involved in the preparation of documents and interactions with counsel both in conference and in correspondence.
570 Mr Hoey said in evidence in chief that Mr Mimmo told him that terminating would put Pearl Hill in a better negotiating position.
571 In cross-examination by counsel for Mr Digby QC, Mr Hoey said that his usual practice was that, if he received an email from counsel in respect of a client's matter and the email was quite clear, he would forward the email to the client without comment. He said that this applied to the emails that he received from Mr Digby QC and forwarded without comment to Mr Mimmo on 15 May 2009.
572 In cross-examination by counsel for Mr Digby QC, Mr Hoey said that he did have a conversation with Mr Mimmo, and although he did not recall its specifics, Mr Mimmo was aware of the consequences of termination. He did not say what he said to Mr Mimmo (if anything) that resulted in Mr Mimmo being aware of the consequences of termination.
573 During cross-examination by counsel for Pearl Hill, Mr Hoey said that Mr Mimmo instructed him that he thought that he was going to get the 33 lots cheaply and he thought that the discount on the purchase price was worth giving up in return for the claims that Pearl Hill had against Marina Cove. He said that Mr Mimmo told him that he thought that the true value of the 33 lots was $40 to $45 million.
574 Mr Hoey said that he was instructed by Mr Mimmo that Marina Cove had obtained the consent of its financiers to the Heads of Agreement and he was never told otherwise. He said that he thought that this might be a potential problem for enforceability of the Heads of Agreement but this was a factual issue and he did not reach a conclusion on the question. He said that he considered that Pearl Hill would have been in breach of the Heads of Agreement by not paying a 10% deposit unless it was entitled to set off amounts due to it. He said that up to and including 20 May 2009 he did not reach a conclusion on the question of set off. He said that, when he sought counsel's advice whether the Heads of Agreement was enforceable, he had in mind these two issues even though he did not make it explicit in the Memorandum to Counsel.
575 Mr Hoey said that he did not end up receiving advice from counsel on the specific questions posed by him in the Memorandum to Counsel concerning enforceability of the Heads of Agreement.
576 Mr Hoey said that he did not recall giving Mr Mimmo any advice on the effect of Marina Cove's 13 May 2009 letter.
577 Mr Hoey was asked in cross-examination whether, when he received Mr Digby QC's email on 15 May 2009 to terminate both contracts, he gave independent consideration to whether that was the sound course or he simply blindly followed Mr Digby QC's advice. Mr Hoey said that he did not think he was blindly following Mr Digby QC's advice.
578 Mr Hoey added that the context was that Mr Mimmo wanted to bring the Heads of Agreement to an end to enable him to renegotiate with Marina Cove and get a better deal. It was put to Mr Hoey that they were never his instructions from Mr Mimmo and he disagreed. He was asked at what point those instructions were given and he said, 'all the time'.
579 Mr Hoey was asked, if they were his instructions, why he did not act on them until 20 May 2009. He said that Mr Mimmo's instructions were that he wanted to put pressure on Marina Cove to be able to get the land deal with setting off the monies that were owed; he initiated the proceeding seeking specific performance expecting to trigger a backdown from Marina Cove; and, when that did not occur, '[t]he next step was to terminate the Heads of Agreement and put everything back on the table whereby he could then put pressure on them to stop them going into liquidation, he could pay them a lesser amount'.
580 Mr Hoey said that Mr Mimmo first said that he wanted to terminate the Heads of Agreement soon after Mr Hoey got back from overseas [which was around 6 May 2009]. He was asked in cross-examination whether he resiled from the evidence just given that Mr Mimmo had been saying this all the time and he said yes.
581 Later in cross-examination, Mr Hoey was asked what prospective benefit to Pearl Hill might be derived in renegotiation and he said that it was acquiring the land with the set off of monies outstanding. He said that this was the only benefit that he considered at the time.
582 In re-examination, Mr Hoey said that he was not able to recall a specific conversation in which Mr Mimmo said that he wanted to terminate the Heads of Agreement and renegotiate. However, he believed that it was reiterated a number of times between soon after his return from overseas and 20 May 2009.
583 Mr Hoey said during re-examination that Mr Mimmo's overall strategy was always to place pressure on Marina Cove to set off outstanding monies against the purchase price of the 33 lots under the Heads of Agreement. Until he went overseas in April 2009, the way of putting on that pressure was by performing the Heads of Agreement and seeking agreement to the set off. After his return from overseas in early May 2009, the way of putting on that pressure was to terminate the Heads of Agreement and seek to renegotiate the purchase with a set off.
584 Mr Hoey said during cross-examination that in May 2009 he did not believe that Mr Mimmo would be better off by terminating the Heads of Agreement. He said that the only benefit he could identify was Mr Mimmo's desire to renegotiate the Heads of Agreement. He does not recall turning his mind to the question of advantages or disadvantages of termination.
585 Mr Hoey later said during cross-examination that the only benefit in renegotiating the Heads of Agreement that he considered was being able to acquire the land with the complete set off of monies outstanding against the purchase price. He said that the set off was the sticking point between Marina Cove and Pearl Hill.
586 Mr Hoey said that he thought that there were doubts whether specific performance of the Heads of Agreement would be granted. The primary reason for the doubts was the need for continued supervision by the court of the building components, being completion of the houses and maintenance obligations. He considered that it was arguable that specific performance would be granted. He later accepted in cross-examination that the effect of Marina Cove's having taken the remaining work out of Pearl Hill's hands under the Construction Contract was that Pearl Hill no longer had an obligation to perform the building works, although he believed that it may have still had maintenance obligations.
587 Mr Hoey later said that another potential advantage was the prospect of claiming against Marina Cove the difference between the value and the price of the 33 lots. Mr Hoey said that the potential disadvantage of termination was losing the prospect of purchasing the 33 lots. He said that he did not weigh in his own mind the potential advantages against disadvantages of termination.
588 Mr Hoey accepted in cross-examination that he did not advise Mr Mimmo of the advantages or disadvantages of termination of the Heads of Agreement.
589 It was put to Mr Hoey in cross-examination that he did not explain to Mr Mimmo the two emails that he received from Mr Digby QC on 15 May 2009 and forwarded to Mr Mimmo without comment. Mr Hoey disagreed and said that his timesheet and his email later on that day showed that he had a telephone conversation with Mr Mimmo. He accepted that there was no record of the content of the telephone conversation and that he had no positive recollection of what was said during the telephone conversation.
590 Mr Hoey was asked about his first email to Mr Digby QC, in which he said:
... 2 further issues may also need consideration...determining whether there is merit in a summary judgement [sic] application and whether if we terminate HOA we can still seek specific performance of the sale contracts...
591 Mr Hoey said that his reference to a summary judgment application was a reference to an application for judgment for specific performance of the Contracts of Sale referred to in the Heads of Agreement. He said that he believed in his own mind that specific performance could not be sought after termination of the Heads of Agreement but he wanted that to be verified by Mr Digby QC.
592 Mr Hoey accepted that in May 2009 Mr Mimmo was concerned about the financial viability of Marina Cove and that he knew that Mr Mimmo knew that Marina Cove was in financial difficulties.
593 Mr Hoey accepted that, if Pearl Hill's equitable interest in the land the subject of the April caveat was upheld, it was more likely to result in a return to Mr Mimmo than pursuing a money claim because of Marina Cove's financial difficulties. He said that he could not recall if he thought about that in May 2009.
594 Mr Hoey was asked if at any time he said to Mr Mimmo 'If we terminate the Heads of Agreement, you will no longer have any claim to purchase the land, and the only claim that you will have left is a money claim against an entity with doubtful financial viability' and he said that he did not in those words.
595 Mr Hoey was asked if he ever said anything to that effect and he said that he was confident that he said to Mr Mimmo that, if you terminate the Heads of Agreement, you will not be able to proceed with enforcement of the Contracts of Sale. He accepted that he did not give evidence of this in his witness statement. He said that he did not recall a specific conversation.
596 It was put to Mr Hoey that he did not ever explain to Mr Mimmo the meaning of the advice by Mr Digby in his second 15 May 2009 email that 'termination will preclude specific performance of the sales contracts' and he accepted that. He said that he did not think it needed explanation.
597 Mr Hoey was referred to another statement by Mr Digby QC in that email: 'It is possible that Marina Cove has effectively terminated the HOA, although I think that this is unlikely'. He said that he did not know that he turned his mind to the question whether he thought it was unlikely that Marina Cove had effectively terminated the Heads of Agreement. He said that he believed that he simply accepted Mr Digby QC's advice on this question.
598 Mr Hoey was referred to another statement by Mr Digby QC in that email: 'The assessment specific performance issue ... should perhaps be formally evaluated prior to termination ...'. He said that he did not ever receive any more advice from Mr Digby QC on specific performance.
599 It was put to Mr Hoey that, if he had instructions from Mr Mimmo that he wished to terminate the Heads of Agreement, he would have done so upon receipt of Marina Cove's letter dated 13 May 2009. He said that that would depend on what Mr Mimmo wanted.
600 Mr Hoey accepted that in May 2009 he believed that Marina Cove had purported to terminate the Construction Contract by its letter dated 13 May 2009. He accepted that this was an erroneous reading of the letter and it only purported to take the remaining work out of Pearl Hill's hands.
601 Mr Hoey later in his evidence identified whether financier consent had been granted and Pearl Hill's refusal to pay the deposit as issues that might affect an order for specific performance being made. He accepted that he did not seek advice from counsel on those two questions.
602 Mr Hoey accepted that Mr Mimmo was consistently advised during conferences with counsel that he needed to maintain a presence on site and he needed to keep the Heads of Agreement alive. He accepted that that was sensible advice. He accepted that Mr Mimmo never told him that he did not want to buy the 33 lots. He accepted that it was always Mr Mimmo's intention that he was going to get paid by buying this land and profiting from the purchase.
603 It was put to Mr Hoey that he did not explain to Mr Mimmo the meaning of the phrase used in Mr Hoey's email dated 19 May 2009 'accept their conduct as repudiatory'. Mr Hoey responded that he did not recall a conversation in which he explained those words but he would have had a conversation with Mr Mimmo about it.
604 It was put to Mr Hoey that, apart from Mr Digby QC's second email of 15 May 2009, there was no other explanation given to Mr Mimmo of the effects of termination of the Heads of Agreement and he said not that he could recall.
605 Mr Hoey accepted that he did not express any opinion of his own to Mr Mimmo about whether it was a good or bad idea to terminate the Heads of Agreement. He said that he was uneasy about whether it was a good idea to terminate the Heads of Agreement. He said that the cause of his unease was whether Mr Mimmo would be able to renegotiate for Marina Cove to agree to the set off if the Heads of Agreement was terminated.
606 Mr Hoey said that in May 2009 he did not think that he gave any thought to the legal possibility of terminating one of the contracts but not the other or the advantages and disadvantages of terminating one of the contracts but not the other.
607 Mr Hoey accepted that, as at July 2009, he did not have instructions on the basic information to make out a quantum meruit claim or to assess or articulate a quantum meruit claim.
608 Mr Hoey's evidence summarised above (albeit vague or tentative or contradictory in various respects) that Mr Mimmo told him that terminating would put Pearl Hill in a better negotiating position, that Mr Hoey told Mr Mimmo the consequences of termination, that Mr Mimmo told him that he wanted to bring the Heads of Agreement to an end to enable him to renegotiate with Marina Cove and get a better deal, that Mr Mimmo told Mr Hoey that he wanted to terminate the Heads of Agreement soon after Mr Hoey got back from overseas, that Mr Hoey explained to Mr Mimmo the two emails that he received from Mr Digby QC on 15 May 2009, that Mr Hoey told Mr Mimmo that, if he terminated the Heads of Agreement, he would not be able to proceed with enforcement of the Contracts of Sale and that Mr Hoey explained to Mr Mimmo the meaning of the phrase in his email dated 19 May 2009 'accept their conduct as repudiatory' had not been put to Mr Mimmo in cross-examination (although it was inconsistent with Mr Mimmo's evidence). This must have been either because Mr Hoey was inadequately proofed or because Mr Hoey did not recall those matters when proofed. I am not in a position to make a finding on this and therefore do not take it into account adversely to Mr Hoey in assessing his evidence.
609 As summarised above, Mr Hoey gave evidence that Mr Mimmo instructed him during several conversations between about 6 and 20 May 2009 that he wanted to terminate the Heads of Agreement and renegotiate so as to be able to set off monies outstanding against the purchase price. Mr Mimmo, in his evidence in chief, responded to the statement contained in Mr Hoey's written statement that Mr Mimmo told Mr Hoey that terminating put Pearl Hill in a better negotiating position. Mr Mimmo said that he had no recollection of ever saying that to Mr Hoey.
610 I find that Mr Mimmo did not say to Mr Hoey that he wanted to terminate the Heads of Agreement and renegotiate so as to be able to set off monies outstanding against the purchase price. Although there is no suggestion, and I do not find, that Mr Hoey's evidence was dishonest, I find that he has unconsciously reconstructed this conversation or conversations.
611 Mr Hoey's manner of giving this evidence was simply unconvincing. He appeared to be reconstructing rather than narrating what he remembered.
612 More importantly, it is not inherently likely that Mr Mimmo said this or that, if he did, Mr Hoey would simply have accepted it without discussion or would have acted in the manner that he did. A conversation or conversations to that effect simply does not ring true when compared with the course of communications or events.
613 There is no suggestion in any of the emails from Mr Mimmo to Mr Hoey or anyone else that he wanted to terminate the Heads of Agreement and renegotiate for a set off. There is no suggestion in the emails from Mr Hoey to Mr Mimmo or to counsel that this was Mr Mimmo's strategy. If Mr Mimmo had conveyed this to Mr Hoey, it is likely that there would have been some reference, or even a hint, in the email communications to it.
614 Mr Hoey accepted, and it is apparent from the documents, that up to the point of his return from holidays on about 6 May 2009 the strategy had been to seek to enforce the sale of the 33 lots by enforcing the Heads of Agreement. While of course possible, it is not inherently likely that that strategy should change to terminating the Heads of Agreement and seeking to renegotiate. If the strategy did change, it is inherently likely that there would have been some reference to it in the documents.
615 The postulated strategy was not a sensible one. Mr Mimmo had a contract under which Marina Cove was obliged to sell the 33 lots at what he believed was a very substantial discount. He also believed that legally he was entitled to a set off under that contract. If Mr Mimmo understood that terminating the Heads of Agreement would release Marina Cove from the obligation to sell the lots, this would risk losing the very benefit that Pearl Hill had gained by entry into the Heads of Agreement in the first place. Moreover, Marina Cove had been obstinate in declining to accept a set off against the purchase price. There were not apparently good prospects of its now agreeing to a set off or, at least, better prospects of its doing so if Pearl Hill terminated the Heads of Agreement.
616 If Mr Mimmo had made the statement or statements to Mr Hoey, it would have been incumbent on Mr Hoey to warn Mr Mimmo of the risks of implementing that strategy. This would be even more so given that Mr Hoey said that he did not believe that Mr Mimmo would be better off by terminating the Heads of Agreement. Mr Hoey did not suggest in his evidence that he gave Mr Mimmo such a warning in the context of this strategy. I find below that he did not give Mr Mimmo a more general warning about the potential adverse consequences of termination.
617 Mr Hoey accepted that Mr Mimmo had been consistently and sensibly advised during conferences with counsel that he needed to keep the Heads of Agreement alive, and Mr Mimmo never told him that he did not want to buy the 33 lots. This does not easily fit with Mr Hoey's evidence of Mr Mimmo telling him of a strategy to terminate the Heads of Agreement and renegotiate.
618 In addition, the email communications affirmatively suggest that Mr Mimmo did not tell Mr Hoey that this was his strategy. When Mr Hoey received Marina Cove's 13 May 2009 letter purporting to terminate the Heads of Agreement, his reaction was to send an email to Mr Mimmo, copied to counsel, saying 'we will need to decide whether to accept their conduct as repudiating the construction contract and/or heads of agreement' and that he was waiting for advice from Mr Digby QC about this. If he already had standing instructions that Mr Mimmo wanted to terminate the Heads of Agreement, he may be expected to have expressed himself in quite different terms.
619 When Mr Hoey received Mr Digby QC's first 15 May 2009 email advising termination of the Heads of Agreement, Mr Hoey sought advice whether there was merit in seeking summary judgment for specific performance of the Contracts of Sale and whether termination of the Heads of Agreement would preclude specific performance of them. It is not credible that Mr Hoey would have been potentially pursuing a specific performance strategy if that strategy had been abandoned by Mr Mimmo and the new strategy was to terminate the Heads of Agreement and renegotiate.
620 On 19 May 2009 Mr Mimmo sent an email to Mr Hoey asking whether he could go down to the Supreme Court and put in an injunction to stop Marina Cove engaging a new builder until the dispute was finalised. This did not evince a recognition by Mr Mimmo of the effect of termination of the contracts.
621 I accept that, during an earlier conference with counsel and Mr Berrill, Mr Mimmo had referred to the prospect of negotiating with a liquidator if Marina Cove went into liquidation. That was a very different concept to taking action to terminate the Heads of Agreement and destroying Pearl Hill's existing contractual rights to purchase the 33 lots.
622 As summarised above, Mr Hoey gave evidence that Mr Mimmo instructed him that he thought that the discount on the purchase price was worth giving up in return for the claims that Pearl Hill had against Marina Cove. I find that Mr Mimmo did not say this to Mr Hoey.
623 Mr Hoey's manner of giving this evidence was simply unconvincing.
624 Mr Hoey gave no evidence to this effect during his evidence in chief.
625 Such a statement would have been inconsistent with Mr Hoey's evidence that Mr Mimmo never told him that he did not want to buy the 33 lots and that it was always Mr Mimmo's intention that he was going to get paid by buying this land and profiting from the purchase.
626 Such a statement would have been inconsistent with Mr Hoey's evidence that in May 2009 he did not believe that Mr Mimmo would be better off by terminating the Heads of Agreement and the only benefit he could identify was Mr Mimmo's desire to renegotiate the Heads of Agreement with a set off and yet Mr Hoey said nothing to Mr Mimmo in response to this putative statement that the discount on the purchase price was worth giving up in return for the claims that Pearl Hill had against Marina Cove.
627 Such a statement would have been inconsistent with Mr Hoey's evidence (which I have rejected) that Mr Mimmo said to Mr Hoey that he wanted to terminate the Heads of Agreement and renegotiate so as to be able to set off monies outstanding against the purchase price.
628 In addition, most of the considerations identified above in respect of Mr Mimmo's alleged statements that he wanted to terminate the Heads of Agreement and renegotiate so as to be able to set off monies outstanding against the purchase price are also reasons to reject Mr Hoey's evidence that Mr Mimmo instructed him that he thought that the discount on the purchase price was worth giving up in return for the claims that Pearl Hill had against Marina Cove.
629 As summarised above, Mr Hoey gave evidence that he had a conversation with Mr Mimmo and Mr Mimmo was aware of the consequences of termination. He did not have a specific recollection of such a conversation and could not say on what date it occurred or what he said to Mr Mimmo (if anything) that resulted in him being aware of the consequences of termination.
630 Mr Hoey gave evidence that he was confident that he said to Mr Mimmo that, if you terminate the Heads of Agreement, you will not be able to proceed with enforcement of the Contracts of Sale. Mr Hoey also gave evidence during cross-examination that he explained to Mr Mimmo the two emails that he received from Mr Digby QC on 15 May 2009. He could not say what he explained to Mr Mimmo.
631 Mr Mimmo gave evidence denying that there was such a conversation or conversations.
632 I find that no conversations took place in which Mr Hoey gave advice to Mr Mimmo about the consequences of termination, whether on 15 May or 19 May 2009 or at any other time.
633 Mr Hoey's manner of giving this evidence was simply unconvincing.
634 There is no reference in Mr Hoey's emails to Mr Mimmo to any such advice being given. If such a conversation took place, it may be expected that Mr Hoey necessarily considered it important and would have made some reference to it in his emails.
635 Mr Hoey merely forwarded Mr Digby QC's two emails of 15 May 2009 to Mr Mimmo without comment. If Mr Hoey considered it important or desirable to explain to Mr Mimmo the effect of termination or otherwise in relation to those emails, the logical place to have done it would have been as part of or following forwarding the emails. The fact that he forwarded the emails without comment suggests that he considered that no comment was required.
636 Mr Hoey said that he did not recall turning his mind to the advantages or disadvantages of termination and accepted that he did not advise Mr Mimmo of the advantages and disadvantages of termination. It is inherently unlikely that, if Mr Hoey did not give advice on advantages and disadvantages, he did not give advice on the effect of termination.
637 Mr Hoey was unable to identify the content of his advice about the effect of termination or about Mr Digby QC's two 15 May 2009 emails. If he had given such advice, it may be expected that he would have been able to give some identification of the content of that advice. Elsewhere during his cross-examination, he said that he was confident that he told Mr Mimmo that he could not enforce the sales contracts if the Heads of Agreement was terminated but clearly he had no recollection of this occurring or of the context or what was said.
638 Mr Hoey said that he did not recall giving Mr Mimmo any advice on the effect of Marina Cove's 13 May 2009 letter. Given that one effect was to purport to terminate the Heads of Agreement, this suggests that no advice was given to Mr Mimmo on the effect of termination.
639 As summarised above, Mr Hoey gave evidence that, although he did not recall a conversation in which he explained to Mr Mimmo the words in his 19 May 2009 email 'accept their conduct as repudiatory', he would have had a conversation with Mr Mimmo about it. He was unable to identify the content of the conversation. I find that he did not have such a conversation for reasons essentially the same as those given above.
640 Pearl Hill pleads that on 20 May 2009 Hoeys advised Pearl Hill to send the letters terminating the Heads of Agreement and Construction Contract and that the advice was negligent. Hoeys admits that it gave that advice but denies that it was negligent.
641 Pearl Hill contends that Hoeys was negligent in two overlapping respects. First, the advice to terminate the Heads of Agreement (and the Construction Contract) was negligent because it was not considered advice that took into account advantages and disadvantages of termination, involved without justification a drastic change to the strategy adopted by Pearl Hill on the advice of its lawyers to preserve its ability to purchase the 33 lots at a substantial discount, resulted in the loss by Pearl Hill of its proprietary claim in circumstances in which it was considered that monetary claims against Marina Cove might have no value, and was not in the interests of Pearl Hill. Secondly, Hoeys failed to ensure that Pearl Hill was adequately warned that a consequence of termination of the Heads of Agreement was the loss of its proprietary claims.
642 The reasonable care expected of a solicitor who obtains and conveys to the client advice or an opinion by a barrister quintessentially turns on the facts and circumstances of the case. The facts and circumstances will include whether the solicitor merely acts as a conduit in conveying the advice or opinion to the client or has a greater role in the provision of the advice; whether the solicitor himself or herself gives advice to the client on the topic; the subject matter and nature of the advice; the importance of the advice; the context in which the advice is sought and obtained; the role of the solicitor in relation to the matter in which the advice is sought; the role of the barrister in relation to that matter; the knowledge or means of knowledge of the solicitor relevant to the advice; the knowledge of the barrister relevant to the advice; the experience and expertise of the solicitor; the experience and expertise of the barrister; and the relationship between the solicitor and client.
643 In the present case, Hoeys did not just act as a conduit in conveying Mr Digby QC's advice to terminate the contracts. It was Mr Hoey who raised the idea of termination. On 14 May 2009 Mr Hoey sent an email to Mr Mimmo raising the idea of accepting Marina Cove's conduct as repudiating the Construction Contract and/or the Heads of Agreement. On 19 May 2009 Mr Hoey sent an email to counsel, copied to Mr Mimmo, saying that 'our client in my view, must accept their conduct as repudiatory both in respect of the Construction Contract and in respect of the Heads of Agreement'. On 20 May 2009 Mr Hoey sent an email to Mr Mimmo attaching termination letters and saying that they should both be sent by Mr Mimmo on that day. Hoeys accepts in its pleading that it thereby advised Pearl Hill to terminate the contracts.
644 Hoeys had the direct relationship, and was the point of contact, with Pearl Hill and Mr Mimmo. Hoeys had been acting for Pearl Hill in relation to disputes with Marina Cove since April 2008, had been involved in the drafting of the Heads of Agreement, and had a much more extensive involvement than Mr Digby QC, who was only briefed in March 2009 and who was requested to provide advice and settle documents at the request of Hoeys. Hoeys had had a close involvement in the dispute, either itself engaging in correspondence with Marina Cove or its solicitors or drafting and advising on correspondence to be sent on Pearl Hill's letterhead to Marina Cove.
645 Hoeys as a firm, and Mr Hoey as principal, had specialist expertise and experience in building and construction matters. Mr Hoey had specialised in such matters since his articles in 1995. While Mr Digby QC had specialist expertise and experience as a barrister in building and construction matters, Mr Hoey may be expected to have formed his own views on the appropriateness of advice to terminate the contracts.
646 The question whether the contracts should be terminated was important, with potentially grave consequences involving many millions of dollars, as Mr Hoey himself recognised in sending his email on 19 May 2009. The question called for particular care given those consequences.
647 Given the extent of his background and knowledge by reason of his greater involvement in the matter, it was readily foreseeable, and should have been foreseen, by Mr Hoey that he may have been aware of facts or circumstances bearing on the advisability of termination of which Mr Digby QC was unaware. In particular, Mr Hoey knew, or should have known, that he had greater knowledge of the extent of the discount that Pearl Hill was receiving on the purchase of the 33 lots and of the extent of Marina Cove's financial difficulties than Mr Digby QC had.
648 The advice to terminate the contracts given by Mr Digby QC on 15 and 20 May 2009 was expressed in stark terms: Pearl Hill should terminate the contracts. No reasons were given for the advice. No reference was made by Mr Digby QC to the advantages or disadvantages of termination (apart from the response to Mr Hoey's query whether termination would preclude specific performance of the Heads of Agreement, which did not itself refer to the advantages of affirming the Heads of Agreement).
649 Mr Hoey knew that Mr Mimmo had entered into the Heads of Agreement in the first place because Pearl Hill was receiving a discount on the purchase price of the order of $20 million and that Mr Mimmo had serious concerns about Marina Cove's financial position such that it was in the best interests of Pearl Hill to exchange its claims for a discount on the purchase price of the 33 lots.
650 Mr Hoey knew that there was a disadvantage to Pearl Hill in terminating the contracts. He did not know whether or to what extent Mr Digby QC had taken that disadvantage into account in giving his advice. He did not know to what extent Mr Digby QC recalled the background to entry into the Heads of Agreement set out in the Memorandum to Counsel or took into account the extent of the discount on the purchase price of the 33 lots or the extent of Marina Cove's financial difficulties.
651 Mr Hoey did not know what advantages and disadvantages Mr Digby QC had taken into account in giving his advice or the weight afforded to them.
652 Mr Hoey knew that he had not received advice concerning the prospects or quantum of any monetary claims that might be made if the contracts were terminated. He knew that he had not received sufficient information to form a view himself concerning these questions and had not given advice to Mr Mimmo concerning them.
653 Mr Hoey knew that no conference with counsel, or with Mr Mimmo as client, occurred between 13 and 20 May 2009, when consideration was being given to termination of the contracts and the advice was given to Mr Mimmo that the contracts should be terminated. This was in contrast to several conferences convened in March and April 2009 addressing matters less serious than potential termination of the contracts.
654 Mr Hoey said that he himself did not believe that Mr Mimmo would be better off by terminating the Heads of Agreement. The only benefit he could identify was Mr Mimmo's desire to renegotiate the Heads of Agreement to set off against the purchase price the outstanding monies owed to Pearl Hill, which objectively would not be advanced by termination.
655 In the circumstances, the exercise of reasonable care by Mr Hoey required him to do more than adopt Mr Digby QC's advice to terminate the contracts and in turn advise Pearl Hill to terminate the contracts. Exercise of reasonable care required Mr Hoey to question the basis on which Mr Digby QC reached the conclusion that Pearl Hill should be advised to terminate the contracts, discuss with Mr Digby QC and Mr Mimmo the advantages and disadvantages of termination and ensure that Mr Mimmo made an informed decision whether or not to terminate the contracts rather than simply doing so because he was advised by his barrister and solicitor to do so.
656 For essentially the same reasons as in respect of Mr Digby QC, it was not open for Mr Hoey, exercising reasonable care, simply to advise Pearl Hill to terminate the contracts in the manner in which he did. For essentially the same reasons as in respect of Mr Digby QC, but from the perspective of a solicitor receiving advice from senior counsel, Mr Hoey, and thereby Hoeys, was negligent.
657 Pearl Hill also contends that Hoeys failed to ensure that Pearl Hill was adequately warned that a consequence of termination of the Heads of Agreement was the loss of its proprietary claims. Hoeys contends that Pearl Hill was adequately warned and that Mr Mimmo was in fact aware of the consequences. The issue in respect of negligence is not whether Mr Mimmo was in fact aware of the consequences (which is relevant to causation) but rather whether Hoeys exercised reasonable care to ensure that he was aware of the consequences.
658 On 15 May 2009 Mr Hoey sent an email to Mr Digby QC, in which he said:
Thanks for that John. 2 further issues may also need consideration...determining whether there is merit in a summary judgement [sic] application and whether if we terminate HOA we can still seek specific performance of the sale contracts...
659 Mr Hoey received a responding email, in which Mr Digby QC said amongst other things:
Termination will preclude specific performance of the sales contracts. It is possible that Marina Cove has effectively terminated the HOA, although I think that this is unlikely.
660 Mr Hoey forwarded Mr Digby QC's email to Mr Mimmo without comment.
661 The exercise of reasonable care by Mr Hoey required him to explain specifically and directly to Mr Mimmo that, if Pearl Hill elected not to terminate the Heads of Agreement (on the premise, obviously, that it had not already been terminated by Marina Cove), it retained the ability (subject to any specific performance issues) to acquire the 33 lots at the discounted price set out in the Heads of Agreement and, conversely, if it terminated the Heads of Agreement it would lose that ability and would be relegated to pursuing potentially worthless purely monetary claims against Marina Cove.
662 Mr Hoey and Mr Digby QC were both lawyers with knowledge of the intricacies of contract law. Despite that knowledge, Mr Hoey himself was not sure whether termination of the Heads of Agreement would preclude specific performance. This uncertainty was what led him to seek Mr Digby QC's advice. Mr Digby QC was entitled to assume that Mr Hoey, as a lawyer practising in building and construction which has a heavy reliance on contract law, would understand his short response that termination would preclude specific performance of the Contracts of Sale.
663 Mr Mimmo was not a lawyer and Mr Hoey had no basis to believe that Mr Mimmo had any particular level of knowledge of contract law. The concept of termination of contract is a complex one, even for lawyers. The effect of termination of a contract under the common law is complex, has given rise to numerous cases over the years, and is far from intuitive. The concept of specific performance is also complex. What might be obvious to a lawyer is not obvious to a layperson.
664 Mr Hoey merely forwarded to Mr Mimmo the email chain comprising Mr Digby QC's email and Mr Hoey's initiating email to Mr Digby. Mr Hoey did not know whether Mr Mimmo read the email, if so the level of attention he paid to it, or what he understood from reading it if he did. Mr Hoey sent this email chain to Mr Mimmo shortly before he sent the earlier email chain in which Mr Digby QC had advised termination. Mr Hoey did not know to what extent Mr Mimmo put the two email chains together for the purpose of reading or understanding the first email chain that he received from Mr Hoey.
665 Given that Mr Hoey himself was uncertain whether termination would preclude specific performance, it certainly could not be regarded as intuitive for a layperson to naturally expect that this would be so. Nor could Mr Hoey expect that Mr Mimmo would work out that specific performance being precluded would destroy Pearl Hill's interest in purchasing the 33 lots arising out of the Heads of Agreement. Equity lawyers know of the relationship between specific performance of a contract for the purchase of land and an equitable interest in that land. A layperson cannot be expected to know that relationship.
666 Hoeys points to the email sent by Mr Hoey to Mr Digby QC and Mr Oliver later on 15 May 2009 saying:
Just spoken to Nino and told him we are sitting tight till next week so that we will be able to terminate on our default notice as well as their repudiation. He will after termination write to the various home owners (we will settle) advising that he is ready willing and able to be engaged direct to finish their homes...
667 Mr Hoey was unable in evidence to recall the conversation with Mr Mimmo to which he referred in that email. The conversation about finishing the homeowners' homes was apposite to the Construction Contract rather than the Heads of Agreement. Even in respect of the Construction Contract, Mr Mimmo's subsequent suggestion of an injunction to prevent Marina Cove engaging another builder to complete the homes should have demonstrated to Mr Hoey that Mr Mimmo did not properly understand the consequences of termination of the Construction Contract. The conversation between Mr Mimmo and Mr Hoey on 15 May to the extent narrated in the email did not demonstrate to Mr Hoey that Mr Mimmo understood the consequences of termination of the Heads of Agreement which it was Mr Hoey's duty to explain to him.
668 Hoeys points to the language of the concluding sentence of the draft termination letter sent to Mr Mimmo on 19 May 2009 which said, 'Take Notice therefore that Pearl Hill accepts your repudiation and the HOA is at an end'. This involves the complex legal concept of repudiation and the concept of the Heads of Agreement 'being at an end'. Given that Mr Mimmo was being sent the letter and it had been drafted by his solicitor and was to be settled by his senior counsel, Mr Hoey had no basis to believe that Mr Mimmo would carefully read and absorb the meaning of the letter unassisted. A layperson could not be expected to discern the consequences of termination from an agreement being described as 'at an end'. In fact, as summarised above, when an agreement is terminated, the rules are complex as to which rights and obligations are affected and which are not.
669 Hoeys points to the language in Mr Mimmo's letter to Marina Cove dated 26 November 2008 in which Mr Mimmo had said 'You are now leaving us with no option but to terminate the contract and sue for all damages'. For the reasons given below in relation to the issue of causation, this statement does not demonstrate an awareness by Mr Mimmo that termination of the Heads of Agreement would affect the purchase of the 33 lots. However, regardless of that question, Mr Hoey did not give evidence that he relied on the letter in determining that Mr Mimmo did not need to be given advice concerning the relevant effect of termination of the Heads of Agreement. It would not in any event have obviated the need for Mr Hoey to give specific advice on the consequences of termination.
670 Mr Hoey gave evidence, summarised above, that he had a conversation with Mr Mimmo and Mr Mimmo was aware of the consequences of termination and they also discussed repudiation. I have found above that there was no such conversation.
671 Mr Hoey also gave evidence, summarised above, that he was confident that he said to Mr Mimmo that, if you terminate the Heads of Agreement, you will not be able to proceed with enforcement of the Contracts of Sale. I have found above that there was no such conversation.
672 Hoeys failed to exercise reasonable care to explain to Mr Mimmo that, if Pearl Hill terminated the Heads of Agreement, it would lose the ability to acquire the 33 lots at the discounted price set out in the Heads of Agreement and would be relegated to pursuing potentially worthless monetary claims against Marina Cove. Hoeys was thereby negligent.
673 Hoeys' advice to terminate the Heads of Agreement, conveyance without qualification of Mr Digby QC's advice to terminate and failure to ensure that Pearl Hill understood the consequences of termination was negligent.
674 Pearl Hill's case against Mr Oliver stands on a quite different footing to its cases against Mr Digby QC and Hoeys.
675 Pearl Hill accepts that Mr Oliver gave no advice to terminate the Heads of Agreement. In broad terms, its case is that Mr Oliver failed to warn Pearl Hill that the advice by Mr Digby QC and Mr Hoey to terminate the Heads of Agreement was wrong or inadequate, in breach of his duty of care, and failed to ensure that Pearl Hill was adequately warned that a consequence of termination of the Heads of Agreement was the loss of its proprietary claims.
676 In Mr Oliver's evidence in chief, which was contained in his written statement, he addressed the chronological narrative of his involvement in the matter. Mr Oliver's narrative addressed events to a large extent by reference to contemporaneous documents.
677 Mr Oliver referred to his maintaining a table showing work on a particular matter, which he then used to render a memorandum of fees. His table in respect of the Pearl Hill/Marina Cove matter shows no work between 2 and 24 May 2009.
678 Mr Oliver referred to the emails passing between Mr Hoey and Mr Digby QC between 13 and 20 May 2009 in which Mr Oliver was a co-addressee or copy recipient. Mr Oliver did not send any emails over that period or have any conversations with Mr Hoey or Mr Digby QC. Mr Oliver said in his evidence in chief that, although he was aware during that week that there were communications passing between Mr Hoey and Mr Digby QC concerning the issue of termination of the contracts, he did not consider the substance of the emails, settle any documents or give any advice on the issue prior to termination. He said that it seemed to him that Mr Hoey and Mr Digby QC were attending to the issue without his involvement.
679 Mr Oliver said that on 21 or 22 May 2009 he gave some consideration to the issue of terminating the contracts. He said that he telephoned Mr Hoey and said to him that Pearl Hill could not get specific performance of the land contracts if the Heads of Agreement and Construction Contract were terminated.
680 During cross-examination, Mr Oliver said that at home he had remote access to his work emails in 2009. His general practice was that he looked at emails received during the course of or at the end of a day rather than leaving them until the following day. However, on occasions he may have left reading an email received on one day until the following day. His practice was to open an email and have a quick look to see whether it was something that he needed to read more fully immediately or it could be put to one side for the moment.
681 Mr Oliver in cross-examination said that he did not have a specific recollection of reading the individual emails passing between Mr Hoey and Mr Digby QC between 13 and 20 May 2009.
682 Mr Oliver said that, based on his practice and his diary, although he did not have a recollection of doing so, it was likely that he opened Mr Hoey's email sent on 13 May 2009 at 5.15 pm either on that day or on the following day. He said that reading the attached letter from Marina Cove terminating the contracts did not refresh his memory of becoming aware of that in mid-May 2009.
683 Mr Oliver accepted that it was likely that he opened the attachment to Mr Hoey's email sent on 14 May 2009 being a draft letter to Gadens concerning Marina Cove's asserted 'termination' of the Construction Contract.
684 Mr Oliver said that, based on his practice and his diary, although he did not have a recollection of doing so, it was likely that he opened Mr Digby QC's email sent just after midnight on 15 May 2009 some time on that morning before an unrelated conference that he had at 2:00pm on that day. He had no recollection of receiving or reading the email. He thought it was unlikely that he read the content of the email because he did not have a general recollection that it was Mr Digby QC (as opposed to Mr Hoey) who was proposing termination of the contracts.
685 Mr Oliver said that, based on his practice and his diary, although he did not have a specific recollection, it was likely that he opened Mr Digby QC's second email sent on 15 May 2009 at 11:37am some time in the afternoon of that day. He had no recollection of receiving or reading the email. He believed that he did not read the email referring to termination precluding specific performance of the Contracts of Sale at that time because it was not until 21 or 22 May 2009 that he telephoned Mr Hoey and told him the same thing without being aware that Mr Hoey had already been told this by Mr Digby QC.
686 Mr Oliver accepted in cross-examination that he knew that emails passing between Mr Hoey and Mr Digby QC were discussing the prospect of Pearl Hill terminating the Heads of Agreement and/or the Construction Contract.
687 Mr Oliver was asked whether he satisfied himself at the time that termination of either contract was an appropriate thing for Pearl Hill to do. He said that he had not considered it. He was asked whether he considered that there was any danger to or consequences for Pearl Hill in terminating either contract. He said that he did not consider the issue of termination of the contracts at all prior to their termination on 20 May 2009.
688 Mr Oliver accepted that he knew that advice was being considered and advice had been given with respect to termination of both contracts before it happened. However, he himself gave no consideration to it whatsoever.
689 It was put to Mr Oliver that the emails over that period were being copied to him for his advice as well. He said that he did not read them as seeking his advice. His impression was that this was an issue being dealt with between Mr Hoey and Mr Digby QC without his services being required.
690 Mr Oliver was asked whether he turned his mind to why he was being copied in on the emails. He said that emails were often received as copies without his being required to do anything.
691 It was put to Mr Oliver that during the period between 15 and 20 May 2009 he was aware that the lawyers (meaning Mr Digby QC and Mr Hoey) had been advising Pearl Hill that they should terminate the Construction Contract and the Heads of Agreement. Mr Oliver said initially that he was aware that termination was being contemplated and at some stage he became aware that the letter of termination had been sent but he could not be any more specific. However, he then accepted that he was aware between 15 and 20 May 2009 that advice had been given to Pearl Hill by Mr Digby QC and Mr Hoey to terminate both the Heads of Agreement and the Construction Contract.
692 It was put to Mr Oliver that at no stage did he seek to demur from that advice. He said that he did not consider the matter at all. It was put to him that he took no steps to consider the matter himself and the consequences that might follow as a result. He agreed. It was put to him that he gave no advice to do the contrary. He agreed. He said that he was satisfied that that was a matter that was being undertaken by Mr Digby QC and Mr Hoey.
693 Mr Oliver said that in general he was skimming the emails in May 2009 and he had a less than full comprehension of exactly what they were saying.
694 Mr Oliver said that he was prompted to telephone Mr Hoey on 21 or 22 May 2009 by opening one or more of the emails passing between Mr Hoey and Mr Digby QC containing the termination letters and he believed that he more closely read (rather than skimmed) the email or emails containing those letters as attachments.
695 The critical factual question is when Mr Oliver opened the emails that he received between 13 and 20 May 2009 and to what extent and when he read and understood them. This is made more difficult by the fact that Mr Oliver's recollection of the events was limited and because there are different degrees of reading and understanding written material.
696 At trial, there is typically a focus on specific events occurring in the life of a witness in greater depth and detail, and in a different context, to the focus given by the witness at the time of the events. Metaphorically, floodlights illuminate the general area and a spotlight focuses on a very specific matter. In the witness box, examination of events is typically undertaken with the benefit of hindsight and in the context of a better, broader and deeper overview of the context of the events in question. The aim in a courtroom is to obtain a level of clarity and certainty that often does not exist in real life. In real life, typically there are many things occurring in the life of a witness and the witness's attention and breadth and depth of perception or comprehension of matters is variable. What may be obvious in the courtroom with the wisdom of hindsight and the benefit of a comprehensive context may well not have been obvious or apparent to a witness at the time. It is necessary to take into account real life circumstances when evaluating a witness's contemporaneous perception or comprehension of matters.
697 I have borne this in mind in evaluating Mr Oliver's conduct in 2009. While I have also borne it in mind in relation to Mr Digby QC and Mr Hoey when considering their conduct in 2009, they were in a different position to Mr Oliver. They each gave affirmative and unequivocal advice that the Heads of Agreement should be terminated. It was their obligation to give sufficient attention to the matter to ensure that their advice was soundly based.
698 Based on Mr Oliver's evidence about his practice and his diary, I find that he had opened the email sent to him by Mr Hoey on 13 May 2009 at 5:15pm by the following day. I find that he skimmed the attached Marina Cove letter to the extent of becoming aware that Marina Cove was purporting to terminate the Heads of Agreement and take remaining work out of Pearl Hill's hands under the Construction Contract, although he does not now recall this. This finding is reinforced by Mr Oliver's acceptance in his evidence that it is likely that he opened the attachment to Mr Hoey's email sent on 14 May 2009 being a draft letter to Gadens concerning the asserted purported terminations by Marina Cove.
699 Mr Oliver was not asked about Mr Hoey's email sent on 14 May 2009 at 3:55pm attaching letters from Gadens, in which Mr Hoey raised the concept of terminating the contracts. Mr Oliver also was not asked about Mr Hoey's email sent on 19 May 2009 at 10:01am, in which Mr Hoey said that Pearl Hill in his view must accept Marina Cove's conduct as repudiatory of both contracts. However, Mr Oliver said that his recollection was that it was Mr Hoey, rather than Mr Digby QC, who initiated the concept of terminating the contracts and that is consistent with these two emails. I find on the balance of probabilities that Mr Oliver skimmed these emails on those days.
700 Based on Mr Oliver's evidence about his practice and his diary, I find that he opened Mr Digby QC's two emails sent on 15 May 2009 on that day. However, based on his evidence and his telephone call to Mr Hoey on 21 or 22 May 2009, I find that he only skimmed the emails and did not appreciate the extent to which Mr Digby QC was advising that Pearl Hill should terminate both contracts. If he had appreciated that extent, he would have telephoned Mr Hoey at that point rather than the following week.
701 Based on Mr Oliver's evidence, I find that he only skimmed the emails passing between Mr Hoey and Mr Digby QC on 19 and 20 May 2009 to the extent of becoming aware that the communications had progressed and that he did not give any consideration to the consequences until at least 21 May 2009.
702 Pearl Hill's primary case as opened in relation to advice to terminate the Heads of Agreement was that Mr Oliver acquiesced in, adopted or approved Mr Digby QC's advice to terminate the Heads of Agreement (the acquiescence case); and in the alternative he failed to warn that the advice by Mr Digby QC and Mr Hoey to terminate was wrong or inadequate in breach of his duty of care (the failure to warn case). However, during closing address, Pearl Hill abandoned the acquiescence case and advanced only the failure to warn case.
703 Pearl Hill's secondary case is that Mr Oliver failed to warn that termination of the Heads of Agreement would defeat specific performance. The primary and secondary cases are interrelated, particularly as they ultimately both involve an alleged failure to warn.
704 I first consider Pearl Hill's case that Mr Oliver failed to warn that the advice to terminate the Heads of Agreement was wrong or inadequate holistically before considering specific propositions advanced by Pearl Hill as part of its case.
705 Mr Oliver's conduct needs to be assessed having regard to the nature of email traffic as a means of communication. Emails are apt to provide quick and short information from one person to another. They are essentially one dimensional. They are not well-adapted to conveying lengthy or complex information. Email communications can be contrasted with a conference, which involves a dialogue between the parties and is adapted to addressing lengthy or complex issues with multidimensional facets. Email communications can also be contrasted with the provision to a barrister of a written brief with documents seeking advice and a written memorandum of advice from the barrister.
706 Another aspect of email traffic is its volume. Mr Oliver gave evidence that he received multiple emails each day and skimmed them to assess whether he needed to read and understand them or take action as a result of receiving them or whether that could be deferred. A barrister might glance at an email and obtain a very superficial and limited understanding of its content, meaning, significance and importance or might read it very carefully to obtain a full understanding of those matters. Mr Oliver gave evidence that in general he skimmed the emails he received between 13 and 20 May 2009 and obtained only a limited understanding of those matters. He was not asked by Mr Hoey (or Mr Digby QC) to give close attention to any of the emails that he received over this period or the subject matter. Mr Oliver did not display any lack of reasonable care by dealing with the emails in this manner given the context in which he received them and the lack of any request to him to devote close attention to them.
707 Mr Oliver's conduct needs to be assessed in the context of what he knew and did not know over the relevant week. Between 13 and 20 May 2009 Mr Oliver did not send any emails to Mr Digby QC or Mr Hoey, attend any conferences with either of them, have any telephone conversations with either of them or reply to any of the emails. Mr Oliver did not know what other communications (by telephone or in person) were passing between Mr Hoey and Mr Digby QC. He did not know what involvement Mr Mimmo had in relation to the matter, what communications were passing between Mr Hoey and Mr Mimmo and what conferences, if any, Mr Mimmo was attending with Mr Hoey or Mr Hoey and Mr Digby QC.
708 Mr Oliver gave evidence that the strategy during his involvement in March and April 2009 had been to enforce the Heads of Agreement to acquire the 33 lots at what Mr Oliver understood was a substantial discount in circumstances in which Pearl Hill believed that Marina Cove was in financial difficulties. He gave evidence that during his involvement there was no suggestion of Pearl Hill terminating the Heads of Agreement. A reasonable barrister in Mr Oliver's position would have expected that that there would be substantial interactive communications involving Mr Mimmo, Mr Hoey and Mr Digby QC before a decision was made to terminate the Heads of Agreement, being communications to which Mr Oliver was simply not privy. A reasonable barrister in Mr Oliver's position would have expected that the advantages, disadvantages, consequences and risks of termination or non-termination of the Heads of Agreement would be addressed in a dialogue or dialogues involving Mr Mimmo, Mr Hoey and Mr Digby QC.
709 Mr Oliver accepted in his evidence that he knew that advice was being contemplated to be given to Pearl Hill to terminate the Heads of Agreement. I find that he knew this by 14 May 2009 as a result of skimming or reading Mr Hoey's emails sent on that date.
710 I am not satisfied that Mr Oliver understood as a result of receiving Mr Digby QC's two emails sent on 15 May 2009 that Mr Digby QC advised Pearl Hill on that date to terminate the Heads of Agreement. The effect of his evidence, which I accept, is that he knew that Mr Hoey was proposing termination but did not know that Mr Digby QC was advising termination until he read the letters settled by Mr Digby QC to terminate the contracts. In addition, an understanding about Mr Digby QC's advice on 15 May would be inconsistent with his state of mind and his subsequent telephone call to Mr Hoey on 21 or 22 May 2009 for the reasons he explained in his evidence referred to above.
711 Mr Oliver accepted that he knew when he read the letters settled by Mr Digby QC that Mr Digby QC was giving or had given advice to terminate the Heads of Agreement but he did not know precisely when he read them. Given that he did not telephone Mr Hoey until 21 or 22 May 2009, it is likely that Mr Oliver did not understand that Mr Digby QC had given advice to terminate the Heads of Agreement until the letters of termination had been sent.
712 Mr Oliver accepted in cross-examination that he was aware between 15 and 20 May 2009 that advice had been given by someone to terminate the Heads of Agreement and the Construction Contract and it was put to him that that advice could only have been given by Mr Hoey or Mr Digby QC. I find that Mr Oliver knew or believed by 15 May 2009 that Mr Hoey was giving advice to terminate the Heads of Agreement but this does not extend to an awareness that Mr Digby QC was giving that advice at that stage.
713 Given that Mr Oliver was only skimming emails, he cannot be expected to have had the depth of knowledge or understanding of the matter that he would have had if he had participated in a conference during which termination was discussed or provided written advice on termination. His knowledge and understanding would have been comparatively superficial.
714 Considered holistically, having regard to the matters above, the exercise of reasonable care by Mr Oliver did not require him to warn Pearl Hill (via Mr Hoey or otherwise) that advice by Mr Hoey or Mr Digby QC to terminate the Heads of Agreement was wrong or inadequate.
715 Pearl Hill contends that Mr Oliver was aware of the emails passing between Mr Hoey and Mr Digby QC, in which he was copied, between 13 and 20 May 2009. Mr Oliver had a superficial awareness from skimming the emails in the course of his work on other matters in which he was briefed, but he did not have anything approaching a full awareness of the emails and he did not have any real perspective for assessing them.
716 Pearl Hill contends that a barrister in Mr Oliver's position exercising reasonable care would have understood that terminating the Heads of Agreement was contrary to the strategy that had until then been employed. I accept that proposition as far as it goes. Mr Oliver in his evidence accepted that the strategy in March and April 2009 was to enforce the Heads of Agreement.
717 Pearl Hill contends that a barrister in Mr Oliver's position exercising reasonable care would have understood that there was no benefit to be derived by Pearl Hill by terminating the Heads of Agreement. I cannot accept that proposition in the stark way in which it is put. For the reasons given above, there were potential advantages in termination, albeit of marginal value and there greater potential disadvantages.
718 Pearl Hill contends that Mr Oliver did not know whether anyone had warned Pearl Hill of the matters referred to in the previous two paragraphs. I accept that proposition but Mr Oliver was entitled to expect that these matters had been addressed by Mr Digby QC and Mr Hoey.
719 Pearl Hill contends that Mr Oliver knew that Pearl Hill believed that it would be unable to recover on its claims except by enforcing its purchase of the lots from Marina Cove. This proposition may be accepted for present purposes.
720 Pearl Hill contends that in these circumstances Mr Oliver had a duty to draw attention to the facts that terminating the Heads of Agreement was contrary to the strategy that had until then been employed and there was no benefit to be derived by Pearl Hill by so acting. I cannot accept that contention. Mr Oliver was entitled to expect that these matters had been addressed by Mr Digby QC and Mr Hoey. Given Mr Oliver's lack of any active participation in the communications coupled with his limited understanding of those communications coupled with his complete lack of knowledge of other communications between Mr Mimmo, Mr Hoey and Mr Digby QC, the discharge of the duty of reasonable care did not require Mr Oliver to warn Pearl Hill about the advice it was given by Mr Hoey and Mr Digby QC to terminate the Heads of Agreement.
721 Pearl Hill's secondary case is that Mr Oliver failed to warn that termination of the Heads of Agreement would defeat specific performance.
722 Mr Oliver was not privy to the communications between Mr Hoey and Mr Mimmo concerning the consequences of termination of the Heads of Agreement including its effect upon Pearl Hill obtaining performance of the purchase of the 33 lots under the Heads of Agreement. It was Hoeys' duty and responsibility to warn Pearl Hill about the adverse consequences of termination. Mr Oliver was entitled to expect that Hoeys would discharge that duty. Given that his involvement in the communications over the relevant period was entirely passive, the discharge of his duty of reasonable care did not require Mr Oliver to inquire into the advice that Hoeys was giving to Pearl Hill.
723 Pearl Hill has failed to establish that Mr Oliver was negligent or breached his duty of care. The action must be dismissed as against Mr Oliver.
724 Pearl Hill has established that Hoeys and Mr Digby QC were negligent. Pearl Hill has failed to establish that Mr Oliver was negligent.
725 In the balance of this judgment, I refer for convenience to Hoeys and Mr Digby QC as the defendants. However, I take into account evidence adduced by Mr Oliver and submissions made by Mr Oliver that were adopted by Hoeys and Mr Digby QC.
726 Mr Digby QC and Hoeys plead that they rely on the principle of advocate's immunity confirmed by the High Court in D'Orta-Ekenaike v Victoria Legal Aid[51] and Attwells v Jackson Lalic Lawyers Pty Ltd[52] because their allegedly negligent conduct was intimately connected with work done in court or was work done out of Court which led to a decision affecting the conduct of the case in court.[53]
727 In Attwells v Jackson Lalic Lawyers Pty Ltd[54] French CJ, Kiefel, Bell, Gageler and Keane JJ referred to the immunity as:
the advocate's immunity from suit under the common law of Australia in respect of his or her participation in the judicial process ...[55]
728 The fundamental rationale for advocate's immunity is the principle of finality of litigation: the rationale is to avoid relitigation in a collateral proceeding of issues determined in the principal proceeding.
729 In D'Orta-Ekenaike v Victoria Legal Aid[56] Gleeson CJ, Gummow, Hayne and Heydon JJ dismissed other matters argued to justify advocate's immunity and said:
In Giannarelli, Mason CJ said that "the barrister's immunity, if it is to be sustained, must rest on considerations of public policy"... Of the various factors advanced to justify the immunity, "the adverse consequences for the administration of justice which would flow from the re‑litigation in collateral proceedings for negligence of issues determined in the principal proceedings" (emphasis added) was held to be determinative.
...
A central and pervading tenet of the judicial system is that controversies, once resolved, are not to be reopened except in a few, narrowly defined, circumstances.
...
The "unique and essential function" of the judicial branch is the quelling of controversies by the ascertainment of the facts and the application of the law. Once a controversy has been quelled, it is not to be re-litigated. Yet re-litigation of the controversy would be an inevitable and essential step in demonstrating that an advocate's negligence in the conduct of litigation had caused damage to the client.
...
... the central justification for the advocate's immunity is the principle that controversies, once resolved, are not to be reopened except in a few narrowly defined circumstances. This is a fundamental and pervading tenet of the judicial system, reflecting the role played by the judicial process in the government of society. If an exception to that tenet were to be created by abolishing that immunity, a peculiar type of re-litigation would arise. There would be re-litigation of a controversy (already determined) as a result of what had happened during, or in preparation for, the hearing that had been designed to quell that controversy.[57]
730 In Attwells French CJ, Kiefel, Bell, Gageler and Keane JJ quoted from and approved passages from the reasons for judgment of the plurality in D'Orta-Ekenaike (including some of the passages extracted in the previous paragraph) and added:
To speak of the exercise of judicial power to quell controversies as an aspect of government is to make it clear that the immunity is not justified by a general concern that disputes should be brought to an end, but by the specific concern that once a controversy has been finally resolved by the exercise of the judicial power of the State, the controversy should not be reopened by a collateral attack which seeks to demonstrate that that judicial determination was wrong.
Their Honours explained that, where a final order has been made resolving litigation, a claim that "but for the advocate's conduct, there would have been a different result" is objectionable as a matter of public policy. That is because the consequences of the decision about which the claimant wishes to complain are "consequences flowing from ... a lawful result ... lawfully reached." The advocate's immunity is, therefore, justified as an aspect of the protection of the public interest in the finality and certainty of judicial decisions by precluding a contention that the decisions were not reached lawfully.
The foregoing is a sufficient basis to reject the appellants' invitation to reconsider the decisions in D'Orta and Giannarelli. At the same time, however, this review of the reasons of the plurality in D'Orta, and the identification of the public policy on which the immunity is based, serve to show that the scope of the immunity for which D'Orta and Giannarelli stand is confined to conduct of the advocate which contributes to a judicial determination.[58]
731 The rationale informs, and indeed dictates, the criterion for the existence of advocate's immunity.
732 In Attwells French CJ, Kiefel, Bell, Gageler and Keane JJ said, in addition to the passages extracted above:
... the public policy, protective of finality, which justifies the immunity at the same time limits its scope so that its protection can only be invoked where the advocate's work has contributed to the judicial determination of the litigation.
...
... the decision in D'Orta states a rule which is consistent with, and limited by, a rationale which reflects the strong value attached to the certainty and finality of the resolution of disputes by the judicial organ of the State.
...
To accept that the immunity extends to advice which leads to a settlement of litigation is to decouple the immunity from the protection of the exercise of judicial power against collateral attack.[59]
733 The criterion for the existence of advocate's immunity is whether the impugned work of the advocate is:
(b) work out of court that is intimately connected with and affects the conduct of a case in court,
being conduct that generates or affects the resolution of the case by the court.
734 The reason for the extension of the immunity to conduct out of court is that a bright line cannot be drawn at the courtroom door. However, in the case of work out of court, the intimate connection must be a functional, as opposed to a historical or other, connection.
735 In D'Orta-Ekenaike Gleeson CJ, Gummow, Hayne and Heydon JJ said:
The second aspect of the decision in Giannarelli which is now important is the conclusion reached about the common law. The conclusion that, at common law, an advocate cannot be sued by his or her client for negligence in the conduct of a case, or in work out of court which is intimately connected with the conduct of a case in court, was consistent with the earlier decisions of the House of Lords...
... there is no reason to depart from the test described in Giannarelli as work done in court or "work done out of court which leads to a decision affecting the conduct of the case in court" or, as the latter class of case was described in the Explanatory Memorandum for the Bill that became the Practice Act, "work intimately connected with" work in a court. (We do not consider the two statements of the test differ in any significant way.)
As Mason CJ demonstrated in Giannarelli, "it would be artificial in the extreme to draw the line at the courtroom door". And no other geographical line can be drawn that would not encounter the same difficulties. The criterion adopted in Giannarelli accords with the purpose of the immunity. It describes the acts or omissions to which immunity attaches by reference to the conduct of the case. And it is the conduct of the case that generates the result which should not be impugned.[60]
736 In Attwells French CJ, Kiefel, Bell, Gageler and Keane JJ said:
The authoritative test for the application of the immunity stated in D'Orta and Giannarelli is not satisfied where the work of the advocate leads to an agreement between parties to litigation to settle their dispute. No doubt an advice to cease litigating which leads to a settlement is connected in a general sense to the litigation which is compromised by the agreement. But the intimate connection required to attract the immunity is a functional connection between the advocate's work and the judge's decision. As Mason CJ said in Giannarelli, the required connection is between the work in question and the manner in which the case is conducted in court. Both D'Orta and Giannarelli were concerned with claims which impugned a judicial determination to which the allegedly negligent work of the advocate contributed. As will be seen from a closer consideration of the reasoning in D'Orta, the public policy, protective of finality, which justifies the immunity at the same time limits its scope so that its protection can only be invoked where the advocate's work has contributed to the judicial determination of the litigation.
...
In short, in order to attract the immunity, advice given out of court must affect the conduct of the case in court and the resolution of the case by that court.
...
... the scope of the immunity for which D'Orta and Giannarelli stand is confined to conduct of the advocate which contributes to a judicial determination.
...
...the "intimate connection" between the advocate's work and "the conduct of the case in court" must be such that the work affects the way the case is to be conducted so as to affect its outcome by judicial decision. The notion of an "intimate connection" between the work the subject of the claim by the disappointed client and the conduct of the case does not encompass any plausible historical connection between the advocate's work and the client's loss; rather, it is concerned only with work by the advocate that bears upon the judge's determination of the case.[61]
737 Although the plurality in D'Orta-Ekenaike referred to the reference by Mason CJ in Giannarelli to 'work done out of court which leads to a decision affecting the conduct of the case in court', the plurality made it clear that there must be an intimate connection between the out of court conduct and the conduct of the case in court. The plurality in Attwells adopted the intimate connection requirement and made two further matters plain. First, the connection must be a functional connection and not, for example, a historical connection. Secondly, the conduct of the case (in or out of court) must 'bear upon the judge's determination of the case'.
738 In Attwells the High Court held that negligent advice to settle a case did not meet the criterion for advocate's immunity and this was so even when orders were made by the court by consent for judgment in the case for $1.75 million.
739 A decision to terminate or affirm a contract is not litigious in nature any more than a decision to enter or not enter into a contract in the first place. Advice by a barrister whether to terminate or affirm the contract or otherwise relating to such a decision is not inherently related to a case in court.
740 In the present case, there happened to be litigation on foot by Pearl Hill against Marina Cove when Mr Digby QC gave the impugned advice in May 2009. This was mere happenstance. The subject matter and nature of the advice would have been the same if it had been given in April 2009 before the HOA action was instituted.
741 Mr Digby QC contends that his advice was 'intimately connected' to the judicial determination of the HOA action because it had a significant effect on the nature and scope of the dispute, removing the basis for the specific performance claim and removing an impediment to a potential quantum meruit claim. The mere fact that advice may affect future or present litigation between parties is insufficient to comprise the 'intimate' and 'functional' connection required to give rise to advocate's immunity. The only connection in such cases, and this case, is a connection that the High Court described as 'historical'. The impugned advice merely has an historical effect on present or future litigation, as was the case in Attwells.
742 Mr Digby QC contends that, in pursuing this action, Pearl Hill necessarily contends that the decision of Cavanough J in the caveat proceeding was wrongly decided. In the caveat proceeding, as Mr Digby QC observes, Cavanough J found, amongst other things, that there was no serious question to be tried as to whether Pearl Hill had a proprietary interest in the 33 lots because the Heads of Agreement was terminated on either view in May 2009. However, Pearl Hill does not in this action challenge the decision of Cavanough J in any way. Pearl Hill accepts that that decision was manifestly correct precisely because the Heads of Agreement had been terminated on any view by 20 May 2009 as a result of the allegedly negligent advice by Mr Digby QC.
743 The advice given by Mr Digby QC in May 2009 in relation to termination of the Heads of Agreement is not the subject of advocate's immunity.
744 Advocate's immunity applies to conduct of solicitors acting as advocates in the same manner as it applies to conduct of barristers acting as advocates. As Mason CJ said in Giannarelli v Wraith,[62] 'It is the function performed, not the label attached, which gives rise to the limited immunity'.
745 There is no material distinction between the conduct of Hoeys and the conduct of Mr Digby QC insofar as advocate's immunity is concerned. The advice given by Hoeys in May 2009 in relation to termination of the Heads of Agreement is not the subject of advocate's immunity.
746 Pearl Hill's case is that it relied on the negligent advice by Mr Digby QC and Hoeys to terminate the Heads of Agreement, that it would not otherwise have done so, and the negligent advice was a cause of the termination. This is the first stage of Pearl Hill's case on causation of loss.
747 The defendants take issue with Pearl Hill on this first stage. They contend that Mr Mimmo was well aware on 20 May 2009 that sending the termination letters would deprive Pearl Hill of such rights as it may have had to pursue purchase of the 33 lots under the Heads of Agreement. They contend that Mr Mimmo would have sent the letters regardless of whether he received the negligent advice. The onus of proof on these issues of course lies on Pearl Hill.
748 The second stage of Pearl Hill's causation case is that the termination of the Heads of Agreement caused the loss of the opportunity to complete the purchase of the 33 lots for $15 million (plus GST) pursuant to the Heads of Agreement. Pearl Hill's case (at least as formulated in closing address)[63] is that this opportunity would have been realised by finalisation of the HOA action, either by judicial determination or by resolution of the action.
749 As to the first limb of judicial determination, Pearl Hill concedes that the prospects of a judicial determination by 4 August 2009, when the Commonwealth Bank appointed receivers to the assets of Marina Cove, would have been negligible and the prospects of a favourable judicial determination of the action after the appointment of receivers would have been negligible. Pearl Hill therefore accepts that the value of the loss of opportunity under this limb is so insignificant as not to warrant an assessment.
750 As to the second limb of resolution, Pearl Hill contends that the prospects and value of resolution of the action before 4 August 2009 were substantial. Pearl Hill contends that the termination of the Heads of Agreement therefore caused the loss of a valuable opportunity to complete the purchase of 33 lots pursuant to the Heads of Agreement.
751 The defendants contend that Pearl Hill pleaded only loss of an opportunity to obtain completion of the purchase of the 33 lots by judicial determination and not by entering into a fresh agreement with Marina Cove (as the defendants characterise Pearl Hill's case) or resolution of the HOA action (as Pearl Hill characterises its case) and it is not open to Pearl Hill to rely on the latter. The defendants contend in any event that Pearl Hill has not established that termination of the Heads of Agreement caused the loss of a valuable opportunity via entering into a fresh agreement or resolution of the HOA action.
752 Sections 51 and 52 of the Wrongs Act 1958 (Vic) (the Wrongs Act) provide:
51 General principles
(1) A determination that negligence caused particular harm comprises the following elements -
(a) that the negligence was a necessary condition of the occurrence of the harm (factual causation); and
(b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused (scope of liability).
(2) In determining in an appropriate case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be taken to establish factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.
(3) If it is relevant to the determination of factual causation to determine what the person who suffered harm (the injured person) would have done if the negligent person had not been negligent, the matter is to be determined subjectively in the light of all relevant circumstances.
(4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.
52 Burden of proof
In determining liability for negligence, the plaintiff always bears the burden of proving, on the balance of probabilities, any fact relevant to the issue of causation.
753 Ordinarily, a plaintiff will be required to prove both 'factual causation' and 'scope of liability' in order to establish causation. Subsection 51(2) contemplates that causation might be established without proving factual causation, but it may be expected that that would only be in exceptional circumstances (which are not applicable in the present case). I therefore refer in the ordinary case to the factual causation limb and the scope of liability limb of causation.
754 When the loss allegedly suffered by a plaintiff is the loss of a valuable opportunity, the plaintiff must establish causation of that loss by proving on the balance of probabilities (in accordance with ss 51 and 52 of the Wrongs Act) that the wrongful conduct by the defendant caused the loss of a valuable opportunity. The assessment of the value of that lost opportunity is then undertaken by reference to the value of the opportunity if it had materialised and the level of probability that it would have materialised (involving, depending on the case, either two assessments or a single integrated assessment). The latter is not regarded as forming part of the assessment of causation of loss but rather as part of the assessment of quantification of loss. Nevertheless, drawing the line between causation and value can be difficult in practice.
755 In Malec v JC Hutton Pty Ltd,[64] Deane, Gaudron and McHugh JJ (with whom Brennan and Dawson JJ relevantly agreed) said:
When liability has been established and a common law court has to assess damages, its approach to events that allegedly would have occurred, but cannot now occur, or that allegedly might occur, is different from its approach to events which allegedly have occurred. A common law court determines on the balance of probabilities whether an event has occurred. If the probability of the event having occurred is greater than it not having occurred, the occurrence of the event is treated as certain; if the probability of it having occurred is less than it not having occurred, it is treated as not having occurred. Hence, in respect of events which have or have not occurred, damages are assessed on an all or nothing approach. But in the case of an event which it is alleged would or would not have occurred, or might or might not yet occur, the approach of the court is different. The future may be predicted and the hypothetical may be conjectured. But questions as to the future or hypothetical effect of physical injury or degeneration are not commonly susceptible of scientific demonstration or proof. If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high - 99.9 per cent - or very low - 0.1 per cent. But unless the chance is so low as to be regarded as speculative - say less than 1 per cent - or so high as to be practically certain - say over 99 per cent - the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring. Thus, the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability.[65]
756 In Malec the cause of action was negligence, it being in tort. However, the principle formulated by the High Court was expressed as applying generally to common law causes of action. This was confirmed in Sellars v Adelaide Petroleum NL.[66]
757 In Sellars v Adelaide Petroleum NL[67] Mason CJ, Dawson, Toohey and Gaudron JJ said:
Neither in logic nor in the nature of things is there any reason for confining the approach taken in Malec concerning the proof of future possibilities and past hypothetical situations to the assessment of damages for personal injuries. The reasons which commended the adoption of that approach in assessments of that kind apply with equal force to the assessment of damages for loss of a commercial opportunity, as the judgments in Amann acknowledge.
...
... we consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s.52(1), should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued. The principle recognized in Malec was based on a consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts. Once that is accepted, there is no secure foundation for confining the principle to cases of any particular kind.
On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.
The conclusion which we have reached on this question finds support in other considerations. The approach results in fair compensation whereas the all or nothing outcome produced by the civil standard of proof would result in the vast majority of cases in over-compensation or under-compensation to an applicant who has been deprived of a commercial opportunity. Furthermore, it is an approach which conforms to the long-standing practice of taking into account contingencies in the assessment of damages.[68]
758 The most recent decision of the High Court concerning loss of opportunity is Berry v CCL Secure Pty Ltd.[69] Bell, Keane and Nettle JJ affirmed the approach articulated in Sellars in the following terms:
By parity of reasoning with Malec and Amann Aviation, in Sellars it was held that, where a claimant established on the balance of probabilities that misleading or deceptive conduct contrary to s 52 of the TPA caused the claimant the loss of a commercial opportunity of some value (not being a negligible value), the value of that lost opportunity was to be ascertained by reference to hypotheses and possibilities which, though they were speculative and therefore not capable of proof on the balance of probabilities, could be evaluated as a matter of informed estimation.[70]
759 The dichotomy articulated in Malec and Sellars applies equally when causation is governed by the Wrongs Act as when it is governed by the common law. In Masters Home Improvement Pty Ltd v North East Solution Pty Ltd[71] Santamaria, Ferguson and Kaye JJA said:
In considering damages for loss of a commercial opportunity, the court asks first whether there was a commercial opportunity of some value (which is more than speculative or negligible); that is, was there a chance? Secondly, the court looks to whether that opportunity has been lost; that is, would the plaintiff have pursued the opportunity? The third step is to consider what amount should be awarded having regard to the prospects of success if the opportunity had been pursued. In taking this third step, the courts' task is to apply a discount which reflects the prospects of success. This is sometimes referred to as a Sellars discount.[72]
760 The word 'probability' is ambiguous in legal terminology. Sometimes it bears its ordinary meaning of referring to the probability of the occurrence of an event, however high or low. Sometimes it means more likely than not, that is that the level of probability exceeds 50%. Given this ambiguity, I refer to causation being assessed in a binary manner by reference to the balance of probabilities and the value of a loss of opportunity being assessed in an analogue manner by reference to the degree of probability (which may range from very low (but not negligible) to very high (but not practically certain).
761 Although the conceptual distinction between the fact and value of loss is clear, in particular cases there are often arguments whether a particular contingency falls on one side of the line or the other. This applies in the present case.
762 The defendants contend that, if and to the extent that a hypothetical event depends on the decision or action of the plaintiff, the occurrence of the event forms part of causation of loss, rather than assessment of value of loss, and must be proved on the balance of probabilities. If a hypothetical event depends on the decision or action of a third party (or an objective fact), the prospect of the occurrence of the event forms part of the assessment of the value of the loss, to be assessed based on the degree of probability of its occurrence. Pearl Hill takes issue with the first of these contentions. To avoid repetition, I refer in this context to 'conduct' by a plaintiff or third party as encompassing a decision as well as action or inaction.
763 In Sellars v Adelaide Petroleum NL,[73] before Mason CJ, Dawson, Toohey and Gaudron JJ formulated the distinction between the fact and value of loss extracted at [757] above, their Honours considered Sykes v Midland Bank Executor & Trustee Co Ltd[74] and Gates v City Mutual Life Assurance Society Ltd,[75] in each of which the plaintiffs failed to prove that they would otherwise have pursued the lost opportunity, and Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd,[76] in which the plaintiff proved that it would otherwise have pursued the lost opportunity. Their Honours then said:
It may be that Sykes, Gates and Norwest are to be treated as cases which turn primarily on the issue of causation which is ordinarily governed by the general civil standard of proof. The distinction between proof of causation and damages was emphasized in Hotson v East Berkshire Area Health Authority. There Lord Ackner stated that the first issue that fell to be determined was that of causation. This was to be determined on the balance of probabilities. Once liability was established, the assessment of the plaintiff's loss could proceed, taking into account any reductions arising from the uncertainty of future events. When the issue of causation turns on what the plaintiff would have done, there is no particular reason for departing from proof on the balance of probabilities notwithstanding that the question is hypothetical.[77]
764 When this passage is read with the later formulation of the distinction between the fact and value of loss extracted at [757] above, it is apparent that, in referring to what the plaintiff would have done, their Honours were referring to the requirement articulated in that later formulation that, absent the defendant's breach, the plaintiff would have taken the opportunity that was lost by reason of that breach. The statement in the last sentence extracted at [757] above is confined to the case when the issue of causation turns on the plaintiff's hypothetical conduct, not when the issue of quantum of damages turns on the plaintiff's hypothetical conduct. The High Court was not stating an absolute principle that, at whatever stage and in whatever manner the question arises, if it turns on the plaintiff's hypothetical conduct, it must be proved on the balance of probabilities.
765 It is necessary first to identify the valuable opportunity that the plaintiff has lost by reason of the defendant's breach. Invariably this will require the plaintiff to prove on the balance of probabilities that, as a result of the defendant's breach, the plaintiff did not or could not take that opportunity and otherwise would have taken it. Thus, the issue of causation will turn on what the plaintiff would have done. However, if this is established, and the court has proceeded to the stage of assessing the value of the lost opportunity, the position is different. At that stage, the mere fact that the assessment may turn to some degree on the hypothetical conduct of the plaintiff in a specific respect does not necessarily entail that the plaintiff must prove on the balance of probabilities that the plaintiff would have so acted.
766 In any particular case, there is likely to be a close interrelationship between the definition of the lost valuable opportunity and the question whether the plaintiff would have acted in a particular way in relation to it. As a rule of thumb, if the question is how the plaintiff would have acted, ordinarily it may be expected that this will form part of the definition of the lost valuable opportunity and must be proved on the balance of probabilities.
767 There will be cases in which the degree of probability that the valuable opportunity would have been realised depends on an assessment of the combined conduct of the plaintiff and a third party. In those cases, as a rule of thumb, ordinarily it may be expected that this will form part of the assessment of quantum of loss rather than determination of the existence of loss and will be assessed by reference to the degree of probability.
768 The defendants refer to 11 decisions of intermediate appellate courts in Australia in support of their contention that it is an absolute principle that all hypothetical conduct of the plaintiff forms part of the fact of loss and must be proved on the balance of probabilities.[78] In three of those cases, the intermediate court of appeal quoted the last sentence of the passage in Sellars extracted at [755] above.[79] In all 11 cases, the factual issue as to the hypothetical conduct of the plaintiff related to the question whether the plaintiff would have taken the lost valuable opportunity but for the defendant's breach.[80] Those cases do not stand as authority for the absolute proposition advanced by the defendants.
769 On the other hand, Pearl Hill does not sufficiently recognise that the fact that a contingency depends on the plaintiff's conduct is to be taken into account when formulating the lost opportunity. Nor does Pearl Hill sufficiently recognise the rule of thumb referred to above that, if the question is how the plaintiff would have acted, ordinarily it may be expected that this will form part of the definition of the lost valuable opportunity and must be proved on the balance of probabilities.
770 I address whether the relevant hypothetical events are to be assessed on the balance of probabilities or by reference to degree of probability as they arise in context below.[81]
771 It is common ground that Pearl Hill must prove on the balance of probabilities that the negligence of the defendants caused it to terminate the Heads of Agreement on 20 May 2009.
772 This gives rise to a specific factual issue and a more general factual issue of which the specific issue might be regarded as a sub-issue. The specific factual issue is whether Mr Mimmo was aware on 20 May 2009 that a consequence of sending the letters was that it would deprive Pearl Hill of such rights as it may have had to purchase the 33 lots under the Heads of Agreement. The more general factual issue is whether Mr Mimmo would not have sent the letters if he had not received the negligent advice.
773 The defendants contend that Mr Mimmo was aware that terminating the Heads of Agreement would prevent Pearl Hill from seeking specific performance of the sale of the 33 lots. If that is so, although not determinative in itself of the more general factual issue, it would be a very important factor in determining that factual issue. The onus of proof lies on Pearl Hill in relation to both factual issues.
774 Mr Mimmo gave evidence that he was not aware that terminating the Heads of Agreement would prevent Pearl Hill from proceeding with the purchase of the 33 lots at the discounted purchase price under the Heads of Agreement. After taking into account all of the evidence relevant to Mr Mimmo's awareness, I accept his evidence that he was not aware of this consequence.
775 The objective documentary evidence shows that Mr Mimmo entered into the Heads of Agreement because he considered that purchasing the 33 lots at a discounted price was the only practical means of obtaining payment of Pearl Hill's claims against Marina Cove compromised by the Heads of Agreement. He had instructed Hoeys to institute a proceeding in this Court seeking specific performance to compel Marina Cove to proceed with the sale of the 33 lots at the discounted price. Before 13 May 2009 he had not received any advice from his legal advisers that he should desist, or consider desisting, from this course and instead pursue purely monetary claims against a defendant that he believed did not have the means to pay.
776 From the perspective of Mr Mimmo, if the action he was advised to take would have the result of an about face - reversing course and reverting to the position before October 2008 - it would be expected that this would be discussed in detail at a conference, the alternatives explained to him, and the advantages and disadvantages of such a course reversal discussed.
777 In contrast, the emails sent by Mr Hoey to Mr Mimmo (including emails received by Mr Hoey from Mr Digby QC and forwarded without addition to Mr Mimmo) between 13 and 20 May 2009 objectively conveyed that terminating the Heads of Agreement (and the Construction Contract) and sending the letters that were sent on 20 May 2009 was so obvious and uncontroversial that no consideration needed to be given to it by Mr Mimmo before taking that action.
778 In these circumstances, a lay client in the position of Mr Mimmo would be inherently likely to proceed on the assumption that Pearl Hill would not lose its rights to proceed with the purchase of the 33 lots at the discounted purchase price by taking the action advised by its lawyers.
779 On 15 May 2009 at 3:26pm Mr Hoey forwarded to Mr Mimmo an email from Mr Digby QC to Mr Hoey, in which Mr Digby QC said, amongst other things:
Termination will preclude specific performance of the sales contracts. It is possible that Marina Cove has effectively terminated the HOA, although I think that this is unlikely.
The prospect of obtaining specific performance (which I considered when drafting the email (and settling the letter) last night, is I believe, very unlikely to be granted, however I have not made a detailed evaluation of this potential claim by our client.
The assessment specific performance issue (although I do not think my assessment above will change) should perhaps be formally evaluated prior to termination by Pearl Hill of the HOG [sic].
780 Mr Mimmo said that he did not have a recollection of receiving or reading the email. This is unsurprising given the lapse of 10 years between his receipt of the email and his giving evidence. Mr Mimmo accepted that he had received the email. He said that it is likely that he glanced at it but did not read it carefully because it was only sending him a copy of emails passing between Mr Hoey and Mr Digby QC and Mr Hoey did not say anything to Mr Mimmo in the email or ask him to do anything. This latter evidence is in the nature of reconstruction. However, having regard to my perception of Mr Mimmo, his evidence as a whole, his communications in 2008 and 2009, the fact that emails passing between the lawyers were often simply copied to him without comment and the matters referred to above, I find that Mr Mimmo only glanced at the email and did not read it carefully. I observe that, if Mr Mimmo had read the email immediately upon receipt, it would have had little context or meaning for him because Mr Hoey had not at that point sent to him Mr Digby QC's earlier email recommending termination.
781 Mr Mimmo said that in 2009 he did not have a clear understanding of 'specific performance' (or of 'summary judgment' which was also referred to in Mr Digby QC's email). While lawyers may be generally aware that the equitable remedy of specific performance is the only means of compelling a vendor of land to complete a contract for the sale of land, this is inherently unlikely to be evident to a layperson. While it is true that the statement of claim in the HOA action sought specific performance and Mr Mimmo had instructed Hoeys to file that statement of claim, it is not inherently likely that Mr Mimmo would have paid particular attention to those words when giving those instructions or linked them in his mind when he looked at the 15 May email even if he had read it carefully.
782 I accept Mr Mimmo's evidence that, to whatever extent he glanced at or read the email forwarded to him by Mr Hoey, it did not cause him to understand that termination would deprive Pearl Hill of such rights as it may have had to purchase the 33 lots under the Heads of Agreement.
783 The defendants submit that, if Mr Mimmo did not understand Mr Digby QC's advice that termination of the Heads of Agreement would preclude specific performance of the sale contracts, he would have sought an explanation. However, this assumes that Mr Mimmo carefully read Mr Digby QC's email and identified that it was important that he understand its content in this respect. For the reasons given above, particularly having regard to the fact that Mr Hoey said nothing to Mr Mimmo but merely forwarded the email without comment, I accept Mr Mimmo's evidence about the email.
784 The observations made at [694] above in the context of Mr Oliver apply also in relation to Mr Mimmo.
785 On 15 May 2009 at 3:37pm Mr Hoey forwarded to Mr Mimmo an email from Mr Digby QC to Mr Hoey, in which he said, amongst other things:
I attach the settled letter to be dispatched asap.
I advise that our client refrain, for the time being, from bringing the Building Contract to an end (I note that it is possible that Marina Cove has already done so, although this of course depends on whether it has a present entitlement in this regard?)
Whenever the Pearl Hill contractual Show Cause Notice matures, Pearl Hill should terminate the Contract via the termination mechanism set out in the Contract, and the next day also terminate at common law on the basis of Marina Coves repudiation in taking the works out of Pearl Hills' hands and also on all other possible grounds, including non payment to Pearl Hill.
At the same time as the common law rescission is communicated to Marina Cove in relation to the Building Contract, the Heads of Agreement should be terminated for specified fundamental breaches by Marina Cove, including that Marina Cove has wrongfully purported to terminate the HOA by letter dated 13 May 2009.
786 Mr Mimmo said that he did not have a recollection of receiving or reading the email. He accepted that he had received it. He said that it is likely that he glanced at it but did not read it carefully. He said that in 2009 he had a general understanding of the meaning of termination of a contract or bringing it to an end but did not have a specific understanding about the consequences of termination. I accept that evidence.
787 As outlined above, the manner in which the common law deals with the rights and obligations that survive termination is complex and far from intuitive. Even Mr Hoey did not have a clear understanding that termination of the Heads of Agreement would preclude specific performance and sought advice from Mr Digby QC on that question. A layperson in the position of Mr Mimmo would be inherently unlikely to have an understanding of the consequences of termination. In addition, interests in land and contracts for the sale of interests in land are afforded special consideration not only in our system of law but also our community. Even if a layperson had a general understanding that termination of a contract discharges the parties from future obligations, it would not follow that they would understand that this would remove the right of a purchaser to proceed with a purchase of land under the contract.
788 On 15 May 2009 at 3:47pm Mr Hoey sent an email to Mr Digby QC and Mr Oliver saying:
Just spoken to Nino and told him we are sitting tight till next week so that we will be able to terminate on our default notice as well as their repudiation. He will after termination write to various homeowners (we will settle) advising that he is ready willing and able to be engaged direct to finish their homes ...
I told him we would speak to him next Monday or Tuesday ...
789 Mr Hoey made no file note of his conversation with Mr Mimmo and did not have a recollection of it. Mr Mimmo also had no recollection of this conversation. He said that he did not tell Mr Hoey that he intended to write to the homeowners saying that he was willing to be engaged direct to finish their homes. Given that Mr Hoey recorded this in the email, I find that Mr Mimmo did say something to this effect.
790 The conversation related only to the Construction Contract and not to the Heads of Agreement or to the purchase of the 33 lots. Accepting the conversation at face value as recorded by Mr Hoey in the email, there is nothing in the conversation that indicates that Mr Mimmo understood that termination of the Heads of Agreement would deprive Pearl Hill of such rights as it may have had to purchase the 33 lots under the Heads of Agreement.
791 On 19 May 2009 at 9:59am Mr Hoey sent an email to Mr Digby QC and Mr Oliver in which he said (amongst other things) 'It has now reached the stage where our client in my view, must accept their conduct as repudiatory both in respect of the Construction Contract and in respect of the Heads of Agreement'. Mr Hoey's email showed Mr Mimmo as a copy recipient.
792 Mr Mimmo said that he did not have a recollection of reading this email but he accepts that he received it and would have looked at it. He was not asked about the sentence referring to repudiatory conduct. However, he gave general evidence that he was not familiar with the concept of repudiation. The email was not addressed to him and he was merely copied into it as was often the case. There is nothing in the email that would have caused Mr Mimmo to understand the relevant consequence of termination of the Heads of Agreement. Mr Hoey in the email also referred to the consequences of the matter being 'grave' and involving 'many millions of dollars' but this applied on any view to the Construction Contract, to which Mr Hoey also referred, and was not calculated to cause Mr Mimmo to understand the relevant consequence of termination of the Heads of Agreement.
793 On 19 May 2009 at 7:59pm Mr Mimmo sent an email to Mr Hoey enquiring whether he should seek an injunction from the Supreme Court to stop Marina Cove engaging a new builder until the dispute was finalised. This email is inconsistent with Mr Mimmo having a proper understanding of the consequences of termination of the Construction Contract because at common law the termination would have precluded any possibility of such an injunction.
794 On 20 May 2009 at 2:22pm Mr Hoey sent an email to Mr Mimmo saying:
Nino attached are the 2 letters to go to Marina Cove terminating the contract and terminating the Heads of Agreement both should be sent today. You will see that they are addressed to Marina Cove at 3 different addresses as well as the fax... Please send copies to all addresses and the fax (just to be certain)... In two days we will send another one as suggested by John Digby...
Please confirm when these have been sent.
795 The covering email and the two letters attached, which Mr Mimmo signed and dispatched, referred to termination of the Construction Contract and Heads of Agreement. Like the emails of 15 May, this email conveyed that terminating the contracts and sending the letters was so obvious and uncontroversial that no consideration needed to be given by Mr Mimmo before taking that action.
796 Mr Mimmo said that, although he did not read the two letters particularly carefully, he understood that one letter terminated the Construction Contract and the other letter terminated the Heads of Agreement. He understood that 'termination' and 'bringing to an end' were similar concepts. However, there was nothing in the email or the two letters that was likely to result in Mr Mimmo learning that termination of the Heads of Agreement would deprive Pearl Hill of such rights as it may have had to purchase the 33 lots under the Heads of Agreement.
797 Mr Mimmo said that his understanding at the time of termination of the contracts was that it put them on hold. It is apparent from his evidence, which I accept, that Mr Mimmo's understanding of the effect of termination was relatively vague and limited.
798 I have found above that Mr Hoey did not explain to Mr Mimmo the consequences of termination of the Heads of Agreement. I have rejected Mr Hoey's evidence by way of reconstruction that Mr Mimmo told him that he wanted to terminate the Heads of Agreement and renegotiate so as to be able to set off monies outstanding against the purchase price.
799 I have regard to the fact that, at the conference on 14 April 2009, Mr Oliver warned Mr Mimmo that there was a risk that, if Marina Cove went into liquidation, Pearl Hill would lose everything and Mr Mimmo said that, in that event, he would buy the land from the liquidator for a lesser price. However, there is a fundamental difference between Marina Cove possibly going into liquidation in the future on the one hand and Pearl Cove terminating the Heads of Agreement with the effect that its right to purchase the 33 lots would be lost.
800 I have considered the subsequent conduct of Mr Mimmo between 20 May and 14 December 2009. Overall, that conduct is effectively neutral. It does not demonstrate that Mr Mimmo was aware on and before 20 May 2009 that termination of the Heads of Agreement would deprive Pearl Hill of such rights as it may have had to purchase the 33 lots under the Heads of Agreement. Little evidence was adduced of the communications between Mr Mimmo and Hoeys after 20 May 2009 or relating to the HOA action or the caveat proceeding. The communications relating to any negotiation between Mr Mimmo and Mr Sullivan are neutral. The communications relating to amendments to the statement of claim (which were never finalised because Marina Cove went into receivership) do not demonstrate such an awareness by Mr Mimmo. If anything, the position adopted by Pearl Hill in the caveat proceeding arguing that the Heads of Agreement was still specifically enforceable tends to negate such an awareness. Mr Mimmo was not cross-examined in relation to Mr Hoey's file note of 14 December 2009 and the conversation as recorded by Mr Hoey is effectively neutral because it is consistent with an awareness or a lack of awareness.
801 The defendants point to the fact that, at the conference on 30 April 2009, Mr Digby QC said that he believed that the next step was for Pearl Hill to issue a show cause notice of its own to attempt to bring the contract to an end. However, this was said in relation to the Construction Contract (not the Heads of Agreement) and in any event no explanation was given on that occasion about the consequences of bringing the contract to an end.
802 The defendants point to Mr Hoey's email to Mr Mimmo of 14 May 2009 in which Mr Hoey said that he was waiting to speak to Mr Digby QC before responding 'as we will need to decide whether to accept their conduct as repudiating the construction contract and or heads of agreement'. Mimmo was not questioned on the reference in the email to repudiation. However, he gave evidence in a different context (referred to above) that he did not have a real understanding of the meaning of 'repudiation'. I accept his evidence in this respect, and also his evidence that Mr Hoey did not explain to him the meaning of repudiation. Mr Mimmo gave general evidence that, if he did not understand something that he regarded as significant, he would seek clarification. However, this would depend on the context, and the context of the reference by Mr Hoey to repudiation did not suggest that Mr Mimmo needed to seek clarification. In any event, reference to repudiation was not apt to cause Mr Mimmo to understand the consequences of Pearl Hill accepting Marina Cove's conduct as repudiating the Heads of Agreement.
803 The defendants point to a letter that Mr Mimmo had sent to Mr Axarlis on 26 November 2008 in which he complained that Marina Cove had failed to pay the outstanding invoices referred to in annexure B to the Heads of Agreement, said that Pearl Hill was suspending building work and said, 'You are now leaving us no option but terminate the contract and sue for all damages'. This does not evidence an understanding by Mr Mimmo that termination would deprive Pearl Hill of such rights as it may have had to purchase the 33 lots under the Heads of Agreement.
804 The defendants submit that, given the extent of his experience as a building contractor, it would be remarkable that in the litigation-prone industry of construction Mr Mimmo would not have become well acquainted in a broad sense with legal concepts of breach, repudiation, termination, specific performance and damages. The legal concepts particularly of repudiation, termination and specific performance are complex. If a building contractor acquired some understanding of some aspects of those concepts, it does not follow that such a contractor would have gained an understanding such that termination of the Heads of Agreement would deprive Pearl Hill of its rights to purchase the 33 lots.
805 I am satisfied that Mr Mimmo was not aware on 20 May 2009 that termination of the Heads of Agreement would deprive Pearl Hill of its rights to purchase the 33 lots.
806 The more general factual issue is whether Mr Mimmo would not have sent the letters if he had not received the negligent advice. In order to succeed on factual causation, Pearl Hill must establish on the balance of probabilities that each defendant's negligent advice was a necessary condition of the termination by Pearl Hill of the Heads of Agreement on 20 May 2009.
807 Mr Mimmo gave evidence that he would never have sent the letters dated 20 May 2009 to Marina Cove if he had known that their effect was that Pearl Hill would lose its rights to buy the 33 lots. He said that he was never told by his lawyers that there had been a change to the agreed course that Pearl Hill should do all that it could to preserve its rights under the Construction Contract and Heads of Agreement.
808 It is notorious that evidence by a witness who has a self-interest in the outcome of a case about their hypothetical conduct is liable to be affected, at least unconsciously, by the witness's self-interest and the weight of that evidence is liable to be discounted compared to an objective assessment as to the witness's likely conduct. Although a witness's self-interest obviously also has to be taken into account in assessing their evidence about historical events, there is an extra dimension when the witness is giving evidence in answer to a hypothetical question. In assessing Mr Mimmo's evidence on the hypothetical question, I rely to a large (but not exclusive) extent on an objective assessment as to his likely conduct based on the contemporaneous facts and circumstances proved by the objective evidence.
809 For the purpose of the analysis, it is necessary to identify the appropriate counterfactual circumstances: that is, assuming that the defendants had exercised reasonable care in advising Pearl Hill on the topic of the election whether to terminate or affirm the Heads of Agreement.
810 As at 15 to 20 May 2009, Pearl Hill was faced with a stark choice as far as the Heads of Agreement was concerned. Up to 13 May 2009 the position as between Marina Cove and Pearl Hill was evolving and the parties were adopting various positioning. Senior counsel for Hoeys accurately characterised it during submissions as 'brinkmanship'. Marina Cove made an offer on 9 April, reiterated on 21 April, to enter into Contracts of Sale on terms that Pearl Hill not exercise any right of set off against the purchase price. Pearl Hill had not accepted these offers. On 13 May 2009 Marina Cove purported to terminate the Heads of Agreement.
811 Pearl Hill effectively had at that point only two options:
• Option A: affirm the Heads of Agreement, accept Marina Cove/the Commonwealth Bank's conditions of 9 and 21 April 2009 (including abandonment of the claimed set off), call on Marina Cove to execute Contracts of Sale of the 33 lots to Pearl Hill on the terms otherwise previously agreed and pursue specific performance in the HOA action with a view to a speedy judicial determination or a resolution; or
• Option B: terminate the Heads of Agreement and pursue money claims against Marina Cove.
812 Before 13 May 2009 Pearl Hill had a third option, which it was pursuing, namely maintaining the set off claim in respect of monies unequivocally due, calling on Marina Cove to execute Contracts of Sale with Pearl Hill on the terms previously agreed and pursuing specific performance in the HOA action with a view to a speedy judicial determination or a resolution. However, this third option was no longer viable after 13 May 2009.
813 Before 13 May 2009, there remained a prospect that Marina Cove and the Commonwealth Bank might agree to a set off (at least to some extent). The set off issue had been the 'deal-breaker' from 18 December 2008 up to that point. Mr Mimmo was engaging in brinkmanship because he did not want to lose the purchase of the 33 lots but he wished to achieve a set off if he could. Marina Cove and the Commonwealth Bank were apparently also engaging in brinkmanship because they did not want to lose the sale of the 33 lots but they wished to avoid a set off if they could. A resolution of the set off issue remained a possibility.
814 On 13 May 2009 this prospect became non-existent when Marina Cove unequivocally demonstrated that it would rather (purport to) terminate the Heads of Agreement than agree to a set off. Marina Cove had made it clear to Pearl Hill that it was beholden to the Commonwealth Bank and was acting in accordance with its dictates, including by forwarding to Mr Mimmo the PPB email of 10 December 2008 and referring in Gadens' letter of 9 April 2009 to its financier consenting to the conditions of entry into Contracts of Sale of the 33 lots. There was no prospect of obtaining Marina Cove's agreement to a set off in the absence of agreement by the Commonwealth Bank and there was now no prospect of the Commonwealth Bank agreeing to a set off. There was no prospect of obtaining specific performance of sale of the 33 lots in the absence of the Commonwealth Bank having agreed to Marina Cove entering into Contracts of Sale because otherwise it would not be obliged to discharge its mortgage over the lots.
815 Accordingly, if Pearl Hill wished to affirm the Heads of Agreement and proceed with the purchase of the 33 lots, the time for positioning and brinkmanship had passed. Regardless of the legal merits of its claim to a set off, it could not now proceed with the purchase unless it abandoned that claim and accepted the conditions set out in Gadens' 9 and 21 April letters.
816 Senior counsel exercising the appropriate standard of care would have convened a conference with Mr Hoey and Mr Mimmo and, if available, Mr Oliver. The conference would have proceeded on an iterative basis. It would have been identified that Pearl Hill had a stark choice to be made between options A and B. It would have been explained why a third option was no longer available. The potential advantages and disadvantages of the two options and weight to be afforded to them, as analysed above, would have been discussed.
817 Instructions would have been sought from Mr Mimmo concerning the value of the discount on the purchase of 33 lots, the grounds and gravity of his concerns about Marina Cove's financial position, matters relevant to the assessment of the prospects and quantum of a quantum meruit claim, and the other matters referred to above on which instructions or information were required to the extent that they could be obtained at the conference.
818 Any recommendation by counsel as between the two courses would have depended on the instructions obtained from Mr Mimmo.
819 In October 2008, when Pearl Hill entered into the Heads of Agreement, Mr Mimmo had made a deliberate choice to exchange such monetary rights as Pearl Hill had against Marina Cove for a very substantial discount in the purchase price of the 33 lots. In April 2009 Mr Mimmo gave instructions to Hoeys to institute the HOA action to enforce the sale of the 33 lots under the Heads of Agreement. Between March and May 2009 the steps taken by Hoeys, in accordance with Mr Mimmo's instructions, were consistently towards affirming, rather than terminating, the Heads of Agreement. As at 20 May 2009, the status quo was to proceed with the Heads of Agreement as opposed to reversing course and reverting to the position as it was before entry into the Heads of Agreement. Leaving aside other considerations, inertia alone would suggest that Mr Mimmo would maintain his course.
820 The fact that Mr Mimmo exchanged rights as against Marina Cove as summarised in the previous paragraph does not depend on Mr Mimmo's evidence. It is recorded in the recitals to the Heads of Agreement itself. It was reported by Mr Mimmo to Mr Hoey and included in Mr Hoey's Memorandum to Counsel. The fact of the discount in the purchase price was confirmed by contemporaneous documents emanating from Marina Cove.
821 In addition to the benefit conferred on Pearl Hill by the Heads of Agreement of purchasing the 33 lots at a substantial discount, that benefit was not dependent on the financial position of Marina Cove; whereas Pearl Hill's anterior rights given up under the Heads of Agreement were so dependent. Mr Mimmo had very serious concerns about Marina Cove's financial ability to meet any monetary claims by Pearl Hill. Again, this does not depend on Mr Mimmo's evidence. It was reported by him to Mr Hoey and included in Mr Hoey's Memorandum to Counsel. It was also strongly corroborated by the contemporaneous objective evidence summarised above, including Marina Cove's obvious financial inability to pay the amounts of the invoices listed in Annexure B to the Heads of Agreement, its apparent inability even to pay the Council fee to enable deposit of the plan of subdivision and the very close monitoring and control being exercised by the Commonwealth Bank and PPB on its behalf.
822 Objectively assessed, as at 20 May 2009, there had not been a drastic, or even substantial, change in the circumstances that would cause Mr Mimmo to regret his decision to enter into the Heads of Agreement or seek to reverse course. On the contrary, Mr Mimmo's concerns about Marina Cove's financial position could only have been exacerbated by the events that occurred between October 2008 and May 2009.
823 Given Mr Mimmo's beliefs about the discount on the purchase of the 33 lots and Marina Cove's financial position, a decision to give up the benefits conferred by the Heads of Agreement and revert to the anterior position would have been irrational.
824 The defendants contend that Mr Mimmo had demonstrated that he made his own decisions regardless of the advice of his lawyers and inferentially that he would have decided to terminate the Heads of Agreement regardless of the advice he received. I reject these contentions.
825 First, Mr Mimmo repeatedly acted in accordance with the advice of his lawyers. He approached Mr Hoey in March 2009 seeking advice in respect of Pearl Hill's legal position under the Heads of Agreement and the Construction Contract. He accepted Mr Hoey's recommendation to seek advice from Mr Digby QC and Mr Oliver. Between 16 March and 20 May 2009 he acted in accordance with the advice of his lawyers. This included abandoning the set off claims that counsel advised were not incontrovertibly due and owing; accepting advice not to pursue matters such as seeking an injunction; and accepting the drafting by his lawyers of letters to be sent by Pearl Hill.
826 Mr Mimmo decided not to accept the offers made by Marina Cove on 9 and 21 April 2009. This was not contrary to advice by his lawyers because they did not advise him to accept them. While Mr Digby QC advised that they be carefully considered, Mr Mimmo did not act contrary to advice in not accepting them. In addition, Mr Mimmo did not receive advice on the advantages and disadvantages of accepting the offers.
827 The defendants point to Mr Mimmo's decision on 21 October 2008 to agree with Mr Axarlis and Mr Newman on the final amendments to Mr Hoey's draft of the Heads of Agreement of 13 October. Those amendments were relatively limited and mainly involved commercial rather than legal terms. Mr Hoey's email of 13 October had effectively conveyed to Mr Mimmo that (subject to any further terms being negotiated) the Heads of Agreement was now in a fit state for execution. Clause 16 expanded the scope of the mutual releases and clause 17 was added to confirm that the Heads of Agreement was intended to be legally binding. These amendments were not detrimental to the interests of Pearl Hill and there was no reason for Mr Mimmo to consider that they might be. These changes were of an entirely different nature and scale to a decision to terminate the Heads of Agreement and revert to the anterior position.
828 Secondly, in the hypothetical position being considered, Mr Mimmo would not have received advice from his lawyers to terminate the Heads of Agreement and send the 20 May 2009 letters. He would not therefore have been acting contrary to advice in deciding not to terminate it.
829 The defendants contend that Mr Mimmo had formulated his own strategy of writing to the individual homeowners advising them that he was ready, willing and able to be engaged to finish their homes. I accept that Mr Mimmo discussed this with Mr Hoey on 18 May 2009 as recorded in Mr Hoey's email to counsel on that date. However, this post-dated the advice given by Mr Digby QC and Mr Hoey on 15 May 2009 to terminate the Construction Contract: it did not precipitate the advice. In any event, this step related to the Construction Contract and not to purchase of the 33 lots under the Heads of Agreement.
830 The defendants contend that Mr Mimmo would not have been willing to abandon his set off.
831 Mr Mimmo gave evidence that, if he had had a choice between sending the 20 May 2009 letter doing away with his land deal or doing away with his claim for set off, he would have abandoned the set off claim. I approach this evidence with caution for the reasons given above. In assessing Mr Mimmo's evidence in this respect, I rely to a large (but not exclusive) extent on an objective assessment as to his likely conduct based on the contemporaneous facts and circumstances proved by the objective evidence.
832 As explained above, after receiving Marina Cove's letter dated 13 May 2009, Pearl Hill was faced with a stark choice between affirming and terminating the Heads of Agreement. Affirming the Heads of Agreement without abandoning the set off was not a viable option. Affirming the Heads of Agreement necessarily required abandonment of the set off.
833 The objective facts summarised above demonstrate that Mr Mimmo believed on solid grounds as at May 2009 both that he was obtaining a very substantial discount on the purchase price of the 33 lots and that Marina Cove did not have the financial means to meet a substantial monetary claim. On his beliefs, if he did not adopt Option A affirming the Heads of Agreement and abandoning the set off, Pearl Hill would not receive payment of the monies the subject of the claimed set off in any event.
834 It is true that, if Pearl Hill were required and permitted to return to work to complete the outstanding houses, it was exposed to the risk of non-payment for that work due to Marina Cove's financial position. However, this would not have weighed significantly in the scales with Mr Mimmo against affirmation of the Heads of Agreement. First, if Pearl Hill called on Marina Cove to execute Contracts of Sale of the 33 lots on the terms otherwise previously agreed and abandoning the claimed set off, Marina Cove may well not have required Pearl Hill to complete the uncompleted houses as a condition of specific performance by court order or consent, given that Marina Cove had denied entry to Pearl Hill to the site. Secondly, if Pearl Hill were required to return to work, it had the right as from 18 May to suspend work under the Construction Contract if it was not paid. Thirdly, the potential exposure to Pearl Hill in dollar terms of this risk was small compared to the benefits that Mr Mimmo believed that Pearl Hill would receive by proceeding with the purchase of the 33 lots.
835 In the light of Mr Mimmo's beliefs, it would have been irrational for him to seek to persist with performance of the Heads of Agreement without abandoning the set off claim. It would have been irrational to revert to the position before entry into the Heads of Agreement given those beliefs and his reasons for entering into the Heads of Agreement in the first place.
836 I have regard to the fact that, at the conference on 14 April 2009, Mr Mimmo said that, if Marina Cove went into liquidation, he would buy the land from the liquidator for a lesser price. However, as observed above, there is a fundamental difference between Marina Cove possibly going into liquidation in the future on the one hand and Pearl Hill terminating the Heads of Agreement with the effect that its right to purchase the 33 lots would be lost.
837 More importantly, the circumstances had changed and the position had moved on in critical respects since 14 April 2009. First, Marina Cove had now demonstrated by (purportedly) terminating the Heads of Agreement on 13 May 2009 that its requirement that the set off claim be abandoned was absolutely non-negotiable. Secondly, the discussion on 14 April 2009 was about a hypothetical event and Pearl Hill was not called on to make a decision in respect of it; whereas after 13 May 2009 Pearl Hill had to make a critical election.
838 I have regard to the fact that Mr Mimmo had rejected Marina Cove's offers made on 9 and 21 April 2009 precisely because he was not then prepared to abandon the claimed set off. However, in April 2009 the parties were still negotiating and positioning as a result of Marina Cove's failure to pay outstanding invoices to Pearl Hill, being a process in which they had been engaged since 18 December 2008. It is self-evident that Mr Mimmo held out hope in April 2009 that Marina Cove would make a concession on this sticking point. For the reasons given in the previous paragraph, the situation fundamentally changed on 13 May 2009.
839 I have regard to the fact that, at the conference on 14 April 2009, Mr Berrill said that Mr Digby QC had advised that Mr Mimmo carefully consider Marina Cove's offer of 9 April 2009 and at the conference on 30 April 2009 Mr Digby QC observed that, if Pearl Hill gave up its set off claim, there would be much less to argue about. Mr Mimmo chose in April 2009 not to accept Marina Cove's offer or give up Pearl Hill's set off claim (which essentially amounted to the same thing). However, Mr Mimmo did not in April 2009 (or before or after) receive advice identifying his options, the advantages and disadvantages of each, or any recommendation as between such options. Advice merely to carefully consider an offer, or an observation that there would be less to argue about if the set off claim were given up, does not amount to a recommendation. More importantly, for the reasons given above, the circumstances after 13 May 2009 were fundamentally different to those existing in April 2009.
840 I have had regard to the communications between Mr Mimmo and Mr Hoey and between Mr Mimmo and Mr Sullivan on 26 and 27 May 2009 in relation to a potential resolution of the issues the subject of the HOA action. On the one hand, I find that Mr Mimmo told Mr Hoey that he was prepared to pay the full amount of $16.5 million at settlement without set off or deduction because Mr Hoey recorded that in his email to Mr Mimmo sent on 27 May 2009 at 2.06 pm. On the other hand, the draft email to Mr Sullivan drafted by Mr Hoey (which I have found was not sent to Mr Sullivan) provided that Marina Cove would need to agree to pay within an agreed time the outstanding overdue payments. Overall, this represented a very substantial softening of Mr Mimmo's position because it involved giving away the set off, and only replacing it with an agreement by Marina Cove to pay within an agreed time. Such an agreement by Marina Cove would have added little, if anything, to Marina Cove's existing obligation to pay the overdue amounts and in any event would have left Pearl Hill exposed to the risk that Marina Cove would not and could not make those payments in future.
841 In addition, the counterfactual scenario now being considered provides a very different context to the actual scenario. On the counterfactual scenario, Mr Mimmo would have been faced with a stark choice between giving up the set off and deferring, post-execution of the individual contracts, the question of timing of payment by Marina Cove of the overdue amounts on the one hand and terminating the Heads of Agreement with the effect of losing any rights to pursue purchase of the 33 lots under the Heads of Agreement on the other hand.
842 Having regard to the objective circumstances, the whole of the evidence and Mr Mimmo's evidence, I am satisfied that, given the choice between affirming the Heads of Agreement and abandoning the set off on the one hand and terminating the Heads of Agreement and losing any right to purchase the 33 lots on the other hand, Mr Mimmo would have chosen the former and would have abandoned the set off.
843 In relation to the other terms of the Commonwealth Bank's consent set out in Gadens' letters dated 9 and 21 April 2009, there was a requirement that:
(a) the Contracts of Sale provide for settlement within 30 days after execution or seven days after registration of the plan of subdivision (whichever was later), but in any event by 29 May 2009 (being within seven weeks after the 9 April letter);
(b) the Contracts of Sale documents be reviewed by the Commonwealth Bank prior to execution and be in a form satisfactory to it;
(c) unconditional Contracts of Sale be executed by 24 April 2009 (being within two weeks of the 9 April letter);
(d) Pearl Hill re-commence works on Stage 1 housing in a substantial manner;
(e) Pearl Hill confirm in writing that it will cease/withdraw any litigation against CP1 and/or Marina Cove.
844 Leaving aside the timing deadlines that by 13 May 2009 were now obsolete and the requirement that Pearl Hill re-commence the works, the balance of the requirements did not raise any significant issue for Pearl Hill. Specifically:
(a) Pearl Hill had agreed on 19 February 2009 to settlement within 30 days after execution or seven days after registration of the plan of subdivision (whichever was later) as confirmed in a letter from Mr Mimmo to Mr Axarlis;
(b) the Commonwealth Bank had approved the terms of the Contracts of Sale that were the subject of the meeting on 18 December 2008 and there were no proposed changes to the terms of those contracts, apart from deletion of the deposit (which was agreed) and the timing of settlement referred to in (a) above (which was agreed);
(c) if Marina Cove agreed to proceed with the sale of the 33 lots under the Heads of Agreement and Pearl Hill agreed to abandon its set off claim, it would logically follow that the litigation, being the HOA action, would be the subject of consent orders or a discontinuance and, in either event, this would amount to Pearl Hill agreeing to cease and withdraw any litigation against CP1 and/or Marina Cove.
845 In relation to the obsolete timing deadlines, postulating that the Commonwealth Bank (and hence Marina Cove) would have required execution of Contracts of Sale within one week, Pearl Hill in Hoeys' response to Gadens of 28 April 2009 had proposed exchange of contracts on 1 May 2009, being within three days. Postulating that the Commonwealth Bank (and hence Marina Cove) would have required settlement of Contracts of Sale by 30 June 2009, Pearl Hill in Hoeys' response to Gadens of 28 April 2009 had accepted settlement occurring by 29 May 2009, being within one month. Pearl Hill had agreed since 19 February 2009 to settlement within 30 days after execution. No issue would therefore have arisen in relation to transposed timing deadlines.
846 In relation to the previous requirement that Pearl Hill re-commence works on Stage 1 housing in a substantial manner, this had been superseded by Marina Cove's action in taking the remaining building work out of the hands of Pearl Hill pursuant to clause 39 of the Construction Contract. In the hypothetical scenario being considered, it would have been a matter for Marina Cove (and the Commonwealth Bank) in the first instance to decide whether it wished itself to complete construction of the homes or whether it wished to rescind taking the work out of Pearl Hill's hands and require Pearl Hill to re-commence works on Stage 1 housing in a substantial manner.
847 On the assumption that Marina Cove chose to rescind its decision to take the work out of Pearl Hill's hands, Pearl Hill in Hoeys' response to Gadens of 28 April 2009 had accepted this condition and had explicitly stated that Pearl Hill remained 'ready, willing and able to continue and complete the works'. Throughout all of the communications between Mr Mimmo and the defendants between March and May 2009, it was a constant theme that Pearl Hill must continue to comply with its obligations to continue and complete the works. Although Mr Mimmo did not give express evidence that, in the hypothetical scenario, he would have agreed to continue and complete the works if required by Marina Cove, the objective evidence indicates that there was no real question but that Mr Mimmo would have so agreed.
848 Having regard to the objective circumstances and the whole of the evidence, I am satisfied that, given the choice between affirming the Heads of Agreement and accepting Marina Cove's/the Commonwealth Bank's conditions on the one hand and terminating the Heads of Agreement and losing any right to purchase the 33 lots on the other hand, Mr Mimmo would have chosen the former.
849 In light of my findings, but for Mr Digby QC's negligent advice, Pearl Hill would not have terminated the Heads of Agreement and would instead have accepted Marina Cove's/the Commonwealth Bank's conditions and called upon Marina Cove to execute Contracts of Sale for the 33 lots in accordance with Option A articulated above.
850 In light of my findings, but for Hoeys' negligent advice, Pearl Hill would not have terminated the Heads of Agreement and would instead have accepted Marina Cove's/the Commonwealth Bank's conditions and called upon Marina Cove to execute individual Contracts of Sale for the 33 lots in accordance with Option A articulated above.
851 The negligent conduct of each of Mr Digby QC and Hoeys was a necessary condition of the occurrence of the harm suffered by Pearl Hill as a result of the termination of the Heads of Agreement by Pearl Hill on 20 May 2009.
852 The factual causation limb is established in relation to the stage of causation involving the negligence causing termination of the Heads of Agreement. I defer for the time being consideration of the scope of liability limb of causation.
Did termination cause loss of a valuable opportunity?
853 Pearl Hill's case is that the termination of the Heads of Agreement caused the loss of the valuable opportunity to complete the purchase of the 33 lots for $15 million plus GST pursuant to the Heads of Agreement. As observed above, Pearl Hill concedes that the prospects of a judicial determination of the HOA action before the appointment of receivers would have been negligible and the prospects of a favourable judicial determination of the action after the appointment of receivers would have been negligible. Pearl Hill contends, however, that the prospects of a resolution of the action before 4 August 2009 were substantial.
854 The defendants contend that Pearl Hill pleads only loss of an opportunity to obtain completion of the purchase of the 33 lots by a decree of specific performance, whereas its case as finally articulated was that it lost the opportunity to purchase the 33 lots by agreement and such a case is not open to Pearl Hill. (The defendants also contend on the merits that Pearl Hill did not lose the opportunity after 20 May2009 to purchase the 33 lots by agreement, which I address below.) Pearl Hill contends in response that the defendants mischaracterise its case as articulated and as pleaded.
855 Before turning to the relevant pleadings, it is necessary to set out the relevant history.
856 At the commencement of the trial, the statement of claim included the following pleas:
• the defendants negligently advised Pearl Hill to terminate the contracts and send the termination letters (paragraphs [33] and [34]);
• in reliance on the negligent advice, Pearl Hill served the termination letters on Marina Cove and it would not otherwise have done so (paragraphs [35], [36] and [38];
• by reason of the termination, Pearl Hill lost the opportunity to specifically enforce the Heads of Agreement in order to purchase the land (paragraph [40]);
• had Pearl Hill been able to specifically enforce the Heads of Agreement, it would have set off against the purchase price at least $1.5 million and purchased the 33 lots for $15 million (net of GST) (paragraph [41]);
• the value of the 33 lots significantly exceeded $15 million (net of GST) (paragraph [42]);
• in the premises, Pearl Hill suffered loss and damage caused by the defendants' negligence, being the difference between the amount Pearl Hill would have been required to pay to purchase the land (after any set off) and the value of the land (paragraph [49]).
857 In its written opening address, Pearl Hill articulated its causation case as being that the negligent advice was the direct cause of Pearl Hill terminating the Heads of Agreement, which in turn destroyed Pearl Hill's right to purchase the 33 lots for $15 million (net of GST) and Pearl Hill was entitled to compensation for the value of that lost right, which was the difference between the contract price and market value at the date of breach. Pearl Hill quantified the market value at $31.35 million and the contract price at $15 million (net of GST) and hence its loss at $16.35 million. The general flavour of Pearl Hill's written and oral opening address was that the assessment of damages was analogous to damages suffered by a purchaser on termination of a contract for the sale of land or goods, where damages are assessed simply by reference to the difference between market value and contract price, there are no contingencies and there is no loss of opportunity assessment.
858 The defendants in their opening addresses took issue with Pearl Hill's case in this respect. Leaving aside disputes about the assessment of market value of the 33 lots, the defendants contended that, absent termination of the Heads of Agreement by Pearl Hill, it would not have obtained a decree of specific performance. The defendants articulated various reasons for this, including (without being comprehensive) that the Commonwealth Bank as mortgagee could not be compelled to produce the certificate of title for registration of a transfer of the land; the Heads of Agreement had already been validly terminated by Marina Cove on 13 May 2009; and the Court would not, in the exercise of its equitable discretion, have awarded specific performance because it would require supervision by the Court of future building works.
859 Pearl Hill in reply accepted that it needed to establish, on the hypothetical counterfactual scenario, both that the Commonwealth Bank would after 13 May 2009 have discharged its mortgage over the 33 lots upon payment by Pearl Hill of $16.5 million (inclusive of GST) (so that the Bank received $15 million) and that Mr Mimmo would have paid $16.5 million (inclusive of GST) and thereby relinquished his claim to a set off.
860 At the conclusion of opening addresses, Pearl Hill foreshadowed an application for leave to amend its statement of claim. One set of amendments foreshadowed was to plead that the requisite consent to the Heads of Agreement had been obtained or conventional estoppel operated to that effect. The other set of amendments was foreshadowed to comprise pleas recasting Pearl Hill's causation case as a loss of opportunity case. In foreshadowing this set of amendments, senior counsel for Pearl Hill articulated Pearl Hill's loss as a loss of its interest in the land and the chance of converting it into legal title and contended that that chance had some value. Senior counsel identified the contingencies involved in that conversion as comprising:
• Mr Mimmo probably advancing the costs necessary for registration of the subdivision;
• 'Mr Mimmo obtaining $16.5 million to purchase the land'; and
861 Later on that day, Pearl Hill formulated proposed amendments to its statement of claim. The proposed amendments inserted new paragraphs 35A and 35B after paragraph 35 (which pleaded service of the termination letters on the defendants' advice) as follows:
35A An effect of sending the Termination Letters was to destroy Pearl Hill's equitable interest in the Land.
35B Pearl Hill's equitable interest in the Land was something of value.
862 The proposed amendments inserted new paragraph 50 after paragraph 49 (which pleaded loss caused by negligence of the difference between contract price and market value on the simplistic basis summarised above):
(a) Pearl Hill giving up its set off claim;
(b) Pearl Hill obtaining finance to fund the $16,500,000 purchase price;
(c) Pearl Hill obtaining clear title, free of existing registered mortgages;
(d) Marina Cove being willing to settle on the terms it had previously been prepared to settle on, as expressed in the letters from Gadens Lawyers dated 9 or 21 April 2009; and
(e) Marina Cove or Pearl Hill paying the council fee to enable registration of the plan of subdivision.
863 The proposed amendments also deleted the reference in paragraph 41 to any set off.
864 The effect of the amendments was to maintain a primary case that the negligence caused a loss of the difference between contract price and market value but introduce an alternative causation case of loss of an opportunity to convert Pearl Hill's equitable interest into legal title, contingent on various contingencies including Marina Cove being willing to settle on the terms set out in Gadens' 9 and 21 April 2009 letters.
865 Pearl Hill also formulated proposed amendments to its statement of claim to insert paragraphs 16A to 16I to plead that the requisite consent to the Heads of Agreement had been obtained or conventional estoppel operated to that effect. These amendments were opposed by the defendants and, after hearing argument, I granted leave to amend to insert those paragraphs. The amendments in relation to causation and loss were not opposed and I granted leave in that respect.
866 As at 20 May 2009, assuming that Pearl Hill had not terminated the Heads of Agreement, the HOA action hypothetically would either have proceeded to trial or been resolved by agreement (assuming that it was not unilaterally discontinued by Pearl Hill). The same alternatives apply to all litigation and in reality the vast majority of litigation is resolved by agreement rather than proceeding to trial.
867 The principal pleading issue that now arises is whether by paragraph 50 Pearl Hill was exclusively pursuing a causation case that, absent negligence, it would have obtained a judicial decree of specific performance of the sale of the 33 allotments under the Heads of Agreement over the opposition of Marina Cove (as the defendants contend) or that (in addition to or instead of obtaining such a decree) it would have obtained performance of the sale of the 33 allotments under the Heads of Agreement by the consent of Marina Cove (as Pearl Hill contends).
868 Paragraph 50 needs to be considered in its context within the statement of claim as a whole and in the context in which it was introduced into the statement of claim.
869 Paragraph 50 is expressed to be in the alternative. Pearl Hill's primary case as pleaded remained that it was entitled to damages assessed by reference to the difference between market value and contract price without reference to contingencies. It is true that this primary case was not addressed by Pearl Hill's counsel with enthusiasm. However, it was kept alive by the pleading until it was ultimately abandoned in closing address.
870 Part of the context is that, whenever a client sues a lawyer for loss of a cause of action as a result of negligent conduct, the case is inherently a loss of opportunity case. Because most cases are resolved by agreement rather than being judicially determined after trial or on a summary judgment application, logically there are two avenues in which the underlying 'lost' cause of action may have resulted in benefit to the plaintiff, being either judicial determination or resolution by agreement. It would be unusual for a plaintiff to exclude consideration of resolution by agreement in pursuing a causation case. In decided cases, courts often refer to these two avenues and make an assessment of the prospects of success by the plaintiff on the lost cause of action by reference to the possibility of either a favourable judicial determination or a favourable resolution of the action.[82]
871 The content of paragraph 50 of the amended statement of claim is consistent only with Pearl Hill pursuing a case that hypothetically it would have obtained performance of the sale of the 33 allotments under the Heads of Agreement by the consent of Marina Cove.
872 Subparagraphs (b) and (c) of paragraph 50 are consistent with a case of causation involving a judicial decree of specific performance, although they are equally consistent with a case of obtaining performance by consent because they were pre-requisites under either path.
873 Subparagraph (a) of paragraph 50 would not be an element of a case of causation involving a judicial decree of specific performance as such because Pearl Hill might (and indeed would have) succeeded at trial on the issue of set off. It would be an element of a case of causation involving obtaining performance by consent because Marina Cove had made it plain by 13 May 2009 that it would not accept any set off. However, I accept that the inclusion of subparagraph (a) in itself is not determinative.
874 Subparagraph (e) of paragraph 50 would not be an element of a cause of action involving a judicial decree of specific performance because it was clear that Marina Cove had the obligation to procure subdivision of the 3 superlots into 33 lots. It would be an element of a case of causation involving obtaining performance by consent.
875 Subparagraph (d) of paragraph 50 would not be an element of a cause of action involving a judicial decree of specific performance because a trial necessarily supposes opposition by Marina Cove. On the other hand, it is an essential element of a cause of action involving obtaining performance by consent.
876 The inclusion of subparagraph (d) necessarily demonstrates that Pearl Hill, after the amendment, was pursuing a case in causation involving obtaining performance by the consent of Marina Cove. Although this is unequivocal in itself, it is supported by the inclusion of subparagraph (e) and to a lesser degree by the inclusion of subparagraph (a).
877 The defendants recognise the importance of paragraph (d) to the issue in seeking to avoid this conclusion by submitting that paragraph (d) is an anomaly within paragraph 50 and should be disregarded. It cannot be disregarded: it is a material fact pleaded by Pearl Hill as an essential element of its causation case and unequivocally indicates that that case involves obtaining performance by the consent of Marina Cove.
878 In addition, as observed at [860] above, when Pearl Hill foreshadowed an application for leave to amend its statement of claim, senior counsel for Pearl Hill expressly stated that the contingencies involved in the conversion of an equitable interest into a legal interest included 'Marina Cove being willing to settle'.
879 The defendants point to the fact that, after the amendments, paragraph 40 remained, in which Pearl Hill pleaded that, by reason of the termination of the Heads of Agreement, it 'lost the opportunity to specifically enforce the Heads of Agreement in order to purchase the Land'. When the amended statement of claim is read as a whole, the reference in paragraph 40 to 'specific performance' is capable of encompassing specific performance either by decree after trial or by consent. In any event, paragraph 50 is expressed to be in the alternative and, for the reasons given above, clearly proceeds on the basis of obtaining performance by the consent of Marina Cove.
880 The defendants contend that Pearl Hill did not conduct it case on the basis that its causation case involved obtaining performance by consent and point to evidence that they submit Pearl Hill did not adduce. If, as I have concluded, the causation case was pleaded in the statement of claim, there is no need to have regard to the manner in which the case was conducted, unless it can be said that Pearl Hill abandoned such a pleaded case and that clearly cannot be said.
881 After the amendment, Pearl Hill adduced evidence from Mr Mimmo that, if faced with a stark choice, he would have done away with his set off-claim. He also gave evidence that he would have paid the Council fee required to obtain registration of the subdivision. The adducing of this evidence indicates that Pearl Hill was conducting a case of obtaining performance by the consent of Marina Cove.
882 It is true, as the defendants point out, that Mr Mimmo did not give explicit evidence that he was willing to settle on the other terms Marina Cove had been prepared to settle on as expressed in the letters from Gadens dated 9 and 21 April 2009. However, the documentary evidence adduced at trial showed that the sticking point between Marina Cove and Pearl Hill was the set off, the other terms set out in the Gadens letters were largely uncontentious and Pearl Hill's response, by Hoeys' letter dated 28 April 2009, confirmed this. In the circumstances, it was open to Pearl Hill to rely on that evidence (rather than adducing explicit evidence from Mr Mimmo) without abandoning a case based on obtaining performance by consent of Marina Cove.
883 It is true also, as the defendants point out, that Pearl Hill did not cross-examine Mr Axarlis with a view to adducing evidence that Marina Cove would have been prepared to settle on the terms expressed in the Gadens letters. Tactically, it would have been surprising if Pearl Hill had cross-examined Mr Axarlis in this respect when it did not know what his evidence would be. Pearl Hill was entitled to rely on the documentary evidence and objective facts to infer Marina Cove's likely hypothetical conduct, which would be more reliable than hypothetical evidence given 10 years later. Moreover, it is apparent from the objective evidence that at that point Marina Cove was beholden to the Commonwealth Bank and it was the Commonwealth Bank's decision, rather than any decision by Marina Cove in its own right, that would dictate Marina Cove's attitude.
884 As observed above, the defendants characterise the case Pearl Hill seeks to run as that it lost the opportunity to purchase the 33 lots by agreement. I accept Pearl Hill's submission that this mischaracterises its case. Of course, there was nothing to stop Pearl Hill and Marina Cove negotiating and entering into a new agreement for the sale of the 33 lots after the Heads of Agreement was terminated on 20 May 2009. However, that is a very different scenario to the Heads of Agreement remaining on foot, Pearl Hill insisting that Marina Cove comply with the obligation to sell the 33 lots on the terms of and in compliance with the Heads of Agreement and Marina Cove choosing to do so instead of facing the suit for specific performance contained in the HOA action. Pearl Hill's case involves loss of the opportunity to enforce the Heads of Agreement (albeit by consent) rather than the opportunity to negotiate a new agreement for the purchase of the 33 lots.
885 Pearl Hill's causation case based on obtaining performance by consent of Marina Cove is pleaded and is available to Pearl Hill.
Would Pearl Hill have agreed to Marina Cove's terms
886 To establish causation, Pearl Hill must prove on the balance of probabilities, in the hypothetical counterfactual scenario, that it would have taken the opportunity of resolving the HOA action by agreeing to Marina Cove's terms as set out in the Gadens letters of 9 and 21 April 2009.
887 This follows from the identification of the opportunity said to be lost, which was an opportunity to resolve the HOA action on Marina Cove's terms. It also follows from the application of the rule of thumb referred to above that, if the question is how the plaintiff would have acted, ordinarily it may be expected that this will form part of the definition of the lost valuable opportunity and must be proved on the balance of probabilities.
888 To the extent that Pearl Hill contends otherwise, including in relation to the issue whether Mr Mimmo would have abandoned the set off claim, I reject Pearl Hill's contention, and accept the defendants' contention.
889 I have concluded above, as an integral part of deciding whether, in the counterfactual situation, Pearl Hill would have terminated the Heads of Agreement, that Pearl Hill would instead have affirmed the Heads of Agreement, accepted Marina Cove's/the Commonwealth Bank's conditions of 9 and 21 April 2009, called on Marina Cove to execute Contracts of Sale of the 33 lots on the terms otherwise previously agreed and pursued specific performance in the HOA action with a view to a speedy judicial determination or a resolution.
890 For the reasons given above, Pearl Hill has proved on the balance of probabilities that, in the hypothetical counterfactual scenario, it would have taken the opportunity of resolving the HOA action by agreeing to Marina Cove's terms as set out in the Gadens letters of 9 and 21 April 2009.
Had the HOA already been validly terminated by Marina Cove
891 The defendants plead that the sending of Pearl Hill's 20 May 2009 termination letter did not foreclose any claim for specific performance because the Heads of Agreement had already been validly terminated by Marina Cove on 13 May 2009. They plead that Marina Cove was entitled to terminate on the ground of failure of the clause 15 condition, repudiation by Pearl Hill in respect of execution of individual contracts in relation to the 33 lots and/or repudiation by Pearl Hill in respect of performance of building works.
892 On the counterfactual scenario that Pearl Hill did not terminate the Heads of Agreement on 20 May 2009 and instead sought to enforce purchase of the 33 lots pursuant to it (by prosecution or resolution of the HOA action), the question whether Marina Cove had a defence to Pearl Hill's claim for specific performance would have been determined in the HOA action if that issue were not resolved. Pearl Hill would have borne the onus of proof that the clause 15 condition had been satisfied.[83] Marina Cove would have borne the onus of proof that Pearl Hill had repudiated the Heads of Agreement in respect of execution of individual contracts in relation to the 33 lots or in respect of performance of building works.[84]
893 It is common ground between the parties that the question whether Marina Cove validly terminated the Heads of Agreement on 13 May 2009 is to be determined in this action on the balance of probabilities rather than on the degree of probability (although the parties differ on who bears the onus of proof in respect of repudiation, which I address below).
894 When negligent conduct by a defendant lawyer has caused a plaintiff to be deprived of a cause of action, the value of the cause of action is assessed based on the degree of probability of success on the cause of action and not on the balance of probabilities notwithstanding that the subject matter of the hypothetical cause of action depends on historical facts.[85] The rationale for this approach appears to be in part that the conduct of the hypothetical action by the parties and the approach of the hypothetical judicial officer is necessarily hypothetical, in part the limitations on trying in the same manner and to the same degree in the negligence action the issues that would have been contested in the hypothetical action, and in part because the prospect of a resolution by agreement of the hypothetical action must be factored in and this also is hypothetical. It is not clear to me why this approach would not be apposite in the present case. However, I proceed on the basis of the common ground between the parties that the validity of Marina Cove's purported termination is to be determined on the balance of probabilities.
895 Pearl Hill pleads that the clause 15 condition was satisfied by 18 December 2008 and, in the alternative, a conventional estoppel arose precluding Marina Cove from contending otherwise.
896 The defendants take issue with Pearl Hill's contentions. They contend that Marina Cove was entitled to terminate the Heads of Agreement on 13 May 2009 because the clause 15 condition had not been satisfied.
897 Pearl Hill contends in the alternative that, even if the clause 15 condition had not been satisfied and no estoppel arose, Marina Cove would have been disabled from relying on non-satisfaction of the condition as a ground for termination because it was in anticipatory breach of its obligations under clauses 2 and 10 to pay amounts owing to Pearl Hill for building works. The defendants contend that Marina Cove would not have been in anticipatory breach because its taking over the balance of the works pursuant to clause 39 of the Construction Contract entailed that the net amount owing as between the parties could not be ascertained until completion of the works.
899 For ease of reference, I refer to the Commonwealth Bank, the City Pacific First Mortgage Fund and the Board of Directors of CP1 Limited collectively as the consenting entities.
900 I understand that it is common ground that the entire Heads of Agreement was subject to the clause 15 condition and not just, for example, clauses 1 and 3. In any event, this is clear as a matter of construction of the text of clause 15 in context and by reference to its evident purpose.
901 It is common ground that clause 15 provides for a binary position: either the grant or refusal of consent to the Heads of Agreement by the consenting entities (as opposed to say a conditional grant of consent). The position is complicated by the fact that there was nothing that prevented one of the consenting entities expressing consent subject to conditions and the Commonwealth Bank in fact did so. Conditional consent in the context of a condition precedent is neither grant nor refusal of consent.[86]
902 Marina Cove did not in its 13 May 2009 letter of termination contend that the clause 15 condition had not been satisfied or rely on non-satisfaction as a ground for termination. On the contrary, it relied on an allegation that 'Pearl Hill's conduct in connection with the Contracts for the Sale of Lots 600 to 632 was in breach of the HOA and that breach amounted to repudiation', which was inconsistent with the condition not having been satisfied. However, Pearl Hill concedes that it is open to the defendants in this action to rely on a ground of non-satisfaction of the clause 15 condition notwithstanding that Marina Cove did not do so and relied instead on repudiation by Pearl Hill. I act on the basis of that concession.
903 I find, based on Mr Axarlis' evidence that PPB spoke for CPL as responsible entity of the Mortgage Fund, that the Fund consented to the Heads of Agreement conditional on the Commonwealth Bank doing so. I infer, from the fact that Mr Axarlis was willing to execute the Contracts of Sale on 18 December 2008 and from its parlous financial condition, that the board of directors of CP1 also consented to the Heads of Agreement conditional on the Commonwealth Bank doing so. The issue of consent by the Mortgage Fund and the board of directors of CP1 is therefore dependent on the issue of consent by the Commonwealth Bank.
904 The Commonwealth Bank's consent given on 10 December 2008 was expressed in the following conditional terms (which I have numbered for ease of reference):
Subject to the following, I confirm that CBA consents to the proposed sale of the 33 'Western lots' in Stage 4 for the price of $15m (excluding any applicable GST):
1. PPB/CBA receiving confirmation:
a. of the settlement date;
2. satisfactory review of sale documents by PPB/CBA; and
905 I find that the Commonwealth Bank's conditions 1 and 2 were satisfied by 18 December 2008. Confirmation of the matters in conditions 1b and 1c was provided by the 18 December confirmation letter sent by email by Pearl Hill to Mr Roberts and Mr Titterton on that date. I infer from the fact that Mr Axarlis was willing to execute the Contracts of Sale on 18 December 2008 that they had been satisfactorily reviewed by the Commonwealth Bank and the Bank was content with the settlement date shown therein.
906 However, Contracts of Sale were not executed by both parties prior to 24 December 2008 and hence condition 3 to the Commonwealth Bank's consent was not in terms satisfied.
907 Pearl Hill contends that, because performance of clause 3 of the Heads of Agreement required the parties to execute Contracts of Sale and the obligation to do so only came into existence upon satisfaction of the clause 15 condition, the purported imposition by the Commonwealth Bank of a condition that the parties execute Contracts of Sale was nonsensical and hence ineffective. If consent is conditional on performance of a substantive obligation under the contract, and that substantive obligation is conditional on consent, the position is circular. As the parties would become obliged to execute Contracts of Sale upon the clause 15 condition being satisfied, the imposition of condition 3 was ineffective. The agreement cannot be both binding (in the sense of requiring performance) and non-binding (in the sense that clause 15 consent has not yet been given) at the same time, in contrast to the allegorical Schrödinger's cat in quantum physics.
908 I reject Pearl Hill's contention. There is no reason why performance of clause 3 cannot be simultaneous with satisfaction of the clause 15 condition. By executing the Contracts of Sale on or before 24 December 2008, not only would the clause 15 condition be satisfied and the Heads of Agreement become unconditional, but also the parties would be performing one of the substantive terms of the Heads of Agreement. The parties would not be in breach of clause 3 before that time because the obligation to execute Contracts of Sale only arises when the clause 15 condition has been satisfied. Conversely, if Contracts of Sale were not executed by 24 December 2008, condition 3 to the Bank's consent would not be fulfilled and the clause 15 condition would not be satisfied.
909 It does not matter for this purpose that there were 33 Contracts of Sale to be executed rather than a single contract. As they could only be executed one by one, each executed Contract of Sale would be conditional on execution of all 33 contracts and the execution would be ineffective until all 33 contracts had been executed. Upon execution of the last Contract of Sale, condition 3 would be fulfilled and the clause 15 condition satisfied.
910 Pearl Hill has failed to prove that the consenting entities consented to the Heads of Agreement by 18 December 2008.
911 Later in their dealings, the question arose whether the Commonwealth Bank would consent to a variation of clause 3 of the Heads of Agreement to delete the requirement for payment of a deposit. It is important not to confuse the question of consent to a variation with the question of consent to the Heads of Agreement. The question of consent to a variation under clause 3 came to dominate the parties' attention and, as explained below, Pearl Hill and Marina Cove came to act on the basis that the clause 15 consent to the Heads of Agreement had been obtained. As far as actual clause 15 consent is concerned, it is of course possible that the Commonwealth Bank communicated to Marina Cove unconditional clause 15 consent to the Heads of Agreement after 24 December 2008. However, no evidence was adduced that this occurred and Pearl Hill's case on actual consent (as opposed to conventional estoppel) is confined to the grant of consent on 10 December 2008 having become effective by 18 December 2008.
912 Pearl Hill pleads in the alternative that an estoppel by convention arose precluding Marina Cove from denying satisfaction of the clause 15 condition.
(1) The parties have proceeded on the basis of an underlying assumption of fact, law, or both, of sufficient certainty to be enforceable (the assumption).
(2) Each party has, to the knowledge of the other, expressly or by implication accepted the assumption as being true for the purposes of the transaction.
(3) Such acceptance was intended to affect their legal relations in the sense that it was intended to govern the legal position between them.
(4) The proponent was entitled to act and has, as the other party knew or intended, acted in reliance upon the assumption being regarded as true and binding.
(5) The proponent would suffer detriment if the other party were allowed to resile or depart from the assumption;
(6) In all the circumstances it would be unconscionable to allow the other party to resile or depart from the assumption. [89]
915 In Davis v CGU Insurance Ltd[92] the Full Court of the South Australian Supreme Court said that the assumption must be 'of sufficient certainty to be enforceable'.[93] On the other hand, in The Bell Group Ltd (In Liquidation) v Westpac Banking Corporation (No 9)[94] Owen J said that the assumption must be '"clear and unequivocal" or "plain and unambiguous"'. I am bound by the decision of an intermediate appellate court unless persuaded that it is plainly wrong.[95] I am not so persuaded. On the contrary, I consider that the test of 'sufficient certainty' is the appropriate test. I proceed on that basis.
916 The question whether the elements are satisfied is partly objective and partly subjective. Thus 'acts done privately by one party without coming to the knowledge of the other can scarcely be capable of affecting their mutual relations or of raising assumptions capable of forming a conventional or accepted basis governing their relations'.[96] The parties need not believe that the assumption is true: it is sufficient that they act on the basis that it is true and they may even know that it is not actually true.[97]
917 The first three elements are complementary. The first element relates to the conduct of the parties rather than their state of mind and the test is therefore objective. The second element relates to both the state of mind of the parties and to their communications and/or conduct and the test is a combination of objective and subjective. Objectively, the parties' conduct and communications must manifest an acceptance of the assumption as true for the purposes of the transaction and intention that the acceptance govern the legal position between them. Subjectively, the proponent must accept the assumption as true for the purposes of the transaction and intend that the acceptance govern the legal position between them and believe that the opponent is also doing so. If the opponent causes the proponent to believe that the opponent is accepting the assumption as true for the purposes of the transaction and intends that the acceptance govern the legal position between them, but privately does not so accept or intend, that would not prevent establishment of the estoppel if the other elements are established. As observed above, it does not matter if the proponent does not believe that the assumption is factually true, provided that the proponent believes that the parties are acting on the basis that it is true for the purposes of their transaction.
918 The test for the fourth element is a combination of objective and subjective. Objectively, the proponent must be entitled to act in reliance on the assumption being regarded as true and binding. Objectively and subjectively, the proponent must act in reliance on the assumption being regarded as true and binding. The opponent must either know or intend that the proponent act in reliance upon the assumption being regarded as true and binding, or cause the proponent to believe that the opponent so knows or intends.
919 The fifth element is objective and the sixth element is evaluative.
Mutual adoption of assumption: first three elements
920 Pearl Hill contends, and the defendants deny, that Marina Cove and Pearl Hill knowingly and intentionally proceeded and dealt with each other on the basis of an underlying assumption that the clause 15 condition had been satisfied and that the parties were obliged to perform their substantive obligations under the Heads of Agreement.
921 Pearl Hill contends that the attendance of the parties at Pearl Hill's office on 18 December 2008 to execute the individual contracts involved a dealing by the parties with each other on the basis of the putative assumption. I reject that contention. The attendance of the parties was against the background that both parties knew that the Commonwealth Bank's consent to the Heads of Agreement was conditional on 'unconditional contracts of sale being executed by both parties prior to 24 December 2008'. Accordingly, attendance to execute the Contracts of Sale was incapable of comprising conduct on the basis of an assumption that the clause 15 condition had already been satisfied.
922 In the period up 18 February 2009, there were no communications or dealings between the parties of which evidence was adduced that are capable of comprising conduct on the basis of an assumption that the clause 15 condition had already been satisfied.
923 On 26 November 2008 Mr Mimmo sent a letter to Mr Axarlis alleging that Marina Cove was in breach of the Heads of Agreement by not paying the Annexure B monies and Pearl Hill was entitled to suspend work under clause 11 of the Heads of Agreement due to that breach. He also claimed that, due to the breach, invoices 1384 and 1385 should be added onto Annexure B. On 19 February 2009 Mr Axarlis sent an email rejecting the claim in relation to invoices 1384 and 1385 and asserting that Pearl Hill was in breach of clause 3 and clause 2 of the Heads of Agreement. He requested confirmation that Pearl Hill would comply with the Heads of Agreement in all respects (save for payment of the 10% deposit [which was still being negotiated]), failing which Marina Cove would consider that Pearl Hill intended to repudiate the Heads of Agreement.
924 Mr Mimmo's letter and Mr Axarlis' email each relying on substantive rights under the Heads of Agreement proceeded on the assumption that the clause 15 condition had been satisfied and the substantive terms of the Heads of Agreement had become operative.
925 On 11 March 2009 Pearl Hill sent an email to Marina Cove contending that certain works that were needed to achieve an occupancy permit on lot 54 fell outside the scope of the Heads of Agreement.[98] On 11 March 2009 Mr Axarlis sent a responding letter relying on clauses 10 and 16 of the Heads of Agreement as excluding liability of Marina Cove to pay for these works. He said that the whole Heads of Agreement was premised on no further money other than that identified in it being paid by Marina Cove.
926 Pearl Hill's email and Mr Axarlis' letter relying on substantive rights under the Heads of Agreement proceeded on the assumption that the clause 15 condition had been satisfied and the substantive terms of the Heads of Agreement had become operative.
927 On 7 April 2009 Hoeys on behalf of Pearl Hill sent a letter to Mr Axarlis referring to the Heads of Agreement, stating that Pearl Hill was ready, willing and able to proceed with the purchase of the 33 lots pursuant to the Heads of Agreement and alleging that Marina Cove had to date refused to sign the individual contracts in breach of the Heads of Agreement. Hoeys identified, and refuted, three reasons understood to have been given by Marina Cove for its refusal to sign the individual contracts. One identified reason was that Marina Cove wanted payment of the 10% deposit referred to in clause 3 of the Heads of Agreement. Hoeys said that Pearl Hill was entitled to set off against the deposit amounts owing (being $1,020,105 for invoices identified in Annexure B and $453,947 in client variations pursuant to clause 10.2 of the Heads of Agreement). Hoeys said that time was now of the essence for signing the Contracts of Sale and Pearl Hill insisted on their being executed by 9 April 2009.
928 On 9 April 2009 Gadens on behalf Marina Cove replied to Hoeys' letter. They said that Marina Cove was not prepared to execute the Contracts of Sale with no deposit being paid. A set off was inconsistent with the tenor of the Heads of Agreement. The Heads of Agreement had by clause 15 been subject to Marina Cove's financier's approval and that approval had been obtained. Subsequently Pearl Hill sought to avoid paying the deposit and, although Marina Cove and its financier may have agreed to remove the deposit requirement if appropriate evidence of available finance was provided, such evidence had not to date been provided, and accordingly Pearl Hill remained bound by the Heads of Agreement as executed in October 2008. Gadens also took issue with the timing of payments due by Marina Cove under the Heads of Agreement and with the client variations being payable by Marina Cove pursuant to clause 10.2. Gadens contended that Pearl Hill had repudiated the Heads of Agreement by not proceeding with the purchase of the 33 lots and by not completing the outstanding houses within the times set out in clause 4 of the Heads of Agreement. They then proceeded to offer to agree to execute Contracts of Sale on the terms set out at [212] above.
929 Hoeys' letter and Gadens' response each relying on substantive rights under the Heads of Agreement proceeded on the common assumption that the clause 15 condition had been satisfied and the substantive terms of the Heads of Agreement had become operative. The letters are inconsistent with the condition not having been satisfied. Gadens' letter expressly said that the condition had been satisfied. References by the parties to the Commonwealth Bank's consent from this time on are references to its consent to vary clause 3 to delete payment of a deposit rather than to clause 15 consent to the Heads of Agreement. After Gadens' letter stating that clause 15 consent was obtained, neither party took issue with the statement or suggested otherwise.
930 On 17 April 2009 Hoeys replied to Gadens' letter. Hoeys took issue with Gadens' contentions concerning the set off. Hoeys disputed that Pearl Hill was in breach of the Heads of Agreement in progressing the works and said that Pearl Hill was on site, diligently working to complete the outstanding works. Hoeys referred to a telephone conversation between Mr Mimmo and Mr Axarlis on 14 April in which Mr Axarlis said that a deposit was not now required and Hoeys said that there appeared therefore to be no barrier to execution of the Contracts of Sale. Hoeys said that Pearl Hill had instructed them to commence proceedings [to enforce the Heads of Agreement] if Contracts of Sale were not executed within seven days.
931 On 21 April 2009 Gadens replied to Hoeys' letter. Gadens took issue without elaboration with Hoeys' contentions concerning the set off. Gadens said that the entitlement of Pearl Hill to insist upon compliance with the Heads of Agreement had now passed, implicitly contending that a reasonable time for execution of the Contracts of Sale had elapsed. However, they set out terms on which Marina Cove was prepared to execute Contracts of Sale as set out at [228] above.
932 Hoeys' letter and Gadens' response each relying on substantive rights under the Heads of Agreement proceeded on the common assumption that the clause 15 condition had been satisfied and the substantive terms of the Heads of Agreement had become operative. The letters are inconsistent with the condition not having been satisfied.
933 On or shortly after 29 April 2009 Hoeys served on Gadens the writ and statement of claim in the HOA action. The statement of claim sought payment of $1,879,783 pursuant to the Heads of Agreement and an order for specific performance of the Heads of Agreement by requiring Marina Cove to execute and complete the transfer of the 33 lots to Pearl Hill. It proceeded on the assumption that the clause 15 condition had been satisfied and the substantive terms of the Heads of Agreement had become operative.
934 On 13 May 2009 Mr Axarlis sent a letter to Mr Mimmo purporting to terminate the Heads of Agreement. The ground of termination was that Pearl Hill's conduct in connection with the Contracts of Sale was in breach of the Heads of Agreement and that breach amounted to repudiation. This ground proceeded on the assumption that the clause 15 condition had been satisfied and the substantive terms of the Heads of Agreement had become operative. Marina Cove did not terminate on the ground that the clause 15 condition had not been satisfied.
935 I take into account the fact that clause 15 had evidently been inserted into the Heads of Agreement for the protection of Marina Cove because, unless the Commonwealth Bank agreed to discharge its mortgage over the 33 lots on their transfer to Pearl Hill, Marina Cove could not complete the sale transaction. This fact requires caution before concluding that Marina Cove was proceeding on the basis that the clause 15 condition had been satisfied when the Commonwealth Bank had not in fact consented to the transaction on terms that had been met. However, the risk to Marina Cove was ameliorated by the fact that, throughout the relevant period, Pearl Hill was seeking a variation to the Heads of Agreement to remove the requirement for payment of a deposit and Marina Cove was only prepared to agree to that variation on terms acceptable to the Commonwealth Bank.
936 I am satisfied that between 19 February and 13 May 2009 Marina Cove and Pearl Hill mutually proceeded on the basis of an assumption that the clause 15 condition had been satisfied and the parties were obliged to perform their substantive obligations under the Heads of Agreement. Marina Cove, to the knowledge of Pearl Hill, accepted the assumption as being true for the purposes of the Heads of Agreement. Marina Cove, by its conduct set out above, conveyed to Pearl Hill that it so accepted the assumption. Pearl Hill, to the knowledge of Marina Cove, accepted the assumption as being true for the purposes of the Heads of Agreement. Pearl Hill, by its conduct set out above, conveyed to Marina Cove that it so accepted the assumption. Pearl Hill intended such acceptance to govern the legal position between the parties. Marina Cove conveyed to Pearl Hill that it intended such acceptance to govern the legal position between the parties and it so intended. The assumption, and the acceptance to the knowledge of the other of the assumption, was of sufficient certainty to be enforceable. Even if the test were that the assumption must be clear and unequivocal or plain and unambiguous, I am so satisfied.
937 By engaging in the dealings with Pearl Hill summarised above, Marina Cove played an essential part in the formation by Pearl Hill of the assumption. There was the requisite mutually manifest conduct by the parties based on a common assumption. There has been demonstrated the requisite preparedness by both parties to proceed on the assumed basis.
938 The defendants contend that Pearl Hill did not adopt the putative assumption. They rely primarily on four emails sent by Mr Mimmo to his lawyers on 17 April 2009. Those emails were sent, as the defendants point out, in the context that on 15 April 2009 Mr Mimmo gave instructions to issue proceedings against Marina Cove seeking specific performance of the Heads of Agreement if Contracts of Sale were not executed within seven days and Pearl Hill's lawyers had drafted a letter responding to Marina Cove's show cause notice under the Construction Contract in respect of which they were seeking factual instructions from Mr Mimmo.
939 Ultimately, the four emails need to be considered in conjunction with each other. I first address them individually.
940 On 17 April 2009 at 12.00 noon Mr Mimmo sent an email to Mr Berrill and Mr Oliver saying:
In respect to the attached [Heads of Agreement], I wish to clarify 4.3 and Emails. My view has always been that until both the Heads of Agreement and Contracts signed is when time frame starts. Prior to HOA works were suspended and the signed HOA was a solution on going back to work.
941 The defendants contend that Mr Mimmo in that email expressed the view that the time frames for completion of lots identified in clause 4.1 did not start to run until not only the Heads of Agreement but also the Contracts of Sale were signed. I accept that contention. It does not matter for present purposes whether Mr Mimmo's belief was correct because the present issue is Mr Mimmo's state of mind.[99]
942 Although Mr Mimmo wrote '4.3' in his email, it is apparent from the text and context of his email (and the fact that subclause 4.3 is not apposite to his point) that he was referring to clause 4 generally and in particular to the reference in subclause 4.1 to periods of months 'from date of signed agreement' (see subclause 4.1 extracted at [1027] below). This is also confirmed by Mr Mimmo's subsequent email sent on the same day referred to below.
943 The defendants contend further that Mr Mimmo in that email expressed the view that the time frames did not start to run until the clause 15 approvals were obtained and that this had not yet occurred. I reject that contention. That is a quite different belief to that expressed by Mr Mimmo and summarised at [941] above. There is no foundation in the text or context of the email for that construction and it is contrary to the text and context. It is also contrary to Mr Mimmo's belief that Marina Cove was in breach of the Heads of Agreement by not paying amounts due under it or executing Contracts of Sale allowing a set off of those amounts.
944 On 17 April 2009 at 12:39pm Mr Mimmo sent an email to Mr Berrill and Mr Oliver saying:
You seem to be missing the most important thing in that letter dated 18/12/2008 [the 18 December confirmation letter]. Theo said he needed the letter first as instructed by the bank so he could sign contracts.
Confirmed at bottom of letter. Under no circumstance would we of gone back to work and continued the project. Please note the dates on attachment [vendor statement acknowledged 18 December 2008] as this is the only reason Theo received the letter as we assumed he would fulfil his side of agreement as well. As he needed it first so he could complete the Deed.
Just another ploy not to get sued and stop proceedings.
945 In this email, Mr Mimmo was saying that he only provided the 18 December confirmation letter in the belief, induced by Mr Axarlis, that after its receipt Marina Cove would pay the Annexure B amount.
946 Mr Mimmo said in cross-examination that, by saying 'Under no circumstance would we of gone back to work and continued the project', he meant that Pearl Hill would not have agreed to the timeframes in clause 4.1 of the Heads of Agreement without the assurance of payment of outstanding monies by Marina Cove. Mr Mimmo was cross-examined in part by combined reference to his emails sent at 12 noon and 12:39pm. The effect of his evidence in cross-examination was that, amongst other things, he was also saying in his email sent at 12:39pm that he only signed the 18 December confirmation letter in the expectation that Contracts of Sale would be signed and that shortly thereafter and upon the signing Pearl Hill would be obliged to return to work and the time frames in clause 4 would start to run. This is consistent with Mr Mimmo's 12 noon email.
947 The defendants contend that Mr Mimmo in his 12:39pm email expressed the view that the time frames did not start to run until the clause 15 approvals were obtained and that this had not yet occurred. I reject that contention. There is no foundation in the text or context of the email for that construction and it is contrary to the text and context. It also is not the effect of his evidence.
948 On 17 April 2009 at 2:33pm Mr Mimmo sent an email to Mr Oliver saying:
Assuming they signed the contracts today, we would anticipate finishing as per timeslots allowed for in my email need 7 months lots 68, 67, 65, Lot 64, 63, 62, 4.5 months, Lot 61, 60, 59 8 months, lot 42 and 41 need 9 months, lot 57 and 53 need 11 months, lot 43 and 58 need 12 months, bar lot 54 and 56 they have reached prac comp.
949 This email is consistent with Mr Mimmo's belief expressed in his email sent at 12 noon that the time frames for completion of the lots did not commence until execution of the Contracts of Sale. It does not express a belief that the time frames did not start to run until the clause 15 approvals were obtained and that this had not yet occurred.
950 On 17 April 2009 at 2:35pm Mr Mimmo sent an email to Mr Oliver saying:
Theo was under the same time frame and understanding as I was. If that was not the case then we should of finished these few homes before Christmas. He would of served us with a show cause then, but couldn't due to false document saying we were back at work in Dec [the 18 December confirmation letter] without completing contract signing. Both have to be executed to make it a deal. If not it would have stated Lot 56 and 54 completion 21/12/08 and so on. not, date of signed agreement. This means both to me.
951 The reference to 'date of signed agreement' is clearly a reference to the wording of the time frames in subclause 4.1 (extracted at [1027] below). The reference to 'both' was clearly a reference to both the Heads of Agreement and the individual Contracts of Sale. In other words, Mr Mimmo was contending (rightly or wrongly) that the reference was intended to be to 'signed agreements' plural - the Heads of Agreement and Contracts of Sale - or to Contracts of Sale (the Heads of Agreement already having been signed). It is clearly not, as the defendants contend, a reference to the financiers' consent under clause 15 and the Contracts of Sale.
952 Mr Mimmo's emails sent on 17 April 2009, considered individually and collectively, do not evince a belief that the time frames did not start to run until the clause 15 approvals were obtained and that this had not yet occurred. This was not a belief that Mr Mimmo held or expressed to his lawyers.
953 In addition to the four emails, the defendants refer to the following propositions put to Mr Mimmo in cross-examination, to which he acceded, in relation to a January 2009 email from Pearl Hill to Marina Cove concerning finance from the National Australia Bank:
Now, Mr Mimmo, Pearl Hill would not have bothered to seek unconditional finance if you hadn't understood that the bank would not consent to the heads of agreement and to the contracts of sale without it.
So Pearl Hill sought that unconditional finance because, as you said to Mr Birrel [sic] and Mr Oliver, you thought Mr Axarlis was under the same understanding as you were: that you needed the bank's consent to unconditional offers of finance.
954 The defendants contend that Mr Mimmo's evidence evinces his belief in January 2009 that the time frames did not start to run until the clause 15 approvals were obtained and that this had not yet occurred. I reject that contention.
955 In January 2009 Pearl Hill was seeking the agreement of Marina Cove (and hence of the Commonwealth Bank) to vary the Heads of Agreement to remove the requirement in clause 3 for payment of a 10% deposit. At that stage, the Commonwealth Bank (and hence Marina Cove) was prepared to entertain that variation but only if Pearl Hill provided evidence that it had unconditional finance. Contracts of Sale with no deposit could only be executed if the Commonwealth Bank agreed to the variation of the Heads of Agreement. This is a different concept to consent by the Commonwealth Bank to the Heads of Agreement itself. I note incidentally that Mr Mimmo's evidence in this respect relates to January 2009, which is before any conduct by the parties on the basis of an assumption that the clause 15 condition had been satisfied and the parties were obliged to perform their substantive obligations under the Heads of Agreement.
956 The defendants also observe that Pearl Hill did not lead any evidence from Mr Mimmo that he made the putative assumption. Based on his conduct, I am affirmatively satisfied that Mr Mimmo did make the assumption.
957 The defendants contend that Marina Cove did not adopt the putative assumption. The defendants primarily rely on dealings between the parties between 19 December 2008 and 21 April 2009 about terms on which the Commonwealth Bank would or might agree to execution of the Contracts of Sale without a deposit.
958 On 19 December 2008 Mr Axarlis sent an email to Mr Morello in the following terms:
In speaking with the CBA's representative today regarding the amendment to the Contracts, they advised that they will consider the request to amend the Contracts of Sale to provide for no deposit payable on signing and for reducing the settlement date to 21 days after the date of the registration of the Plan of Subdivision only once you have produced evidence from your financier (satisfactory in all respects to our financier) that you have obtained/secured the necessary finance to settle the Contracts of Sale. For the avoidance of doubt, only at that point will the Bank consider our request to amend the Contract.
Please urgently provide the letter of approval from your financier evidencing the facility to settle the contracts of sale.
959 The context of this email was Mr Mimmo's request made at the meeting on 18 December 2008 that the requirement for a deposit be removed in light of non-payment by Marina Cove of the amounts referred to in the Heads of Agreement.
960 As it was being proposed that there be a variation by way of amendment to clause 3 of the Heads of Agreement, which required payment of a 10% deposit, commercially it is entirely understandable that Marina Cove would not agree to the variation unless its financier agreed. The fact that Marina Cove was only prepared to agree to remove the requirement for a deposit conditional upon agreement by the Bank does not entail that Marina Cove (or Pearl Hill) was not proceeding on the basis that the clause 15 condition had been satisfied.
• Mr Morello's email of 27 January 2009 to Mr Axarlis attaching the NAB letter and Mr Axarlis' response dated 28 January 2009 saying that the Commonwealth Bank had requested an unconditional letter of approval;
• Other emails from Pearl Hill to Marina Cove providing letters obtained from its financiers;
• Mr Axarlis' letter to Mr Mimmo of 18 February 2009 stating that 'the Contracts of Sale ... are awaiting execution subject to confirmation from your financier of unconditional loan approval and CBA's written consent';
• Mr Axarlis' email to Mr Mimmo and Mr Morello of 23 February 2009 asking if Charter Keck Cramer's valuation of the 33 lots had been received, Mr Morello's response of 24 February 2009 in the affirmative and Mr Axarlis' reply of 24 February 2009 asking for an unconditional letter of finance that he may forward to the Commonwealth Bank seeking consent to amend the Contracts of Sale to remove the requirement for the deposit;
• Mr Morello's email to Mr Axarlis of 5 March 2009 providing contact details for the NAB manager dealing with Pearl Hill's loan application in response to a request from Mr Axarlis to provide the details to pass on to the Commonwealth Bank;
• Mr Axarlis' email to Mr Mimmo of 1 April 2009 referring to the requirement in clause 3 for a 10% deposit on signing the Contracts of Sale, Mr Axarlis having spoken to the Commonwealth Bank seeking a waiver of that condition, the Bank's seeking an unconditional letter of finance from Pearl Hill's financier before advising its position, and the lack of substantive progress up to 1 April.
962 These communications relate to the potential variation of clause 3 of the Heads of Agreement to remove the requirement for a deposit, which up to 1 April 2009 had not reached fruition. This is a different matter to consent by the Commonwealth Bank pursuant to clause 15 to the Heads of Agreement itself.
963 The defendants refer to Gadens' letter to Mr Mimmo dated 30 March 2009 saying that the Heads of Agreement was subject to financier, mortgage fund and board of directors approval in accordance with clause 15, that consent was obtained on terms that should have been expected by Pearl Hill, Pearl Hill had failed to comply with the requirements of the consent of the financier and Pearl Hill had thereby repudiated the Heads of Agreement. This was not a contention that there was no binding Heads of Agreement for want of clause 15 approval: in that event Pearl Hill could not have repudiated the agreement. Rather, it was a contention that Pearl Hill had repudiated the Heads of Agreement because it had not executed the Contracts of Sale on the requisite terms.
964 The defendants refer to Gadens' letters to Hoeys dated 9 and 21 April 2009. Those letters, for the reasons given above, proceeded on the assumption that the clause 15 condition had been satisfied.
965 The communications between Marina Cove and Pearl Hill relied on by the defendants do not evidence that Marina Cove (or Pearl Hill) did not adopt the putative assumption. On the contrary, a consideration of all of the communications between Marina Cove and Pearl Hill from 19 February 2009 onwards involves the parties proceeding on the basis of the putative assumption.
966 The defendants also rely on the following internal communications between Marina Cove and PPB (on behalf of the Commonwealth Bank) to which Pearl Hill was not a party:
• PPB's email to Mr Axarlis of 18 December 2008 confirming that the Bank would 'consider its position with regard to providing consent to the proposed sale';
• Mr Axarlis' email to PPB of 27 January 2009 seeking the Bank's consent to entry into the Contracts of Sale and PPB's response saying that the Bank would not consider such consent until Pearl Hill submitted a new offer supported by an unconditional offer of finance;
• Mr Axarlis' letter to PPB dated 8 April 2009 stating that the present position was that the Bank's consent was only provided on the basis of an unconditional contract and payment of a deposit by Pearl Hill and inquiring whether the Bank would consent to Marina Cove entering into Contracts of Sale in the absence of a deposit and/or unconditional finance approval;
• PPB's response by email of 9 April 2009 setting out the conditions on which the Bank would agree to Marina Cove entering into Contracts of Sale without a deposit.
967 These communications all relate to the conditions on which the Bank might or might not agree to a variation of the Heads of Agreement to remove the requirement for a deposit and execution of Contracts of Sale without a deposit. They do not relate to the Bank's consent to the Heads of Agreement itself. In any event, they are internal to Marina Cove rather than being dealings between Marina Cove and Pearl Hill.
968 The defendants also contend that Pearl Hill did not lead any evidence from Mr Axarlis in cross-examination that he made the putative assumption. Based on his conduct, I am affirmatively satisfied that Mr Axarlis did make the assumption. In any event, Marina Cove's conduct led Pearl Hill to believe that Marina Cove was making the assumption and it would not matter if Mr Axarlis privately was not doing so.
969 The defendants do not make submissions concerning the other elements of conventional estoppel (beyond the elements addressed above). I address them briefly.
970 The fourth element is that Pearl Hill was entitled to act and, as Marina Cove knew or intended, acted in reliance on the assumption being regarded as true and binding. I am satisfied of this element. Pearl Hill undertook construction work on the houses on the 33 lots that had not yet been completed. Although the evidence was limited about the precise scope and timing of that work, it was substantial. It included achieving lock-up stage in respect of lots 57 and 58 by 1 April 2009, achieving practical completion in respect of lots 54 and 56 by 3 April 2009, and undertaking work in respect of the houses on the balance of the lots. It is evident from Hoeys' letter to Gadens dated 1 May 2009 that Pearl Hill was undertaking substantial construction work as at that date. Before entry into the Heads of Agreement, Pearl Hill had suspended work under the show cause provisions of the Construction Contract. Pearl Hill also continued to deal with Marina Cove, and incur legal and other costs in so doing, in relation to the Heads of Agreement on the basis that the clause 15 condition had been satisfied and the parties' legal position was governed by its substantive provisions. Pearl Hill was entitled to so act given the assumption on the basis of which both parties were proceeding Marina Cove knew that Pearl Hill was so acting and intended it to undertake the construction work in accordance with its substantive obligations under the Heads of Agreement. It is self-evident that Mr Mimmo would not have undertaken any construction work but for the assumption that the clause 15 condition had been satisfied and that the substantive provisions of the Heads of Agreement had come into operation.
971 The fifth element is that Pearl Hill would suffer detriment if Marina Cove were allowed to resile or depart from the assumption. I am satisfied of this element. Pearl Hill would suffer such detriment because it incurred construction costs that it would not otherwise have incurred, and incurred legal and other costs that it would not otherwise have incurred, but for the assumption and the part played by Marina Cove in the making of the assumption.
972 The sixth element is that in all the circumstances it would be unconscionable to allow Marina Cove to resile or depart from the assumption. This element is established.
973 Pearl Hill has proved a conventional estoppel precluding Marina Cove from asserting that the clause 15 condition was not satisfied or from denying that the parties were obliged to perform their substantive obligations under the Heads of Agreement.
974 It is sufficient for the purpose of determining the entitlement of Marina Cove to rely on non-satisfaction of the clause 15 condition as justifying termination of the Heads of Agreement to determine that a conventional estoppel had arisen by and as at 13 May 2009 precluding Marina Cove from doing so. It is not necessary for that purpose to determine precisely when the conventional estoppel first arose. However, it will be relevant when considering the different issue of alleged repudiation of the Heads of Agreement by Pearl Hill by failing to complete the building works pursuant to clause 4 of the Heads of Agreement (and to a less extent repudiation by failing to pay the deposit for the 33 lots pursuant to clause 3 of the Heads of Agreement). The earliest possible date on which conventional estoppel first arose was 19 February 2009. In the context of repudiation, that day is most favourable to the defendants and, for that purpose, I assume in their favour that the conventional estoppel arose on 19 February 2009. Whatever doubts there may be whether the estoppel arose in February or March 2009, it is clear that it had arisen by April 2009.
975 It follows that Marina Cove would not have been entitled to rely on non-satisfaction of the clause 15 condition as justifying termination of the Heads of Agreement. I note that it did not in fact do so. Although not necessary for my conclusion that Marina Cove and Pearl Hill both acted on the basis that the clause 15 condition had been satisfied, this fortifies that conclusion.
976 Pearl Hill contends that, even if the clause 15 condition had not been satisfied and no estoppel arose, Marina Cove was disabled from relying on non-satisfaction of the condition as a ground for termination because it was in anticipatory breach of its obligations under clauses 2 and 10 to pay amounts owing to Pearl Hill for construction work. It is unnecessary to consider this contention because of my conclusion that a conventional estoppel arose.
977 By reason of conventional estoppel, the clause 15 condition was deemed to be satisfied. Marina Cove was not entitled to terminate the Heads of Agreement on the ground of non-satisfaction.
978 The defendants plead that Marina Cove validly terminated the Heads of Agreement by acceptance of repudiation by Pearl Hill in failing to pay the deposit for the 33 lots pursuant to clause 3 of the Heads of Agreement.
979 Pearl Hill denies that it was in breach of the Heads of Agreement and denies that its conduct as at 13 May 2009 amounted to repudiation justifying termination by Marina Cove. Pearl Hill contends in particular that it was entitled to set off against the deposit or the purchase price the balance of the Annexure B amount (originally $1,466,978 inclusive of GST) and the amount of the variations invoices rendered in September 2008 ($458,451 inclusive of GST).
980 The defendants accept that Marina Cove was indebted to Pearl Hill for the balance of the Annexure B amount and the amount of the variations invoices, but contend that they were not yet due pursuant to the terms of the Heads of Agreement. Pearl Hill takes issue with that contention.
981 The defendants accept that, if (contrary to their primary contention) those amounts were due, they could be set off against the deposit or purchase price of the 33 lots if they were payable by Pearl Hill but contend that the parties had entered into a legally binding agreement in November 2008 to substitute the nominated entities for Pearl Hill as purchaser of the 33 lots and the nominated entities could not set off amounts due by Marina Cove to Pearl Hill for want of mutuality. Pearl Hill takes issue with that contention.
982 Pearl Hill contends in the alternative that, if it was not entitled to set off monies against the deposit or purchase price, nevertheless its conduct was not repudiatory because it had a reasonable but mistaken belief about its rights under the Heads of Agreement.
983 The defendants contend that Pearl Hill bears the onus of proof that its conduct in relation to payment of the deposit was not repudiatory. Pearl Hill contends that the defendants bear the onus of proof.
984 The general rule is that the onus of proof 'lies on the party who substantially asserts the affirmative of the issue'.[100]
985 In a passage from Currie v Dempsey[101] cited with approval by the Full Court of this Court in Stewart v Dillingham Constructions Pty Ltd[102] and the Full Court of the South Australian Supreme Court in Murray's Transport NSW Pty Ltd v CGU Insurance Ltd,[103] Walsh JA (with whom Wallace P relevantly agreed) said:
[T]he burden of proof in the first sense lies on a plaintiff, if the fact alleged (whether affirmative or negative in form) is an essential element in his cause of action, eg, if its existence is a condition precedent to his right to maintain the action. The onus is on the defendant, if the allegation is not a denial of an essential ingredient in the cause of action, but is one which, if established, will constitute a good defence, that is, an "avoidance" of the claim which, prima facie, the plaintiff has.[104]
986 More specifically, 'the onus of proving the existence and exercise of a right to terminate for breach or repudiation rests on the party who claims that the right existed or has been exercised'.[105]
987 As observed above, in litigation by Pearl Hill against Marina Cove based on the Heads of Agreement, Marina Cove would have borne the onus of proof that the Heads of Agreement had been validly terminated by it on the ground of repudiation by Pearl Hill. By parity of reasoning, the defendants bear the onus of proof that Marina Cove validly terminated the Heads of Agreement on the ground of repudiation as an answer to Pearl Hill's claim against them for damages. This is reflected by the defendants' pleading repudiation as an answer and thereby assuming the onus of proof.
988 The first preliminary (factual) issue is whether, as the defendants contend, the parties entered into a legally binding agreement in November 2008 to substitute the nominated entities for Pearl Hill as purchaser of the 33 lots. This is relevant to the availability of set off to Pearl Hill in respect of the deposit or purchase price for the 33 lots.
989 There is no written agreement made in November 2008 (or at any other time) that the Heads of Agreement be varied by substituting the nominated entities for Pearl Hill as the purchaser. There is no evidence of an oral agreement made in November 2008 (or at any other time) to that effect. If the parties entered into a legally binding agreement to this effect, it must be an implied agreement arising from conduct.
990 It is clear from the preparation by Gadens in November 2008 of Contracts of Sale showing the nominated entities as purchasers, Mr Axarlis' execution on 18 November 2008 of the vendor statements addressed to the nominated entities, Gadens' delivery on 18 November 2008 of the Contracts of Sale and standalone vendor statements to Maddocks, and Mr Axarlis' attendance at Pearl Hill's office on 18 December 2008 to execute the Contracts of Sale showing the nominated entities as purchasers, that Mr Axarlis was willing to execute Contracts of Sale with the nominated entities as purchasers. I infer that Mr Axarlis had authority from Marina Cove to do so.
991 However, all that this entails is a unilateral willingness on the part of Marina Cove to execute Contracts of Sale with the nominated entities as purchasers in lieu of Pearl Hill. Absent a legally binding agreement between at least Marina Cove and Pearl Hill varying clause 3 of the Heads of Agreement to provide for sales to the nominated entities in lieu of Pearl Hill, the contractual position remained unaltered. The mere fact that Marina Cove was willing between 18 November and 18 December 2008 to execute Contracts of Sale with the nominated entities and Pearl Hill was willing for this to occur does not entail or evidence a legally binding contract.
992 On the contrary, there are affirmative reasons to find that the parties did not enter into an implied contract varying clause 3 of the Heads of Agreement. If they had done so, it may be expected that they would have entered into a written contract to do so or at least evidenced the agreement in writing. In addition, there is no reason why Marina Cove would have committed itself to agree irrevocably to a substitution when circumstances might change or it might change its mind about a substitution. In addition, any legally binding agreement must necessarily have been a tripartite agreement, not only between Marina Cove and Pearl Hill, but also with the nominated entities.[106] There was no communication by the nominated entities to Marina Cove that they agreed to enter into such a tripartite agreement, at least unless and until Contracts of Sale were executed by both parties.
993 The defendants have failed to prove the existence of a legally binding agreement providing for the substitution of the nominated entities for Pearl Hill as purchaser of the 33 lots. On the contrary, even if the onus of proof lay on Pearl Hill, I am affirmatively satisfied that no such agreement was entered into.
994 I reach this conclusion without having regard to subsequent communications between the parties. However, as the issue is the existence of a contract (rather than the terms of an existing contract), evidence of subsequent communications and conduct is admissible. On 9 April 2009 Gadens sent a letter to Hoeys saying that Marina Cove was not prepared to execute Contracts of Sale with the purchaser being any entity other than Pearl Hill. Gadens treated Marina Cove as free to resile from its previously unilateral willingness to agree to the nominated entities being purchasers. Hoeys (or Pearl Hill) took no issue with that position. Further, on 29 April 2009 Pearl Hill issued the writ and statement of claim in the HOA action which sought specific performance by transfers of the 33 lots to Pearl Hill (not the nominated entities). This confirms that the parties had not entered into a legally binding agreement to vary the Heads of Agreement to substitute the nominated entities as purchasers.
995 The second preliminary (constructional) issue is whether the balance of the Annexure B amount and the amount of the variation invoices had at the relevant times become due pursuant to the terms of the Heads of Agreement.
996 In relation to the Annexure B amount, clause 2 of the Heads of Agreement relevantly provided:
Marina Cove and Pearl Hill agree ... the balance of the agreed outstanding amount on unpaid Invoices is $1,466,978.32 (incl. gst), referred to in Annexure B.
997 Annexure B set out the dates of 'Current unpaid Invoices', which ranged from 3 March to 2 April 2008.
998 The context of the inclusion of clause 2 and Annexure B in the Heads of Agreement included that the Annexure B invoices had been rendered more than six months before entry into the Heads of Agreement and clause 37.2 of the Construction Contract required the Superintendent on behalf of the principal to issue a progress certificate for the amount of a claim or such lesser amount as was reasonably payable and required the principal to pay the balance of the progress certificate to the contractor within 30 days after receipt of the progress claim.
999 By reference to the plain text of clause 2 and Annexure B, their context and evident purpose, given that Marina Cove in the Heads of Agreement expressly acknowledged that the amount of the invoices was outstanding and they had in fact been outstanding for several months, the Annexure B amount was due to be paid immediately. I reject the defendants' contention that the amount was not due because the Heads of Agreement did not prescribe a specific date on which payment was due.
1000 The clause 2 obligation on Marina Cove to pay was, like the other substantive obligations of the parties, conditional on satisfaction of the clause 15 condition. For the reasons given above, that condition was not in fact satisfied in December 2008 and no conventional estoppel arose in December 2008. It follows that the substantive obligations of either party (including Marina Cove's obligation to pay the Annexure B amount) did not arise in December 2008. Marina Cove's obligation arose upon operation of the conventional estoppel, namely on 19 February 2009 (at the earliest).
1001 By comparison, the obligation of both parties under clause 3 to execute Contracts of Sale of the 33 lots did not require execution immediately upon satisfaction of the clause 15 condition. As a matter of construction, at the time of entry into the Heads of Agreement, objectively the parties would have expected that clause 15 consent would either be granted or refused within a short period (unlike what transpired) and that it would take longer to draw, negotiate and execute Contracts of Sale and vendor statements. The obligation of each party to execute Contracts of Sale was therefore an obligation to do so within a reasonable time.
1002 It follows that, at whatever point when Pearl Hill became obliged under clause 3 of the Heads of Agreement to execute Contracts of Sale, the Annexure B amount was already due and payable. I note that this conclusion coincides with the advice given by Mr Digby QC and Mr Oliver in April 2009 that the Annexure B amount was 'unequivocally due'.
1003 I note for completeness that, in the correspondence between Marina Cove and Pearl Hill, Marina Cove made a vague and unfounded assertion that there had been some earlier agreement that Pearl Hill would not be paid by Marina Cove until Marina Cove was paid by the purchaser of the relevant lot. There is no evidence of such an agreement and I find that there was no such agreement. Contrary to a submission by the defendants, Mr Axarlis did not give evidence of such an agreement. It is inconsistent with the terms of both the Construction Contract and Heads of Agreement.
1004 The defendants rightly concede that, if the Annexure B amount was due and payable (and if the Heads of Agreement was not varied to substitute the nominated entities for Pearl Hill as purchaser), Pearl Hill was entitled to set off the Annexure B amount against the deposit for (or the purchase price of) the 33 lots.
1005 In relation to the variation invoices, the defendants contend that the amount of the invoices was not yet due for the same reason as in respect of the Annexure B amount. Although the defendants make no distinction, the circumstances in respect of the variation invoices are somewhat different.
1006 Clause 11 of the Heads of Agreement provided that Marina Cove undertook to pay to Pearl Hill the amount of a tax invoice within 14 days of receiving certification from Watsons in respect of it. Clause 37.2 of the Construction Contract required the Superintendent to issue a progress certificate for the amount of a claim or such lesser amount as was reasonably payable.
1007 There is no evidence that Watsons rejected the claim for the variation work. In the absence of such evidence, I infer that the variation invoices had become due by at least 18 December 2008. They could therefore be set off against the purchase price for the same reason as the Annexure B amount.
1008 In respect of the period between 18 December 2008 and 18 February 2009, Pearl Hill was not in breach of the Heads of Agreement by not paying a deposit for the purchase of the 33 lots for two reasons. First, the obligations of both parties under the Heads of Agreement were still conditional on satisfaction of the clause 15 condition. Secondly, Pearl Hill was entitled to set off against the deposit of $1,650,000 the Annexure B amount of $1,466,978 and the variation amounts of $458,451, which exceeded the deposit of $1,650,000 (all amounts GST inclusive). If Contracts of Sale with nominated entities had been executed in respect of all 33 lots, it may be that the nominated entities would have been in breach of the term in the Contracts of Sale requiring payment of a deposit if they had not done so. This depends on whether they were entitled to stand in the shoes of Pearl Hill for this purpose. However, as such Contracts of Sale were not so executed, the obligation under clause 3 remained that of Pearl Hill, which was entitled to a set off against that obligation.
1009 Even if Pearl Hill was not entitled to set off the full amount of $1,650,000, Marina Cove was not entitled to require payment of the full amount of the deposit and in these circumstances Pearl Hill's conduct was not repudiatory entitling Marina Cove to terminate.
1010 In addition, throughout this period the parties were negotiating with a view to varying the Heads of Agreement by removing the requirement for a deposit. Marina Cove was staying its hand during those negotiations. In these circumstances Pearl Hill's conduct was not repudiatory.
1011 Even if Pearl Hill was not objectively entitled to set off amounts against the deposit, Mr Mimmo believed on reasonable grounds that it was entitled to do so and, under the principle identified by the High Court in DTR Nominees Pty Ltd v Mona Homes Pty Ltd,[107] its conduct was not repudiatory.
1012 Finally, if Pearl Hill's conduct had been repudiatory, Marina Cove elected not to terminate the Heads of Agreement.
1013 In respect of the period between 19 February and 6 April 2009, the circumstances were largely the same. A material difference was that by 3 April 2009 the amount outstanding of the Annexure B amount had been reduced to $1,022,105 as a result of payments by Marina Cove. This left a net amount payable by Pearl Hill by way of deposit of $169,444 (all amounts GST inclusive). It follows that Pearl Hill was objectively in breach of the Heads of Agreement (at least towards the end of this period) to the extent that it was not prepared to pay any part of the deposit. However, for essentially the same reasons as given at [1009], [1011] and [1012] above, Pearl Hill's conduct was not repudiatory and, if it had been, Marina Cove elected not to terminate the Heads of Agreement.
1014 In respect of the period between 7 April and 27 April 2009, the circumstances were largely the same as in respect of the period up to 18 February 2009. On 7 April 2009 Hoeys sent a letter to Gadens confining the set off to the amount outstanding of the Annexure B amount of $1,022,105 plus the amount of the variation invoices of $453,947 reducing the deposit payable under the Heads of Agreement to $173,948 (all amounts GST inclusive).
1015 On 9 April 2009 Gadens replied to Hoeys expressing a willingness to execute Contracts of Sale without a deposit on the conditions set out at [212] above. Between that date and 27 April 2009 the parties were again negotiating with a view to varying the Heads of Agreement by removing the requirement for payment of a deposit. In the context of those negotiations, Pearl Hill's set off was potentially transposed from the deposit to the purchase price payable at settlement. For essentially the same reasons as given at [1008] to [1012] above, Pearl Hill's conduct was not repudiatory and, if it had been, Marina Cove elected not to terminate the Heads of Agreement.
1016 In respect of the period between 28 April and 13 May 2009, on or shortly after 29 April 2009 Hoeys served the writ and statement of claim in the HOA action on Gadens. This committed to the Court the function of determining whether and on what terms specific performance should be ordered in respect of the execution and settlement of Contracts of Sale of the 33 lots (including the set off issue).
1017 As at 13 May 2009, when Marina Cove purported to terminate the Heads of Agreement on the ground of repudiation, Pearl Hill was not in breach of the Heads of Agreement because it was entitled to the set off asserted by Hoeys on 7 April 2009.
1018 Even if Pearl Hill was not entitled to set off the full amount claimed of $1,476,052, Marina Cove was not entitled to require payment without any set off at all and in these circumstances Pearl Hill's conduct was not repudiatory.
1019 Even if Pearl Hill was not objectively entitled to a set off, Mr Mimmo believed on reasonable grounds that it was so entitled and its conduct was not repudiatory.
1020 Marina Cove was not entitled to terminate the Heads of Agreement on 13 May 2009 on the ground of repudiation by Pearl Hill in respect of payment of the deposit (or payment of the purchase price) without deduction on account of the set off. Although the defendants bear the onus of proof, I am affirmatively satisfied on this.
1021 The defendants plead that Marina Cove validly terminated the Heads of Agreement by acceptance of repudiation by Pearl Hill by failing to complete the building works pursuant to clause 4 of the Heads of Agreement.
1022 Pearl Hill denies that it was in breach of the Heads of Agreement and denies that its conduct as at 13 May 2009 amounted to repudiation justifying termination by Marina Cove.
1023 Pearl Hill contends in the alternative that failure to perform in accordance with a time stipulation is not repudiatory unless time is of the essence; time was not, on the proper construction of the Heads of Agreement, of the essence; and Marina Cove did not give to Pearl Hill notice making time of essence after unreasonable delay by Pearl Hill. The defendants do not take issue with the first two contentions but contend that Marina Cove did give reasonable notice making time of the essence by Gadens' letter dated 9 April 2009.
1024 Pearl Hill contends in the alternative that the taking by Marina Cove of the balance of the works out of the hands of Pearl Hill pursuant to clause 39 of the Construction Contract superseded any previous repudiatory conduct by Pearl Hill in the progress of the works in the context and for the purposes of the Heads of Agreement.
1025 Pearl Hill contends in the alternative that Marina Cove was in breach of the Heads of Agreement by not paying the balance of the Annexure B amount or the variation invoices amounts and this breach precluded Marina Cove relying on any breach by Pearl Hill in respect of the building works.
1026 Marina Cove did not in its 13 May 2009 letter of termination rely on repudiation by failing to complete the building works pursuant to clause 4 of the Heads of Agreement as a ground for termination. However, Pearl Hill concedes that it is open to the defendants in this action to rely on this ground notwithstanding that Marina Cove did not do so.
1027 Clause 4.1 of the Heads of Agreement provided:
In consideration of the purchase price, Pearl Hill agrees to the following:
4.1 All incomplete homes including landscaping to the Lots, save for the homes on Lots 40, 66 and 69 are to be progressively completed within the following periods:-
Lots 56 and 54. - 1 month from date of signed agreement
Lots 55 and 52. - 2 months from date of signed agreement
Lots 68, 67, 65 - 7 months from date of signed agreement
[etc]
1028 Clause 4.2 of the Heads of Agreement provided that the completion dates agreed to in clause 4.1 were to be extended by one business day for each day of delay caused by various matters, including weather, delay in obtaining approvals and permits, variations and any other cause beyond the control of Pearl Hill.
1029 Clause 5 of the Heads of Agreement provided that, for every home not handed over by the date calculated with reference to clauses 4.1 and 4.2, Pearl Hill agreed to pay Marina Cove $150 by way of liquidated damages.
1030 The defendants contend that Pearl Hill was in breach of clause 4.1 of the Heads of Agreement because it did not complete the houses on lots 56 and 54 by 21 November 2008 or the houses on lots 55 and 52 by 21 December 2008, being one and two months respectively after the Heads of Agreement was executed on 21 October 2008.
1031 However, clause 4 (and the other substantive clauses of the Heads of Agreement) did not come into effect until the clause 15 condition was satisfied. This was not until a conventional estoppel arose on 19 February 2009 (the earliest possible date which I assume for present purposes in favour of the defendants). It is not a tenable construction of the Heads of Agreement that, upon satisfaction of the clause 15 condition, both parties would retrospectively be rendered in breach of their substantive obligations (such as Pearl Hill under clause 4 for homes not completed or Marina Cove under clause 2 for payments not made). Accordingly, subject to any extension of time effected by clause 4.2, at the earliest completion of the houses on lots 56 and 54 was due by 19 March 2009 and on lots 55 and 52 was due by 19 April 2009.
1032 Ultimately, it is necessary to make a holistic assessment whether Pearl Hill repudiated the Heads of Agreement. Before doing so, it is necessary to consider the position in respect of each house.
1033 On 3 April 2009 Mr Mimmo sent an email to Mr Hoey stating that the home on lot 56 had reached practical completion but had not yet been certified by Watsons. Practical completion was the last of the six milestones specified in the Construction Contract. On 17 April 2009 Hoeys sent a letter to Gadens stating that lot 56 had reached practical completion. Mr Mimmo gave evidence in cross-examination that the house on lot 56 had been completed by April 2009 (he did not recall how long before 3 April it had been completed). His evidence of completion was not challenged.
1034 The defendants have failed to prove any breach of clause 4.1 of the Heads of Agreement in respect of lot 56. On the contrary, I am affirmatively satisfied that, if there was any breach, it was only a technical breach involving a short delay, the house on lot 56 had been completed by 3 April 2009 and any delay did not evince an intention not to comply with the Heads of Agreement. In any event, as at 13 May 2009, any late completion of the house on lot 56 was only of historical relevance, incapable in itself of amounting to repudiation as at that date.
1035 On 3 April 2009 Mr Mimmo said in the same email to Mr Hoey that the home on lot 54 had also reached practical completion but had not yet been certified by Watsons.
1036 A dispute had arisen in relation to the shower screens installed by Pearl Hill in the house. Mr Newman had asserted that a different shower screen was required as a result of Pearl Hill's failure to provide waste water traps to the bathrooms. Pearl Hill contended that floor wastes had been removed from the wet areas in a July 2005 written instruction from Mr Donaldson. On 2 April 2009, Mr Newman, acting as superintendent's representative, had issued an instruction pursuant to clause 36.1 of the Construction Contract directing Pearl Hill to omit lot 54 from the Construction Contract.
1037 The house on lot 54 had evidently reached completion (subject only to the shower screen issue) some time before 2 April and the shower screen issue apparently arose in March 2009. Mr Mimmo gave evidence in cross-examination that the house on lot 54 had been completed by April 2009 (he did not recall how long before 2 April it had been completed). His evidence of completion was not challenged.
1038 The defendants have failed to prove any breach of clause 4.1 of the Heads of Agreement in respect of lot 54. On the contrary, I am affirmatively satisfied that, if there was any breach, it was only a technical breach involving a relatively short delay and the house on lot 54 had been completed by 2 April 2009 subject only to the shower screen issue. There was a good faith dispute between the parties concerning the shower screen issue and Pearl Hill's conduct in respect of it was incapable of amounting to repudiation. Pearl Hill did not evince an intention not to comply with the Heads of Agreement. In any event, as at 13 May 2009, any late completion of the house on lot 54 was only of historical relevance, incapable in itself of amounting to repudiation as at that date.
1039 On 17 April 2009 Hoeys sent a letter to Gadens stating that lot 52 was nearing completion. On 28 April 2009 Hoeys sent a letter to Gadens stating that Pearl Hill was waiting for carpet to install and attending to some minor touch-ups. On 1 May 2009 Hoeys sent a letter to Gadens stating that from 29 April to 1 May carpenters carried out repair work, painters carried out preparation work to commence the final coat, a cabinet maker attended to carry out adjustments to cabinets and labourers had been through the property cleaning the house and site. Mr Mimmo gave evidence in cross-examination that the carpet was a special carpet selected by the purchaser and this had delayed completion.
1040 The house on lot 52 had not been completed by 19 April 2009. However, the defendants have failed to prove a breach of clause 4.1 given that Pearl Hill was awaiting carpet selected by the purchaser. In any event, given the stage of completion that had been achieved and the extent of the completion works being undertaken by Pearl Hill as set out in Hoeys' letter dated 1 May 2009, I am affirmatively satisfied that, if there was any breach, it was insufficient to amount to repudiation and Pearl Hill did not as at 13 May 2009 evince an intention not to comply with the Heads of Agreement.
1041 On 17 April 2009 Hoeys sent a letter to Gadens stating that the house on lot 55 was between lock-up and fixing stage. On 28 April 2009 Hoeys sent a letter to Gadens stating that the house was now nearing completion. On 1 May 2009 Hoeys sent a letter to Gadens stating that from 29 April to 1 May carpenters carried out repair/completion work prior to final paint and landscaping work at the site was maintained. Mr Mimmo gave evidence in cross-examination that the house on lot 55 was nearing completion.
1042 The house on lot 55 had not been completed by 19 April 2009. It appears that Pearl Hill was thereby in breach of clause 4.1 of the Heads of Agreement. However, the defendants have not proved that Pearl Hill thereby evinced an intention not to be bound by the agreement. On the contrary, the fact that it was nearing completion and the work being carried out identified in Hoeys' 1 May 2009 letter indicates that Pearl Hill was not evincing an intention not to be bound by the agreement.
1043 Considered holistically, Pearl Hill's conduct in respect of the houses on lots 52, 54, 55 and 56 did not evince an intention not to be bound by the Heads of Agreement.
1044 Pearl Hill was not in breach of clause 4.1 of the Heads of Agreement in respect of the remaining houses still subject of the agreement. The next set of houses (lots 68, 67 and 65) was not due to be completed under clause 4.1 until seven months after clause 4.1 (and the other substantive provisions of the Heads of Agreement) came into effect, that is until 19 September 2009 (at the earliest).
1045 The only obligation in respect of construction of the houses imposed on Pearl Hill by the Heads of Agreement was to complete the houses by the date specified in clause 4. There was no obligation, for example, to achieve various stages of completion by various milestone dates. As far as the Heads of Agreement was concerned, it was up to Pearl Hill how it programmed the works as long as it achieved the completion dates specified in clause 4. In this respect, the Heads of Agreement can be contrasted with the Construction Contract, which contained detailed provisions relating to programming.
1046 If as a result of lack of progress in construction works in respect of the remaining houses Pearl Hill had at 13 May 2009 disabled itself from being able to achieve the clause 4 completion date in respect of those houses, it is arguable that this might have constituted an anticipatory breach or repudiation of the agreement. I note that this is not pleaded by the defendants, nor was it relied on by Marina Cove in its 13 May 2009 notice of termination.
1047 The defendants have not proved that Pearl Hill was disabled from achieving the clause 4 completion dates in respect of the remaining houses. On 17 April 2009 Mr Mimmo gave an estimate to Hoeys that lots 62 to 64 would be completed within four and a half months, ie by 31 August 2009. Under the Heads of Agreement, these lots were due for completion by 19 October 2009.
1048 Lots 65, 67 and 68 were due for completion by 19 September 2009: Mr Mimmo's estimate was that those lots would be completed by November 2009. Lots 59 to 61 were due for completion by 19 October 2009: Mr Mimmo's estimate was that those lots would be completed by 17 December 2009. Although the estimated date in respect of these lots was two months late, the estimates were not provided to Marina Cove and moreover there is no evidence that Pearl Hill could not have mobilised additional resources so as to achieve the clause 4 date. Similarly, Mr Mimmo's estimates in respect of lots 41, 42, 43, 53, 57 and 58 were approximately two months late, but they were due for completion even further in the future and there is no evidence that Pearl Hill could not have mobilised additional resources so as to achieve the clause 4 dates.
1049 The defendants refer to the correspondence passing between Marina Cove and Pearl Hill (or their solicitors) from Marina Cove's first show cause notice issued on 30 March 2009 to Pearl Hill's response to Marina Cove's second show cause notice on 1 May 2009. That correspondence includes assertions by Marina Cove that Pearl Hill was not undertaking substantial building work on the houses and counter assertions by Pearl Hill that it was and providing details of stages of completion reached and work being undertaken. It also includes statements by Pearl Hill on 17 April, 28 April and 1 May 2009 that it remained on-site, working diligently to complete the outstanding works and that it was ready willing and able to continue and complete the works and all its obligations.
1050 Hoeys' 1 May 2009 letter evidences that between 29 April and 1 May 2009 Pearl Hill was carrying out substantial building work across the remaining houses.
1051 Considering all of the evidence as a whole, the defendants have not proved that Pearl Hill was not undertaking substantial building work across the houses before 29 April 2009. However, assuming that that was so, Hoeys' 1 May 2009 letter evidences that between 29 April and 1 May 2009, Pearl Hill was carrying out substantial building work across the remaining houses.
1052 I am affirmatively satisfied that at least from 29 April 2009 Pearl Hill was not evincing an intention not to be bound by the Heads of Agreement by reference to the construction work being undertaken or not undertaken across the remaining houses (including lots 52 and 55). Although not necessary for my conclusion, this conclusion is confirmed by the fact that (despite earlier assertions) Marina Cove did not in its notice of termination on 13 May 2009 rely on this as a ground for termination.
1053 Pearl Hill contends in the alternative that time was not made of the essence in respect of performance of the building works and Marina Cove took the balance of the works out of the hands of Pearl Hill pursuant to clause 39 of the Construction Contract, each of which rendered Pearl Hill's conduct not repudiatory as at the time of purported termination by Marina Cove. Pearl Hill contends further that Marina Cove was in breach by not paying the balance of the Annexure B amount or the variation invoices amounts and this breach precluded Marina Cove relying on any breach by Pearl Hill in respect of the building works. It is unnecessary to consider these contentions because of my conclusion that at the relevant time Pearl Hill was not evincing an intention not to be bound by the Heads of Agreement.
1054 Marina Cove was not entitled to terminate the Heads of Agreement on 13 May 2009 on the ground of repudiation by Pearl Hill in respect of completion of or progress in construction of the building works under the Heads of Agreement.
1055 In their initial written closing address, the defendants contended that Pearl Hill repudiated the Heads of Agreement by Mr Mimmo's letters to Mr Axarlis dated 26 November 2008 and 19 February 2009 stating that Annexure B to the Heads of Agreement needed to be amended to include invoices 1384 and 1385 in light of breaches by Marina Cove.
1056 This contention was not pleaded by the defendants. In addition, it was not reiterated in subsequent closing addresses. My understanding is that it was not ultimately pursued by the defendants. However, if it was pursued, it is untenable.
1057 On 26 November 2008 Mr Mimmo sent a letter to Mr Axarlis. He said that, since the Heads of Agreement was executed on 21 October 2008, no payments had been made of the Annexure B invoices. As a result, he was reinstating invoices 1384 and 1385 (which were contingently released by the terms of the Heads of Agreement). He did not raise the matter again until 19 February 2009. Pearl Hill did not take any action based on any such 'reinstatement'.
1058 On 19 February 2009 Mr Mimmo sent a letter to Mr Axarlis. He said that, as per the 26 November 2008 letter, Annexure B to the Heads of Agreement needed to be amended to include the two invoices. He did not raise the matter again. Pearl Hill did not take any action based on any such need for amendment.
1059 I accept that, once the clause 15 condition was satisfied, any liability of Marina Cove in respect of the two invoices was released and Pearl Hill was not entitled to payment of the invoices, even if Marina Cove breached the Heads of Agreement. However, as Pearl Hill never took any action based on Mr Mimmo's assertions (which Mr Axarlis did not take seriously and peremptorily dismissed), Pearl Hill's conduct in this respect was incapable of evincing an intention not to be bound by the Heads of Agreement.
1060 By reason of conventional estoppel, the clause 15 condition was deemed to be satisfied. Marina Cove was not entitled to terminate the Heads of Agreement on the ground of non-satisfaction of that condition.
1061 Pearl Hill did not repudiate the Heads of Agreement in respect of payment of the deposit (or payment of the purchase price without deduction on account of the set off) or in respect of completion of or progress on construction of the building works under the Heads of Agreement, whether considered separately or in combination.
1062 Marina Cove did not validly terminate the Heads of Agreement on 13 May 2009. It remained on foot until terminated by Pearl Hill on 20 May 2009.
1064 Pearl Hill contends that it lost a valuable opportunity because there was a significant probability of the requisite contingencies occurring.
1065 The defendants contend that there was only a negligible probability of the requisite contingencies collectively occurring. They also contend that the opportunity to purchase the 33 lots was not lost as a result of termination of the Heads of Agreement because it remained open for Pearl Hill to negotiate such a purchase with Marina Cove.
1066 In relation to the first issue, although logically it is first necessary to find that there was a non-negligible probability of the requisite contingencies occurring before proceeding to an assessment of loss, it is more convenient to address the assessment below under the heading of Quantum. For the reasons given below, there was a significant probability of the requisite contingencies occurring.
1067 In relation to the second issue, if Pearl Hill had not terminated the Heads of Agreement, it would have been in a position to prosecute the HOA action seeking specific performance and to use the existence and spectre of that proceeding to induce Marina Cove to complete the sale of the 33 lots for $15 million plus GST pursuant to the Heads of Agreement. This would have involved the enforcement of the Heads of Agreement, albeit Pearl Hill accepts that this could only have been achieved in time if Marina Cove consented. Marina Cove would have been required to participate in the action and make a decision either to defend the application for specific performance or to resolve it. Pearl Hill would have been in a bargaining position of some power as a result.
1068 Conversely, once Pearl Hill terminated the Heads of Agreement, it lost the basis for seeking specific performance in the HOA action and therefore lost such bargaining power as it had when the claim for specific performance was on foot. The status quo was fundamentally changed upon termination of the Heads of Agreement on any view. The status quo was that there was no longer any contractual or commercial relationship between the parties. Marina Cove, and perhaps more importantly the Commonwealth Bank, were embarking on a course of proceeding without selling the 33 lots to Pearl Hill or engaging Pearl Hill to complete the works. In addition, Marina Cove was not required to engage with Pearl Hill in relation to the specific performance claim. While of course there was nothing stopping Pearl Hill seeking to negotiate with Marina Cove a purchase of the 33 lots on any terms, Pearl Hill was now relegated to the position of any prospective suitor.
1069 For these reasons, provided that there was a significant probability of the requisite contingencies occurring if Pearl Hill had not terminated the Heads of Agreement, Pearl Hill lost a valuable opportunity as a result of the termination.
1070 As observed above, the defendants characterise the case Pearl Hill seeks to run as that it lost the opportunity to purchase the 33 lots by agreement and contend that Pearl Hill did not lose that opportunity after 20 May 2009 because it could have negotiated to enter into a new agreement to purchase the 33 lots. However, for the reasons given above, the defendants mischaracterise Pearl Hill's case. Pearl Hill's case involves loss of the opportunity to enforce the Heads of Agreement (albeit by consent) rather than the opportunity to negotiate a new agreement for the purchase of the 33 lots.
1071 Before Pearl Hill terminated the Heads of Agreement on 20 May 2009, Marina Cove was required to engage with Pearl Hill in relation to the sale of the 33 lots because the Heads of Agreement remained on foot (or arguably remained on foot[110]) and because there was an extant proceeding seeking specific performance of the Heads of Agreement in respect of the sale of the 33 lots. Marina Cove was required either to defend the action or agree to proceed with execution of the Contracts of Cale. In addition, Marina Cove was actively engaging with the question whether Contracts of Sale should be entered into pursuant to clause 3.
1072 By contrast, once Pearl Hill terminated the Heads of Agreement on 20 May 2009, Marina Cove was no longer required to address the matter and naturally would turn its attention (and resources) to other matters. Psychologically, the matter would be off the boil and would quickly go cold. Marina Cove would be in an entirely different position to one in which Pearl Hill affirmed the Heads of Agreement and prosecuted its action seeking specific performance.
1073 The defendants contend in the alternative that there was not an outright loss of the opportunity but only a reduction because Pearl Hill could still after termination have negotiated a new agreement to purchase the 33 lots. It is not appropriate to assess somehow the theoretical prospects of negotiation of a new agreement in such circumstances and deduct that percentage from the prospect that the parties would have completed the sale of the 33 lots pursuant to the Heads of Agreement. First, the required comparison is between the counterfactual scenario where the Heads of Agreement was not terminated and the actual position: the actual position was that Marina Cove did not sell the 33 lots to Pearl Hill. Secondly, before termination Pearl Hill and the defendants had been pursuing a strategy of placing pressure on Marina Cove through correspondence and the specific performance claim in the HOA action to place pressure on Marina Cove to complete the sale of the 33 lots. After termination, objectively little happened to devise and pursue an alternative strategy. On the Pearl Hill side (including action and advice by Hoeys and Mr Digby QC), the position drifted with little action up to 3 August 2009. Thirdly, I have found that Mr Mimmo was not advised and did not become aware of the loss of the ability to compel Marina Cove to complete the sale of the 33 lots and this contributed to the situation in which no effective alternative action was taken by Pearl Hill or the defendants (including to seek to negotiate a fresh agreement).
1074 To establish causation, Pearl Hill must prove on the balance of probabilities that the lost opportunity had 'some value (not being a negligible value)'.[111]
1075 Pearl Hill contends that the lost opportunity was valuable because the value of the 33 lots was substantially higher than the contractual purchase price of $15 million plus GST.
1076 This begs the question of the value of the 33 lots which must be assessed to quantify the loss if causation is established. Although logically it is first necessary to find that the lost opportunity was of some value before proceeding to an assessment of loss, it is more convenient to address the assessment below under the heading of Quantum. For the reasons given below, the value of the 33 lots was substantially higher than the contractual purchase price and the lost opportunity, if it was lost, was valuable.
1077 Subject to (and by reason of) the analysis addressed for convenience in the Quantum section, Pearl Hill has proved on the balance of probabilities that, but for the defendant's negligence, it would not have lost the significant valuable opportunity of obtaining performance of the purchase of the 33 lots pursuant to the Heads of Agreement. It has proved the factual causation limb of causation under section 51(1)(a) of the Wrongs Act.
1078 Beyond referring to the existence of the 'scope of liability' limb of causation under section 51(1)(b) of the Wrongs Act, the defendants do not submit that that limb is not established if, contrary to their submissions, the 'factual causation' limb under section 51(1)(a) is established.
1079 The 'scope of liability' limb requires me to be satisfied that it is appropriate for the scope of each defendant's liability to extend to the harm caused by the negligence. In so doing, I am required by subsection 51(4) to consider (amongst other relevant things) whether and why responsibility for the harm should be imposed on the negligent party.
1080 Barristers and solicitors owe a duty of care to their clients because they have a proximate relationship, they have and profess to have skill and expertise, clients rely on their advice, and clients are vulnerable in so doing. These factors entail that, if a client suffers obviously foreseeable loss as a result of acting on negligent advice by a lawyer, the scope of liability limb will often be satisfied.
1081 On the facts of this case, the negligent advice by Mr Digby QC and Hoeys was the direct, immediate and principal cause of Pearl Hill terminating the Heads of Agreement and suffering the harm caused thereby. Responsibility for the harm should be imposed on those negligent parties.
1082 Subject to the analysis addressed for convenience in the Quantum section, the defendants' negligence caused the termination of the Heads of Agreement, which in turn caused Pearl Hill to lose a significant valuable opportunity, being the opportunity to obtain performance of the sale of the 33 lots pursuant to the Heads of Agreement.
1083 The defendants' negligence was a necessary condition of the termination of the Heads of Agreement and a necessary condition of the loss of opportunity. It is appropriate for the scope of the defendants' liability to extend to the harm caused by the loss of that opportunity because their conduct was the direct cause of that loss. Causation of loss has been established by Pearl Hill.
1084 In this section, I first make findings about the difference (if any) between the contractual price of the 33 lots, being $15 million plus GST, and the value of those lots (the gross loss).
1085 I then make findings about the probability of occurrence of the contingencies affecting the question whether Pearl Hill would have entered into Contracts of Sale for the purchase of the 33 lots and settled on those contracts.
1086 I then apply the probability of the collective occurrence of those contingencies to the gross loss to give the assessed loss.
1087 Expert valuation evidence was given by Mr Kilby, called by Pearl Hill, and Mr Way, called by Mr Oliver (Mr Way having been engaged by Mr Oliver's solicitor on behalf of all defendants).
1088 Mr Kilby had prepared a valuation for the National Australia Bank on 20 February 2009 of 18 of the 33 lots, valuing each lot at $1,100,000. This implied a value of all 33 lots of $36.3 million. Mr Kilby and Mr Way both proceeded on the basis that, if the lots were sold by retail sale, no GST was payable on the sale proceeds.
1089 Mr Kilby prepared a report (on the instructions of Pearl Hill's solicitors) on 30 January 2019 in which he valued each of the 33 lots as at May 2009 at $950,000. This involved a value of all 33 lots of $33.35 million.
1090 Mr Way had prepared a valuation for PPB (acting in turn for the Commonwealth Bank) on 2 December 2008, valuing the 33 lots on a gross realisation basis at $32.27 million. This involved an average value of each lot of $977,879. For ease of reference, I refer to a valuation on a gross realisation basis as being on a retail basis.
1091 Mr Way prepared a report (on the instructions of Mr Oliver's solicitors) in February 2019 in which he valued each of the 33 lots on a retail basis as at May 2009 at $800,000. This involved a value of all 33 lots of $26.4 million.
1092 Mr Way also valued the 33 lots collectively on a wholesale basis as at May 2009, taking into account acquisition, holding and selling costs and an allowance for profit and risk, at $15.4 million.
1093 Mr Kilby in turn valued the 33 lots on a wholesale basis as at May 2009 at $21.18 million.
1094 Mr Way and Mr Kilby also undertook valuations on a retail basis and a wholesale basis as at February 2009. It is common ground that February 2009 is not a relevant date for the purpose of assessment of loss.
1095 Mr Way and Mr Kilby also undertook valuations on a retail basis and a wholesale basis as at December 2009. I address below the question whether this is a relevant date for the purpose of assessment of loss.
1096 Mr Way alone also undertook valuations on a retail basis and a wholesale basis as at December 2016. I address below the question whether this is a relevant date for the purpose of assessment of loss.
1097 Mr Kilby's valuations on a wholesale basis and his valuation as at December 2009 were contained in spreadsheets which he prepared for use at trial.
1098 The reports and spreadsheets by Mr Kilby and Mr Way were each tendered and received into evidence. Mr Kilby and Mr Way gave oral evidence concurrently.
1099 Pearl Hill contends that the date at which the 33 lots should be valued is May 2009, being the date of breach. In the alternative, it contends that the relevant date should be the date of trial and the valuation closest to that date is Mr Way's valuation as at December 2016, which is a conservative proxy for a valuation as at the date of trial.
1100 The defendants contend that the relevant date at which the 33 lots should be valued is December 2009, being the date when it is likely that Pearl Hill would have acquired the 33 lots if a decree of specific performance had been granted. In the alternative, they contend that the relevant date should be May 2009, being the date of breach.
1101 Pearl Hill contends that the relevant basis of valuation should be the retail basis. The defendants contend that it should be the wholesale basis.
1102 The overarching principle (the compensatory principle) is that damages at common law are to be awarded so as to place the plaintiff as far as possible in the same position as if the defendant had not committed the actionable wrong.[112]
1103 The general rule is that damages for tort or breach of contract are assessed as at the date of breach (or when the cause of action arises).[113] This is because in most cases this best reflects the application of the compensatory principle.
1104 This general rule is not a universal principle. In some cases, the application of the compensatory principle dictates that damages should be assessed as at the date of judgment or some date between the date of breach and the date of judgment.[114]
1105 In the present case, it is appropriate to assess damages as at May 2009, which coincides with the date of breach. For the reasons given elsewhere, if in the absence of breach by the defendants Pearl Hill had not terminated the Heads of Agreement and the lost opportunity had materialised, Pearl Hill would have entered into Contracts of Sale for the purchase of the 33 lots by the end of May and settled on completion of the contracts by the end of June 2009. It is not likely that there was a material change in the value of the 33 lots between May and June 2009 and in any event both parties adduced evidence of value as at May and no party adduced evidence of value as at June 2009.
1106 It is not appropriate to assess damages as at December 2009 because by that time the lost opportunity would either have been realised or lost forever several months earlier.
1107 It is not appropriate to assess damages as at the date of trial and therefore it is not appropriate to assess damages as at December 2016 as the closest proxy for that date. This is not a case in which Pearl Hill would have continued to hold the 33 lots. That was never Pearl Hill's intention. In the counterfactual scenario, all of the 33 lots would have been sold long before the date of trial.
1108 It is appropriate to value the 33 lots on a wholesale basis. Under the counterfactual scenario, Pearl Hill would have acquired the lots and then sold them by retail sale. It was never Pearl's intention to hold them indefinitely. In order to buy and sell the lots, Pearl Hill would necessarily have incurred acquisition costs in addition to the purchase price (stamp duty and conveyancing fees), holding costs (interest and loan fees) and selling costs (agent commission, marketing and legal fees). Those costs must be taken into account in assessing Pearl Hill's loss in accordance with the compensatory principle.
Qualifications and experience of Mr Kilby and Mr Way
1109 Mr Kilby obtained a Bachelor of Business (Property) from the Royal Melbourne Institute of Technology in 1992. In 1994 he became an Associate of the Australian Property Institute. He also obtained an Advanced Certificate in Estate Agency Practice from Monash University, being a qualification for working as a real estate agent.
1110 Mr Kilby has worked as a valuer at Charter Keck Cramer since 1993. He has been a director of that company since 2001. Since 1993 he has specialised in the valuation of residential property (not commercial or industrial property). During most of his career as a valuer, he has specialised in the valuation of high-value prestige residential properties and projects. This encompasses individual house properties and residential projects such as subdivisions. He has specialised in properties within the cities of Melbourne, Yarra, Bayside and Boroondara and the shires of Banyule and Mornington Peninsula.
1111 Before February 2009 Mr Kilby had undertaken a valuation of apartments/townhouses in the Martha Cove development on the northern side of the main arm on one or two occasions. He inspected the land the subject of the 33 lots in January 2009 for the purpose of his valuation for the National Australia Bank in February 2009. He subsequently undertook a valuation for a purchaser of the supermarket and apartment complex on the northern side of the main arm. He again inspected the land the subject of the 33 lots in December 2016 for the purpose of a valuation for a third party.
1112 Mr Way obtained a Bachelor of Business (Property) from the Royal Melbourne Institute of Technology in 1990. In 1994 he became an Associate of the Australian Property Institute. He has been a partner of Knight Frank Valuation & Advisory Victoria since at least 2008.
1113 Since 1994 Mr Way has worked as a valuer of residential, commercial and industrial property. Throughout most of his career as a valuer, he has specialised in the valuation of development projects, whether residential, commercial or industrial.
1114 Before December 2008 Mr Way had undertaken a valuation of the Martha Cove development for a prospective purchaser in 2007 and a valuation for PPB (acting for the Commonwealth Bank) of part of the Martha Cove development in 2008. He inspected the land the subject of the 33 lots in December 2008 for the purpose of his valuation for the Commonwealth Bank in December 2008. He again inspected that land in January 2019 for the purpose of the valuation for Mr Oliver's solicitors.
1115 Mr Way purchased an investment apartment in the Martha Cove development in 2008 and maintained an interest in the development as a result of that investment.
1116 Knight Frank Valuation & Advisory and Charter Keck Cramer were (and are) each on the Victorian panels of valuers used by the major four Australian banks. There were about eight valuation firms on the panels.
1117 Mr Kilby has previously given evidence once and Mr Way has not done so. Giving evidence concurrently is inherently a complex process for an expert witness without experience at giving evidence or doing so concurrently. Mr Kilby and Mr Way adapted to that process in an exemplary manner. They displayed due respect for the views of the other, patience in waiting for the other to answer questions and endeavoured to assist the Court in the best manner accommodated to the giving of concurrent evidence.
1118 Mr Kilby valued each of the 33 lots on a retail basis as at May 2009 at $950,000; whereas Mr Way valued each lot at $800,000.
1119 Mr Kilby and Mr Way each relied on sales by Barton Developments of five of the seven Stage 2A Clipper Quay allotments referred to at [35] to [37] above. The Barton allotments were of the same dimensions as the 33 lots, except that they had 15 metre wide berths compared to 12 metre long berths for the 33 lots but the Barton allotments were closer to shore. The Barton allotments lay immediately to the north of the 33 allotments and had the same frontage to Clipper Quay and the same outlook at the rear onto the south arm of the Martha Cove Waterway. Mr Kilby and Mr Way in their evidence treated the Barton allotments as being practically identical to the 33 allotments.
1120 As observed at [37] above, Barton Developments had purchased the seven Stage 2A Clipper Quay allotments from Marina Cove in June 2006 for $800,000 each. I infer that this was a package deal at a lower price than Marina Cove would have sold the allotments separately to individual purchasers.
1121 In February 2007 Barton Developments sold allotment 666 for $1,440,000. Allotment 666 was sold more than two years before the valuation date of May 2009. Mr Kilby and Mr Way did not rely on this sale transaction to arrive at their respective values. I therefore disregard it.
1122 Barton Developments sold five of its allotments between December 2007 and September 2008. The sale price and month of sale are shown in the following table:
1123 Each sale over that period was for $1,290,000, with the exception of allotment 672.
1124 In addition, Mr Kilby in his report referred to the sale of lot 66 in November 2008 for $1,065,000. This lot had a frontage of 14.5 metres to Clipper Quay to the south and 14.5 metres to the Martha Cove Waterway to the north. It had a depth of 34.51 metres, giving an area of 500 square metres. It did not have a berth.
1125 In addition, Mr Kilby in his report referred to an auction conducted in January 2009 of lot 667. Mr Kilby ascertained from the estate agent that a genuine bid of $900,000 was made at the auction, followed by a vendor bid of $1 million, following which the property was passed in, not reaching its reserve of $1.25 million.
1126 Mr Kilby had referred in his February 2009 report for the National Australia Bank to a handful of sales at Patterson Lakes and Aspendale but he did not refer to them in his 2019 report and Mr Way did not refer to them. Mr Kilby said in evidence that they were not really comparable and that reliance should be placed on the comparable sales of the allotments on Clipper Quay.
1127 Mr Kilby and Mr Way both gave evidence that from the end of 2008 or beginning of 2009 there was a deterioration in the property market as a result of the Global Financial Crisis. Lehman Brothers in the United States collapsed in September 2008, which affected the money market, which resulted in the Australian government injecting $92 billion into the economy over the next nine months. Reserve Bank cash interest rates fell from 7.25% in 2008 to 3.3% in May 2009. There was a delay in the effect of the Global Financial Crisis on the property market, which was not felt until the end of 2008 or beginning of 2009.
1128 Mr Kilby and Mr Way both gave evidence that from about the same time there was a slowing in the progress by Marina Cove of the Martha Cove development, and in particular in the construction of the local shopping centre on the northern side of the main arm of the Martha Cove waterway. They gave evidence that, to the extent that this became known to potential purchasers, it was a potentially negative factor in relation to market demand. Mr Kilby expressed the opinion that this would have had limited effect on the demand and value of the 33 lots because it would have been quicker for owners of those lots to travel to the Dromana shopping centre rather than the Martha Cove local shopping centre. Mr Way expressed the opinion that the effect would have been more general across the development.
1129 Mr Way owned a property within the development and spoke to local real estate agents at the time about the deterioration in the market. He referred in his evidence to the appointment of receivers to CP1 (which occurred in August 2009) and said that he was aware from speaking to agents before that occurred that they perceived that CP1 or Marina Cove were under a cloud financially. Mr Kilby said that he had some awareness of this but it was not generally known in the market until the receivers were actually appointed.
1130 Mr Way had expressed the opinion in his December 2008 report for PPB that the 33 lots were then valued at amounts ranging from $930,000 to $1,030,000 depending on their location, giving an average of $977,879. However, in his 2019 report he expressed the opinion that each lot had the same value as at February 2009 of $900,000 and as at May 2009 of $800,000. In evidence, he said that he ultimately came to the conclusion that each lot had the same value.
1131 Mr Kilby had expressed the opinion in his February 2009 report for the National Australia Bank that each of the 33 lots was valued as at February 2009 at $1,100,000.
1132 Unfortunately, neither Mr Kilby nor Mr Way expressed an opinion as to the value of the 33 lots as at the time of the comparative sales referred to at [1122] above. However, based on the comparative sales evidence and the manner in which Mr Kilby and Mr Way treated those allotments as being materially identical to the 33 lots, each of the 33 lots must have had a value of at least $1,250,000 up to at least September 2009.
1133 Mr Kilby and Mr Way did not identify any comparative sales between November 2008 (when lot 66 was sold) and May 2009 (being the date of valuation). They therefore relied on general factors in relation to movements in the market over that period.
1134 Mr Kilby expressed the opinion that the sale of lot 66 in November 2008 for $1,065,000 was a significant comparable transaction because it was the last sale before the valuation date of May 2009. Mr Way expressed the opinion that this was not a comparative sale because it did not have an associated berth and also because it pre-dated the deterioration in the market referred to above.
1135 In relation to lot 66 not having a berth, Mr Way in his report for PPB dated December 2008 had referred to the sale of a standalone berth (B114) in October 2008 for $225,000. This suggests that, if lot 66 had had an associated berth, its sale price would have been $1.29 million. All but one of the sales of allotments 668, 671, 669, 672 and 670 over the previous 12 months had been for $1.29 million, and lot 66 was 166 square metres smaller. I prefer Mr Kilby's evidence that the sale of lot 66 was an important comparable transaction over Mr Way's evidence in this respect.
1136 In relation to the sale of lot 66 in November 2008 pre-dating the market deterioration, the same could be said for the earlier sales of allotments 668, 671, 669, 672 and 670. I prefer Mr Kilby's evidence that the sale of lot 66 was an important comparable transaction over Mr Way's evidence in this respect.
1137 My assessment is that throughout 2008 the value of each of the 33 lots was at least $1.25 million. I consider that Mr Way's valuation as at the beginning of December 2008 was excessively pessimistic.
1138 Mr Way expressed the opinion that the bid of $900,000 for allotment 667 in January 2009 was the best indication of value of the 33 lots as at February 2009. However, I accept Mr Kilby's opinion and Pearl Hill's submission that sale transactions are more reliable evidence of value than the highest external bid at an auction of a property that does not sell. The bid of $900,000 was immediately followed by a bid by the vendor of $1,000,000, after which the property was passed in. It can only be speculation as to the price to which the bidder (or another potential bidder) may have bid in the absence of such a large jump in the bidding by the vendor. In addition, it can only be speculation whether the auction followed an adequate marketing campaign. In the case of a sale, there is by definition a willing vendor and a willing purchaser. In the case of an unsuccessful bid at auction, by definition there is not a willing vendor. In addition, in the case of a sale, the sale price can be compared with the sale price of comparable properties which is an indication whether the property was adequately marketed. This does not apply in the case of an unsuccessful bid or offer. Accordingly, little weight can be given to the amount of the bid for allotment 667 in assessing the value of the 33 lots.
1139 Overall, I prefer Mr Kilby's evidence in relation to the retail value of the 33 lots as at May 2009. Mr Kilby valued the lots at $950,000 as at May 2009. This represents a reduction of $300,000 from the value of the lots of at least $1,250,000 indicated by the comparable sales in 2008. On the other hand, Mr Way made a reduction of approximately $175,000 from his average value of $977,879 as at the beginning of December 2008 to his value of $800,000 as at May 2009. For the reasons given above, I consider that Mr Way's starting figure was too low.
1140 I find that the retail value of each of the 33 lots as at May 2009 was $950,000.
1141 Mr Way and Mr Kilby adopted the same methodology in assessing the wholesale value of the 33 lots by starting with the retail value. However, they differed in their starting point of retail value (as explained above) and, in respect of some of the deductions, they differed in their opinion as to the relevant amount.
1142 The calculations by Mr Way and Mr Kilby are summarised in the following table:
percentages of Mr Way's retail value based on Mr Way's sales rate
1143 The approach of Mr Way and Mr Kilby was effectively to proceed in reverse chronological order by the following steps:
• calculate end costs by reference to retail value (commission) or a lump sum assessment (legal fees on sale);
• assess the timing (rate) of sales of the lots over the selling period;
• assess marketing costs and their timing over the selling period;
• assess rates and taxes based on retail value and timing of sales over the selling period;
• assess interest based on wholesale value and timing of sales revenue and expenses over the selling period;
• assess an allowance for profit and risk as a percentage of total funds outlaid (all costs, including wholesale value, except the sale costs);
• calculate the wholesale value as equal to the retail value minus all other items.
1144 Mr Way and Mr Kilby confirmed that there is an element of circularity in the assessment of wholesale value because several of the items deducted from retail value to give wholesale value themselves depend on the wholesale value. They used spreadsheet models, and iteration, to undertake the calculations given this element of circularity.
1145 The wholesale values derived by the valuers are objective values in the sense that they apply to a universal, objective, purchaser. They do not apply specifically to the circumstances of Pearl Hill. For example, if Pearl Hill had purchased the 33 lots from Marina Cove for $15 million, stamp duty would have been payable on that purchase price but the valuers calculated stamp duty on the assessed wholesale value. Similarly, if Pearl Hill had purchased the 33 lots, it would have received the difference between the retail value and the purchase, intermediate and sale costs without a deduction for 'profit and risk'. However, the case was conducted ultimately by all parties on the basis (subject to Pearl Hill's contention that retail value should be used, which I have rejected) that the measure of Pearl Hill's loss (subject to the opportunity contingency analysis) is the difference between the wholesale value using the valuers' methodology as set out above and $15 million. I therefore proceed on that basis.
1146 Mr Kilby and Mr Way agreed that an appropriate cost for agent's commission on the sale of the 33 lots is 2.5% of the sale price. I accept their evidence. This gives a cost of $783,750 based on sale prices totalling $31,350,000. I so find.
1147 Mr Kilby and Mr Way agreed that agent's commission would be incurred and paid on the progressive sale of allotments over the selling period. I apply those costs in accordance with the rate of sales adopted at [1159] below.
1148 Mr Kilby and Mr Way agreed that an appropriate cost for legal fees on the sale of the 33 lots is $33,000 ($1,000 per sale). I accept their evidence.
1149 Mr Way proceeded on the basis that legal fees (like agent's commission) would be incurred and paid on the progressive sale of allotments over the selling period. Mr Kilby proceeded on the basis that they would be incurred at the outset (in August 2009). It is common ground that Mr Way's approach is correct. I apply those costs in accordance with the rate of sales adopted at [1159] below.
1150 Mr Kilby and Mr Way both proceeded on the basis that the contract for the purchase of the 33 lots would be entered into in May 2009 and settlement would occur in August 2009. They both proceeded on the basis that the sale period would start in September 2009.
• two lots would be sold every two months over the first 16 months of the sales campaign (August 2009 to November 2010);
• one lot would be sold every two months over the next 22 months of the sales campaign (December 2010 to September 2012); and
• one lot would be sold every month over the last six months of the sales campaign (October 2012 to March 2013).
1152 Mr Kilby based his assessment on there being a higher rate at the start, a slower section through the middle and a higher rate towards the end because some of the earlier sold allotments would by then have had houses constructed on them.
1153 Mr Way assessed that, commencing in September 2009 one lot would be sold every month over the sales campaign, subject to the following exceptions:
• two lots would be sold in January 2010 and three lots would be sold in each of January 2011 and January 2012;
• no lots would be sold in May to August of any year.
1154 Mr Way based his assessment on there being a seasonal factor that purchasers would be inactive in winter months (May to August) and particularly active in January (two or three lots) and otherwise there would be one lot sold per month. Mr Kilby took issue with the seasonality of prospective sales.
1155 Mr Way and Mr Kilby agreed that prospective purchasers would be an equal combination of full time owner occupiers and part time owner occupiers who would use their houses as weekend and summer houses. There might also be builders who would construct a house on the lot and sell the house and land for an intended profit.
1156 Mr Way and Mr Kilby both accepted that the assessment of rate of sales was the most predictive and subjective of the assessments they made and there was scope for differences of views.
1157 On the one hand, I accept that there would be a degree of seasonality in purchases and that the rate of sales would be lower in the cold months of May to August compared to the other months and the rate of sales in January would be higher.
1158 On the other hand, I do not accept that the seasonality would be as extreme as is contained in Mr Way's model, which involves no sales at all in the four months from May to August.
1159 Overall I prefer Mr Way's model subject to an adjustment. I have added one sale in July 2009, July 2010 and July 2011 and reduced by one sale the sales in January 2010, January 2011 and January 2012.
1160 Mr Way assessed marketing costs based on 1% of retail value. Based on a retail value of $26,400,000, this amounted to $264,000. He assessed that 50% of the marketing budget would be spent initially ($134,000) and the balance would be spent at the rate of $10,000 per month over the next 13 months.
1161 Mr Way estimated that $10,000 to $15,000 would be paid to the real estate agent for the production of ordinary brochures and the balance of the initial amount of $134,000 would be spent on a professional marketer to design a primarily online marketing campaign with possibly some newspaper or radio promotion.
1162 Mr Kilby assessed marketing costs at $165,000 based on $5,000 per lot for 33 lots. He assessed that $50,000 would be spent initially and the balance would be spent equally over the remaining 43 months of the sales period ($2,674 per month).
1163 On the one hand, I accept that there is a role for the use of rules of thumb, such as the 1% of retail sale proceeds used by Mr Way and that in a very generalised sense it may be expected that the advertising budget when sale proceeds of say $50 million are expected would be higher than when sale proceeds of say $10 million are expected. However, on the other hand, I accept Mr Kilby's evidence that rules of thumb should not be applied slavishly and it is necessary to consider the marketing costs that would be expended having regard to factors applying to the particular subdivision and circumstances and not merely expected retail sale proceeds.
1164 Based on a consideration of the evidence of both Mr Kilby and Mr Way, my assessment is that marketing costs of $220,000 should be allowed, comprising $110,000 upfront for the expenses identified by Mr Way and the balance expended equally over the remaining months of the sale.
1165 Mr Way assessed rates and taxes (land tax, Council rates and water rates) based on the retail value of the 33 lots and the number of lots remaining over the sales period in accordance with his assessed rate of sales. Obviously rates and taxes would reduce over time as allotments were sold and the liability of the vendor for rates and taxes ceased for sold allotments.
1166 Mr Kilby simply adopted Mr Way's figure of $1,378,045 but applied the costs equally over the selling period. Pearl Hill concedes that rates and taxes should be based on the assessed retail value and, if Mr Kilby's opinion of retail value is adopted, this would result in a higher figure for rates and taxes. Conversely, rates and taxes should be calculated by reference to the rate of sales in accordance with Mr Way's approach. If a different rate of sales to that assessed by Mr Way is adopted (as I have done above), this affects the period for which rates and taxes would have been payable.
1167 I have applied Mr Way's methodology to calculate rates and taxes based on a retail value of $31,350,000 and based on the rate of sales adopted at [1159] above.
1168 Mr Way assessed the loan establishment fee as $92,000, comprising $15,000 for a valuation fee plus $77,000 based on 0.4% of total capital outlay. This was based on his and his firm's benchmarking. The total capital outlay comprised the wholesale value (using iterative reverse engineering) together with the purchase and intermediate costs.
1169 Mr Kilby assessed the loan establishment fee as $125,000 based on his and his firm's benchmarking practices.
1170 In a general sense, Mr Kilby and Mr Way acknowledged that benchmarking practices of their different firms might vary.
1171 There is no reason to prefer Mr Ways' amount over Mr Kilby's amount or vice versa. I adopt a mid point of $108,000 for the establishment fee.
1172 Mr Kilby showed a GST remittance on the loan establishment fee in one month and a GST refund from the Australian Taxation Office of the same amount in the following month. The consequence is an interest expense incurred on the GST amount for one month. Mr Way, by contrast, showed neither a GST remittance nor a GST refund. It is common ground that Mr Way's approach should be adopted (even though technically incorrect), the difference being very minor.
1173 Mr Way and Mr Kilby each calculated interest based on the wholesale value of the 33 lots and their calculation of cash flow over the sales period. Mr Kilby used an interest rate of 7.5% per annum. Mr Way used an interest rate of 8.0% per annum.
1174 Mr Way and Mr Kilby based their respective figures on their experience at the time and their firm's benchmarking.
1175 Mr Kilby referred to the fact that the Reserve Bank of Australia cash rate in May 2009 was of the order of 3% and said that financiers obviously added a margin to that rate in their lending.
1176 There is no reason to prefer Mr Ways' figure over Mr Kilby's figure or vice versa. I adopt the mid point of 7.75% for the interest rate.
1177 Mr Way and Mr Kilby both calculated stamp duty at 5.5% of the wholesale value. This was the rate prescribed in 2009 by sub-s 28(1) of the Duties Act 2000 (Vic) in respect of transfers of dutiable property with a dutiable value more than $960,000.
1178 Despite the evidence given by the valuers, Pearl Hill contends that duty should be calculated separately in respect of each of the 33 lots, resulting in a lower amount of duty due to the imposition of stamp duty at progressively increasing marginal rates on transfers of property with a value less than $960,000.
1179 Subsection 24(2) of the Duties Act 2000 (Vic) provides for non-aggregation of transactions if the Commissioner is satisfied that they involve the purchase of vacant land by a registered domestic builder intending to construct residential premises on it for the purpose of selling it to the public.
1180 I reject Pearl Hill's contention. First, it is contrary to the approach described above of using an objective value in the sense of applying to a universal, objective, purchaser. Secondly, no evidence was adduced from the valuers concerning this alternative approach.
1181 Stamp duty should be calculated at 5.5% of the wholesale value.
1182 Mr Kilby assessed the conveyancing costs incurred on purchasing the land as $75,000 based on a lump sum assessment. Mr Way assessed them as $92,400 based on a rule of thumb of 0.6% of wholesale value.
1183 Mr Kilby and Mr Way described these costs as not involving the negotiation or drafting of the contract of sale or finance arrangement but undertaking the conveyancing work, including liaising with the vendor's solicitors and financier's solicitors up to and at settlement.
1184 While I accept that a more expensive transaction might be more complex and result in higher conveyancing costs, this is not necessarily so. I prefer Mr Kilby's approach of making a lump sum assessment instead of using a rule of thumb of a percentage of wholesale value. The conveyancing associated with the acquisition of the 33 lots would have been relatively simple. I consider that Mr Kilby's cost of $75,000 is high. However, Pearl Hill does not contend for a lower figure and I assess conveyancing costs at $75,000.
1185 Mr Kilby showed a GST remittance on the conveyancing costs in one month and a GST refund from the Australian Taxation Office of the same amount in the following month. The consequence is an interest expense incurred on the GST amount for one month. Mr Way, by contrast, showed neither a GST remittance nor a GST refund. It is common ground that Mr Way's approach (although technically incorrect) should be adopted, the difference being very minor.
1186 Mr Kilby and Mr Way both included an amount on account of profit and risk. They described this component as providing a return to the purchaser on the purchaser's investment, being a return that reflects the risk of the investment. They each calculated this amount as a percentage of total capital outlay.
1187 Mr Kilby used a percentage of 15% of total capital outlay. Mr Way used a percentage of 28.77% of total capital outlay.
1188 Mr Kilby and Mr Way both proceeded on the basis that the purchaser would be a builder who would build houses on the lots and would expect to make a margin on the price of the house over the cost of construction. They agreed that the building enterprise was not to be factored into the wholesale valuation. However, Mr Kilby expressed the opinion that the existence of a margin on the building enterprise would have an influence on the return on capital outlay required by the purchaser.
1189 Mr Kilby's and Mr Way's models made provision for development costs (including such items as subdivision, due diligence and construction costs) but assigned values of nil to those costs because the application of their models in the present case did not involve development costs.
1190 The enterprise by the purchaser contemplated by Mr Kilby and Mr Way was a straightforward one compared to an enterprise that includes development with its associated costs and risks. I accept Mr Kilby's evidence that the percentage profit and risk applicable in the present case would be less than a more complex situation including development.
1191 On the one hand, the enterprise contemplated by Mr Kilby and Mr Way involved only a single significant risk, namely the risk of future market deterioration, and there was also a prospect of future market appreciation. On the other hand, Mr Kilby accepted that the risk of future market deterioration was significant.
1192 I consider that Mr Way's allowance for profit and risk of 28.77% of total capital outlay is excessive. I consider that Mr Kilby's allowance of 15% is inadequate. I consider that an appropriate allowance is 20%.
1193 Mr Way calculated the wholesale value as being equal to the retail value less the above expenses and profit and risk. He reduced the resultant figure by 1/11th to reflect GST on the purchase of the land. Mr Kilby did likewise. I proceed on this basis.
1194 The wholesale calculated by Mr Way's model adjusting for the findings set out above is $19,993,300. Rounded to the nearest 10 thousand dollars, this is $19,990,000. I will hear the parties on the mathematical aspects of the calculation.
1195 The gross loss before contingencies is equal to the difference between the wholesale value of $19,990,000 and the contractual purchase price of $15 million. This gives a gross loss before contingencies of $4,990,000.
1196 For the reasons given below, the specific contingences the subject of the assessment of the value of the lost opportunity are:
• the Commonwealth Bank and CPL agreeing to discharge their mortgages over the land to enable Pearl Hill to receive clear title;
• Marina Cove being willing to settle the sale transaction on the terms on which it had previously been prepared to settle, as expressed in Gadens' letters dated 9 and 21 April 2009;
• either Marina Cove or Pearl Hill paying to the Council the fee of $122,495 to enable registration of the plan of subdivision; and
• Pearl Hill obtaining finance to fund the $16.5 million purchase price (inclusive of GST).
Attitude of Commonwealth Bank, CPL and Marina Cove
1197 Pearl Hill accepts that, if it was to acquire the 33 lots after 13 May 2009, it was necessary for the Commonwealth Bank and CPL as mortgagees to agree to discharge their mortgages over the land to enable Pearl Hill to receive clear title.
1198 It is common ground that the question whether after 13 May 2009 the Commonwealth Bank and CPL would have agreed to discharge their mortgages forms part of the valuation of loss and is to be determined on an assessment of the degree of probability of this occurring.
1199 The Commonwealth Bank had on 9 April 2009 agreed to discharge its mortgage with respect to the 33 lots if it received $15 million, subject to the following conditions (which I have numbered for ease of reference):
b. Pearl Hill has recommenced works on Stage 1 housing;
3. satisfactory review of sale documents by PPB/CBA; and
1200 No officer of the Commonwealth Bank or PPB was called to give evidence concerning the Commonwealth Bank's hypothetical attitude to a proposition by Pearl Hill on about 20 May 2009, in a context in which Pearl Hill did not terminate the Heads of Agreement but continued to pursue its performance, that the Bank discharge its mortgage on the conditions set out above except extending the relevant dates. The defendants criticise Pearl Hill for not calling such a witness and contend that this should be reflected in a nil assessment, or a relatively low assessment, of the prospect of the Commonwealth Bank so agreeing.
1201 The mere absence of evidence from a Commonwealth Bank officer or PPB does not entail that the prospects of agreement being obtained should be assessed as nil or negligible. Any such person would have been required to turn their mind to a hypothetical question that never arose in 2009 and to do so some 10 years later when the events in question are now only historical and when the person would be likely to have little recollection of the context in which such a decision would have been made if called upon in May 2009. If evidence from such an officer had been adduced, it is likely that it would have been of little probative value and an assessment would still have been based primarily on an objective determination based on the circumstances existing as at May 2009.
1202 For the purpose of considering the question, I assume that the proposition hypothetically to be considered by the Commonwealth Bank was that it agree to the sale of the 33 lots for $15 million (exclusive of GST), to be paid at settlement without deduction, with Marina Cove and Pearl Hill by 31 May 2009 (item 4) to enter into contracts in terms of the Contracts of Sale already negotiated, with changes only to exclude the deposit and provide an updated settlement date, and settlement to occur by 30 June 2009 (item 2a).
1203 Subject to one important intervening event addressed below, the proposition only involved a delay of one month in the Commonwealth Bank receiving the sale proceeds of $15 million compared to 29 May 2009 (when it would have received the proceeds if the parties had agreed in April 2009 to its terms). This is a relatively small delay compared to the time that had elapsed since December 2008 when the Commonwealth Bank originally agreed to the transaction subject to its then conditions.
1204 In addition, Marina Cove was required under the terms of its facility from the Commonwealth Bank to make a principal repayment of $15 million by 31 May 2009. Marina Cove had been relying on its prospective receipt of the proceeds of the sale of the 33 lots to Pearl Hill to fund this payment. Accordingly, as at 20 May 2009, both the Commonwealth Bank and Marina Cove expected (as transpired) that Marina Cove would not make the principal repayment by 31 May 2009. Between 28 May and 2 June 2009, the Commonwealth Bank informed Marina Cove that it required Marina Cove to remedy the non-compliance by 30 June 2009 and failure to do so would constitute an event of default under the facility. This strongly suggests that, as at 20 May 2009, the delay of one month (from the end of May to the end of June 2009) would not have caused the Commonwealth Bank not to agree to discharge its mortgage on the terms set out in the PPB document dated 9 April 2009.
1205 The intervening event referred to above was that on 13 May 2009 Marina Cove gave notice that it was taking the remaining work the subject of the Construction Contract out of the hands of Pearl Hill pursuant to clause 39 of that contract. One of the terms of the Commonwealth Bank's conditional consent given on 9 April 2009 was that Pearl Hill recommence works on Stage 1 housing (item 2b). It follows that, if the Commonwealth Bank was to agree in the second half of May 2009 to discharge its mortgage upon a sale of the 33 lots to Pearl Hill, it would have to be on terms either that the sale was to proceed without Pearl Hill undertaking any further works on the Stage 1 housing or Marina Cove and Pearl Hill agreeing that Marina Cove would give back to Pearl Hill the work taken out of its hands.
1206 But for the intervening event, I would assess the prospect of the Commonwealth Bank agreeing to discharge its mortgage on the postulated terms as being very high. It is clear that the Commonwealth Bank had very serious concerns about the financial position of Marina Cove and a reduction in principal of $15 million would have been very attractive to it. As at May 2009, the Global Financial Crisis had had an adverse impact on land prices at Martha Cove and financially this would have made the sale to Pearl Hill at $15 million more attractive in May 2009 than it had been in December 2008. The Bank had in December 2008 commissioned and received Mr Way's valuation of the 33 lots on a wholesale basis at $15 million. From the Bank's perspective, based on Mr Way's valuation and the subsequent Global Financial Crisis, financially it was in the Bank's self-interest for the sale to Marina Cove to proceed as opposed to its not proceeding.
1207 Because the intervening event also raises for consideration the attitude of Marina Cove, I defer my assessment of the prospect of the Commonwealth Bank agreeing to discharge its mortgage until I turn to the prospect of Marina Cove agreeing to the proposition.
1208 CPL was the responsible entity of the CP Mortgage Fund. The Mortgage Fund had outstanding finance facilities from the Commonwealth Bank and was in breach of its covenants under those facilities. As a result, PPB was advising the Commonwealth Bank in relation to the Mortgage Fund. Mr Axarlis gave evidence that Mr Titterton of PPB could speak on behalf of the Mortgage Fund in relation to the sale transaction between Marina Cove and Pearl Hill because of the dependency of the Fund on the Commonwealth Bank.
1209 CPL (as responsible entity for the Mortgage Fund) took a second mortgage over the 3 superlots in March 2009. It had however been a financier of Marina Cove in October 2008 when the Heads of Agreement was executed because clause 15 provided that the terms of settlement 'were subject to the approval and consent of Marina Cove's Financiers, being Commonwealth Bank of Australia and City Pacific First Mortgage Fund'.
1210 On 10 December 2008 PPB conveyed to Marina Cove the conditions on which the Commonwealth Bank consented to the sale transaction the subject of the Heads of Agreement and on the same day Marina Cove conveyed that information to Pearl Hill. On 9 April 2009 PPB conveyed to Marina Cove the conditions on which the Commonwealth Bank now consented to the sale transaction and on the same day Marina Cove told Pearl Hill that it was prepared to proceed with the transaction 'on the basis that [its] financiers will consent to' the conditions set out, which had been conveyed by PPB.
1211 It is clear that, if the 33 lots were sold, the proceeds would have been less than the Commonwealth Bank's debt and accordingly there was no prospect that CPL would receive any of the sale proceeds pursuant to its second-ranking mortgage.
1212 In these circumstances, there is no doubt that CPL (as responsible entity for the Mortgage Fund) would have discharged its second-ranking mortgage if the sale to Pearl Hill had proceeded with the agreement of the Commonwealth Bank. The probability of this occurring is so high that no discount should be made for the contingency that, if Marina Cove and the Commonwealth Bank wished to proceed with the sale transaction, CPL would have refused to discharge its mortgage. The defendants do not submit otherwise.
1213 Pearl Hill accepts that, if it was to acquire the 33 lots after 13 May 2009, it was necessary that Marina Cove was willing to settle the sale transaction on the terms that it had previously been prepared to settle on, as expressed in Gadens' letters dated 9 and 21 April 2009.
1214 It is common ground that the question whether after 13 May 2009 Marina Cove would have been so willing is to be determined on an assessment of the degree of probability of this occurring.
1215 Mr Axarlis was the chief executive officer of CP1 in May 2009. Although direct evidence was not given of his position at Marina Cove, I infer from letters and other communications he sent on behalf of Marina Cove, his position as chief executive officer of Marina Cove's parent and his evidence as a whole that, at least in a de facto sense, he acted as chief executive officer of Marina Cove.
1216 Mr Axarlis was not asked any questions by any party concerning Marina Cove's hypothetical attitude in terms of its willingness, as at around 20 May 2009, to proceed with the sale transaction on the terms set out in Gadens' letter dated 21 April 2009.
1217 Ultimately, Pearl Hill as plaintiff bears the onus of proof on this issue. However, the mere fact that it did not ask questions of Mr Axarlis on the topic does not entail that I should assess the prospects of Marina Cove's willingness as nil or negligible. For reasons similar to those in respect of the hypothetical attitude of the Commonwealth Bank although not quite to the same extent, the hypothetical question of Mr Axarlis would have been a difficult one for him to answer. In addition, as at May 2009 Marina Cove was very largely beholden to the Commonwealth Bank. Marina Cove's attitude would have depended almost exclusively on the attitude of the Commonwealth Bank.
1218 As at May 2009, Marina Cove was in a very parlous financial position. It was required to pay $15 million to the Commonwealth Bank by 31 May 2009 and, in the absence of sale of the 33 lots to Pearl Hill, did not have the means to make that payment. I am satisfied that it did not have the means to pay the balance of the Annexure B invoices in the amount of $935,675. If Marina Cove could have obtained $15 million (without deduction) on the sale of the 33 lots to Pearl Hill by 30 June 2009, for the reasons given above, it would have avoided committing an event of default under its Commonwealth Bank facilities. For reasons similar to those in respect of the hypothetical attitude of the Commonwealth Bank, but for the intervening event, I would assess the prospect of Marina Cove being willing to proceed with the sale transaction on the terms set out in Gadens' letter dated 21 April 2009 as very high.
1219 However, on 13 May 2009 Marina Cove had (purportedly) taken the remaining work under the Construction Contract out of the hands of Pearl Hill pursuant to clause 39 of that contract. Although I have found that hypothetically Pearl Hill would have told Marina Cove (if necessary) that it agreed to return to work, Marina Cove would have been cautious about the prospect of Pearl Hill returning to work (now that Marina Cove had taken the step of taking the work out of Pearl Hill's hands) but not completing the work or completing it expeditiously.
1220 Hypothetically, Marina Cove would have had regard to the views and wishes of the Commonwealth Bank in relation to the return to work issue and the Commonwealth Bank would have had regard to the views and wishes of Marina Cove in relation to that issue. Given this interaction, it is artificial to assess separately the prospects of Marina Cove and the Commonwealth Bank agreeing to proceed. I therefore make that assessment as a single integrated assessment.
Commonwealth Bank and Marina Cove and collectively
1221 Apart from the fact that Marina Cove had (purportedly) taken the remaining work under the Construction Contract out of the hands of Pearl Hill, the prospects that the Commonwealth Bank and Marina Cove would have agreed to proceed with the sale transaction to Pearl Hill on the terms set out in Gadens' letter dated 21 April 2009 were very high.
1222 In relation to return to work, there are two hypothetical possibilities. First, Marina Cove and the Commonwealth Bank agreed to proceed on the basis that Pearl Hill not return to work and Marina Cove continue to complete the remaining work under the Construction Contract itself. Secondly, Marina Cove and the Commonwealth Bank agreed to proceed on the basis that Pearl Hill agreed to return to work as set out in the Gadens letter.
1223 My assessment is that there was a substantial probability that, if (as I have found) Pearl Hill would have agreed to the other terms set out in the Gadens letter (with dates modified as above), including what had previously been the sticking point involving payment of the purchase price without deduction, there was a reasonable prospect that the Commonwealth Bank and Marina Cove would have agreed to proceed without Pearl Hill returning to work. On the same premise, alternatively there was a reasonable probability that the Commonwealth Bank and Marina Cove would have agreed to proceed with Pearl Hill returning to work (which I have found Mr Mimmo would have agreed to do). It is necessary to assess the combined probability that the Commonwealth Bank and Marina Cove would have agreed to proceed either with or without Pearl Hill returning to work. I factor into my assessment the risk that, despite a willingness in principle to proceed, some event would have occurred that resulted in Marina Cove not in fact executing Contracts of Sale.
1224 I assess the prospects of the Commonwealth Bank and Marina Cove agreeing to proceed with the sale of the 33 lots at 40%.
1225 Pearl Hill accepts that, if it was to acquire the 33 lots after 13 May 2009, it was necessary for either Marina Cove or Pearl Hill to pay to the Council the fee of $122,495 to enable registration of the plan of subdivision.
1226 On 20 January 2009 Mr Newman sent an email to Mr Mimmo, copied to Mr Axarlis, about payment of the Council fee as follows:
As discussed, attached are the fees ($122,495) required to be paid to Council for the Lots along Clipper Quay to enable the Statement of Compliance to be issued, this cost would then be an adjustment at settlement off the amount to be paid to Marina Cove.
If you could please bring the cheque down to Michael Ritchie, he will then lodge it with Council so the plans of subdivision can be released along with the SoC.
1227 Mr Newman gave evidence that the Council charged engineering fees, which had to be paid before it would issue a Statement of Compliance, which in turn had to be lodged to obtain registration of the plan of subdivision. Mr Axarlis gave evidence that this was the last step required to obtain registration of the plan of subdivision.
1228 It is clear from the Heads of Agreement that it was the obligation of Marina Cove, at its cost, to obtain registration of a plan of subdivision to enable separate titles to be issued for each of the 33 lots. It was therefore its obligation to pay the Council fee. This was confirmed by Mr Newman's email and the evidence of Mr Newman and Mr Axarlis.
1229 Mr Newman's email evidences that Mr Mimmo had told Mr Newman that Pearl Hill would advance to Marina Cove $122,495 to enable Marina Cove to pay the Council fee (by a Pearl Hill cheque made out to the Council) on the basis that Marina Cove would reimburse Pearl Hill at settlement by deducting $122,495 from the amount otherwise payable. This is confirmed by Mr Mimmo's email to Mr Hoey sent on 3 April 2009, in which he forwarded Mr Newman's email to Mr Hoey and explained that 'this amount has to be paid by us for compliance'.
1230 I find that such an agreement was made between Mr Mimmo and Mr Newman, albeit it was not legally binding.
1231 Pearl Hill contends that the question whether Marina Cove or Pearl Hill would have paid the Council fee is a contingency on which the valuation of loss depends and is to be assessed by reference to the degree of probability of this occurring rather than part of causation of loss which must be proved on the balance of probabilities.
1232 The defendants contend that the question depends partly on the hypothetical decision of a third party (Marina Cove/the Commonwealth Bank) and partly on the hypothetical decision of Pearl Hill and that, insofar as it depends on the hypothetical decision of Pearl Hill, it must be proved on the balance of probabilities.
1233 I accept Pearl Hill's contention. The obligation to pay the Council fee was beyond doubt that of Marina Cove. In the counterfactual situation being considered, no question arises as to Pearl Hill's willingness to pay the fee unless and until Marina Cove is not willing to pay it. In addition, it is ultimately necessary to make a holistic combined assessment of the prospect of either Marina Cove or Pearl Hill paying the fee. It is not appropriate somehow to separate out the willingness of Marina Cove to pay the fee and assess it by reference to the degree of probability from the willingness of Pearl Hill to pay the fee and assess it on the balance of probabilities.
1234 I assess the prospects of either Marina Cove or Pearl Hill paying the Council fee by reference to the degree of probability of this occurring.
Combined prospects of Marina Cove or Pearl Hill paying fee
1235 The first possibility to be considered is that Marina Cove would have paid the Council fee if it and the Commonwealth Bank otherwise decided to proceed, being the contingency considered at [1197] and following above.
1236 The amount of the Council fee was less than 1% of the $15 million due to be received by Marina Cove and in turn by the Commonwealth Bank if the sale to Pearl Hill proceeded. It was a cost that Marina Cove was required within days to bear in any event. I assess the prospect of payment of the Council fee in the first instance by Marina Cove being a deal breaker as remote. If the Commonwealth Bank considered that it was in its interests to receive payment of $15 million being proceeds of the sale of the land to Pearl Hill, it is very likely that it would have permitted Marina Cove to draw on its facilities to pay the Council fee. I assess the prospect of Marina Cove paying the Council fee in the first instance in the postulated circumstances as high.
1237 It is only if Marina Cove did not pay the Council fee in the first instance that Pearl Hill would have been called upon to pay it. Mr Mimmo gave evidence that, if there had been a choice in May 2009 between sending a letter to do away with his land deal and paying the Council fee, he would have paid the fee.
1238 Again, the amount of the fee was relatively small compared to the benefit that Mr Mimmo perceived that Pearl Hill would receive as a result of purchasing the 33 lots for $15 million plus GST. Pearl Hill would only have been out of pocket in the amount of the fee for a few days between payment of the fee and reimbursement at settlement. In the circumstances, I have no hesitation in accepting Mr Mimmo's evidence. Moreover, Mr Mimmo's evidence is not hypothetical because he had agreed in January 2009 to pay the fee on this basis and reiterated that agreement in April 2009. There was no material change in circumstances between April and May 2009 that would have led to a change of mind on his part. In the event that Marina Cove did not pay the Council fee in the first instance, I assess the prospect of Pearl Hill paying it in the short term in the postulated circumstances as extremely high.
1239 I assess the combined prospect of either Marina Cove or Pearl Hill paying the Council fee (if all other matters were addressed) as in excess of 99%. This is such a high degree of certainty that no deduction should be made on account of this contingency.
1240 Pearl Hill accepts that, if it was to acquire the 33 lots after 13 May 2009, it was necessary for it to obtain finance to fund the $16.5 million purchase price (it receiving a refund of $1.5 million GST).
1241 Pearl Hill adduced evidence from Mr Triantos and Ms Panagiotas concerning their dealings with Mr Mimmo in relation to finance for the acquisition of the 33 lots.
1242 Mr Triantos gave evidence that he is a finance broker. He is the general manager and credit officer of Express Money Service Pty Ltd (EMS). His wife is the sole director and shareholder of that company.
1243 EMS has operated since 2000. It holds a credit licence, is registered with the Australian Securities and Investments Commission and is a member of the Finance Brokers Association of Australia.
1244 EMS is engaged in the business of procuring loans. Primarily its business involves procuring loans for businesses involved in residential or commercial land development or subdivision secured by first mortgage over freehold property. Commercial loans that it procures are typically offered in the vicinity of $10 million to $40 million. EMS also procures home loans for individual homeowners. In 2009 EMS procured loans of approximately $100 million.
1245 As at 2008 and 2009 EMS had an established relationship with various private lenders and with private lending law firms including Cornwall Stodart, Jaruzelski Aizenstadt and Spigler & Schwarcz. Mr Triantos called these lenders his 'private investors' and I adopt his terminology although they might be more accurately described as 'private lenders'.
1246 EMS also had an established relationship with Banner Asset Management (Banner).
1247 Through his relationships, Mr Triantos was aware of the amount that his private investors had available to lend, the types of lending in which they were interested and the rate of return that they were seeking. Based on that knowledge, he developed guidelines for lending. EMS procured loans on residential property at a 65 to 70% loan to value ratio.
1248 Mr Triantos gave evidence that in late 2008 Mr Mimmo was referred to him by an existing client who was a developer. Mr Mimmo told him that his building company was engaged as a builder for the developer of the Martha Cove development at Safety Beach. Mr Mimmo told him that the developer was in financial trouble and as a result he had made a deal with the developer to purchase 33 lots for $16.5 million inclusive of GST involving Mr Mimmo's building company obtaining land in lieu of money.
1249 Mr Triantos gave evidence that Mr Mimmo told him that he had a company called Coastal Group Properties Pty Ltd and related companies that owned other commercial property in Mornington and elsewhere which may have been available as security for a loan. Mr Mimmo asked him if he could arrange finance to purchase the 33 lots. He said that he was planning to acquire the land by way of a few lots each in several companies. He said that he was considering his options between borrowing the whole amount from one lender or borrowing money separately from multiple lenders. He asked Mr Triantos to provide him with options for such borrowing.
1250 Mr Triantos gave evidence that he and Mr Mimmo discussed the possibility of procuring as much money as Mr Triantos could obtain for him against the property in order to be able to settle on the property, service the interest and have funds left over for other purposes.
1251 Mr Triantos identified to himself that the lenders from whom EMS would procure the loan funds if a transaction proceeded worked on a loan to value ratio of 65% of valuation of the first mortgage security.
1252 Mr Triantos gave evidence that he spoke to his valuers and his consultants in the business. They said that, if it was the right price, they should go ahead. Mr Mimmo later told him that a valuation has been undertaken by a valuer used by the large corporate lenders who had valued the 33 lots at about $35 million. Mr Triantos saw the valuation but was not able to rely legally on it because it was not addressed to EMS. Mr Triantos did not recall the identity of the valuer but said that the valuer was with one of the top three or four valuation firms in Melbourne.
1253 On 8 January 2009 EMS issued to Coastal Group Properties a letter of offer signed by Mr Triantos. The letter stated that EMS' lenders were prepared to advance up to $22.88 million or 65% of sworn valuation, whichever was the lower, on the security of a first mortgage over the 33 lots. The loan was to be for a term of six to twelve months on an interest only basis at an interest rate of 8.95% per annum. The offer was subject to various conditions, including a satisfactory valuation to be commissioned by the lender at the borrower's expense and payment of application and brokerage fees of 2% each. The offer was expressed to be open for seven days. The lender reserved the right to withdraw it prior to or after acceptance. Once a valuation was completed that was satisfactory to EMS's lenders, a formal offer would be sent to the borrowers to be executed prior to mortgage documentation being completed.
1254 Mr Triantos gave evidence that it was EMS's practice not to issue a formal offer until a satisfactory valuation had been obtained.
1255 Mr Triantos gave evidence that Mr Mimmo told him that he was continuing to consider other offers before deciding on the best deal available to him. They discussed his intentions from time to time on several occasions subsequently. Ultimately, Mr Mimmo told him that the developer had gone into receivership and he was not sure what he could do.
1256 Mr Triantos gave evidence that he estimated that, if Mr Mimmo had wished to borrow $16.5 million plus the fees and capitalised interest, the total loan required would have been approximately $20 million.
1257 Mr Triantos gave evidence that, before he would have been prepared to advance the loan, the existing valuation would have to be re-addressed to EMS or another satisfactory valuation would have to be obtained. Company searches would also have to be obtained and personal identification of Mr Mimmo would need to be undertaken.
1258 Mr Triantos gave evidence that, as at January 2009, Banner had approximately $1 billion available to lend. He was familiar with Banner's lending criteria so that he could confidently determine whether Banner would make a given loan on given terms. He had Banner in mind as the lender to Mr Mimmo if he proceeded with a single lender due to its size and proceeded on that basis when preparing his letter of offer (such as the interest rate and fees). However, the fees charged by Banner were higher than when the lending was undertaken by Mr Triantos' private investors (2% compared to 1%) and Banner's interest rate was higher than the amount charged by private investors. Accordingly he considered alternatively obtaining the funds from his private investors.
1259 Mr Triantos gave evidence that, before issuing the letter of offer, he spoke to Banner personnel, identified the property and the valuation that had been obtained and asked them 'are you right to go on this one?' and they said 'Yes, we are. When you're ready.'
1260 Mr Triantos gave evidence that he had a pool of private investors who had between them approximately $300 million available to lend. He intended that, if Mr Mimmo wished to proceed, and Mr Triantos did not obtain the funds from Banner, he would obtain the funds from several private investors. His private investors had informed him of the amount they were willing to lend and their criteria. For example, an investor might say that they had $20 million to lend against any investment in land. Provided a given loan fell within a private investor's criteria and a valuation was obtained showing that the loan to value ratio was achieved and the mortgage documents were prepared by accepted solicitors, his private investors would lend money and it was effectively his call to make the decision whether to lend money on behalf of those investors.
1261 Mr Triantos gave evidence that, before issuing the letter of offer, he spoke to a group of five private investors and asked them the same question that he asked of Banner and they said that they were happy to proceed.
1262 Mr Triantos gave evidence that, if Mr Mimmo had signed the letter of offer dated 8 January 2009, it would have taken a week and a half to obtain a re-addressing of the valuation (if the valuer was willing to do so) and one or two weeks after that to settle.
1263 There is no challenge to the honesty of Mr Triantos' evidence. With one exception, there is no challenge to the reliability of his evidence. The exception is his evidence that he saw a valuation before sending his letter of offer of 8 January 2009.
1264 The defendants invite me to find that that Mr Triantos did not see a valuation before 8 January 2009. It is clear that Mr Triantos could not have seen Mr Kilby's valuation because it had not yet been prepared. However, on 19 December 2008 Mr Morello sent an email to Mr Axarlis referring to an approval of finance that Pearl Hill had previously obtained from BankWest. The valuation to which Mr Triantos referred could have been a valuation obtained by or for BankWest. No other evidence was adduced concerning the BankWest approval.
1265 Mr Triantos' evidence that he saw a valuation before 8 January 2009 was not challenged in cross-examination. Mr Mimmo did not give evidence about the approach to BankWest for finance or about a valuation being shown to Mr Triantos and his evidence is therefore effectively neutral on this topic.
1266 In his evidence in chief, Mr Triantos said that, after he was approached by Mr Mimmo and before he provided the letter of offer, a valuation had been done for Mr Mimmo by one of the valuers for the large corporate commercial lenders which was a lot better and stronger than the valuation that EMS would have obtained and being a valuation that he would take at face value. The valuation was for about twice the amount that Mr Mimmo was seeking. When he issued his letter of offer, everything had been done that had to be done except re-addressing the valuation to EMS. He had been given the okay for the deal by Banner and his group of five private investors based on the valuation.
1267 In cross-examination, Mr Triantos said that he had a valuation and that he had been told about it by Mr Mimmo. It was put that he had not yet seen or read it and he said 'not at that stage'. The defendants contend that, by this answer, Mr Triantos meant that he had not seen the valuation as at 8 January 2009. I reject that construction of his evidence. Immediately after giving that answer, Mr Triantos said that he wanted to clarify the answer and said that he did see a copy of the valuation, which was from one of the top valuers in Melbourne whose identity he could not now recall, and he saw a copy of the valuation and based his funding decision on it. When Mr Triantos' evidence (including his evidence in chief) is considered as a whole, it is clear that his reference to not having seen the valuation 'at that stage' was a reference to the stage when he was first approached by Mr Mimmo and not the stage when he issued the letter of offer on 8 January 2009.
1268 Mr Triantos had said in his written witness statement that, if Mr Mimmo had wished to proceed with the finance transaction, 'the amount of the loan advance would have reflected 65% of the anticipated valuation of the property'. The defendants contend that this implies that Mr Triantos had not seen any valuation as at 8 January 2009. However, Mr Triantos explained in his evidence that, if the transaction proceeded, he would have had to have the valuation re-addressed to EMS, it would have been the amount of the re-addressed valuation that governed the amount of the loan and this is what he meant by 'the anticipated valuation' or a valuation from another valuer if the first valuer would not re-address it.
1269 I found Mr Triantos to be a straightforward witness who had a clear understanding of his business, his credit providers and his customers. I have no reason to reject his evidence that he saw a valuation before 8 January 2009. I accept Mr Triantos' evidence in this respect. I also accept his evidence more generally.
1270 The parties make submissions about what Mr Triantos' evidence does or does not prove, which I address below.
1271 Ms Panagiotas gave evidence that in 2009 she was employed by Westpac Bank in its commercial division at its Laverton Business Centre at Laverton in the Melbourne metropolitan area. She specialised in commercial lending, including for property development and construction. The Laverton Business Centre made loans to customers, and for projects, throughout Victoria; it was not confined to lending in a specific geographical area.
1272 Ms Panagiotas was employed by Westpac as Relationship Manager between 2002 and 2009. She had previously been employed by BankWest between 1996 and 2002 and before that she had been employed by Westpac between 1991 and 1996 during which time she became an Assistant Manager.
1273 After leaving Westpac in 2009, Ms Panagiotas was employed by Delphi Bank, then by MW Lomax as a loan mortgage broker and then by Assetline Capital Pty Ltd as Business Development Manager.
1274 Ms Panagiotas gave evidence about Westpac's practices and procedures in relation to lending for property development in 2009. She had authority to make a decision on behalf of Westpac to lend up to $2 million.
1275 In relation to loans of amounts in excess of $2 million, a decision to lend required the concurrence of a relationship manager and a credit officer. There were two credit managers at Laverton Business Centre who made the lending decisions on the credit side. As relationship manager, Ms Panagiotas made the decision whether to submit a loan application to a credit officer. If she decided to do so, she prepared a credit memorandum recommending the loan. The loan would only be made if the credit officer agreed.
1276 Ms Panagiotas said that the Bank required a valuation to be undertaken by one of the valuers on its panel, which included Carter Keck Cramer, Savills and CBRE. If a valuation had already been undertaken by a panel valuer, Westpac would rely on that valuation provided that it was assigned to Westpac. Westpac regarded valuations as valid for three months. A valuation more than three months old would have to be refreshed by the valuer. For lending against land security, Westpac lent up to 65% of the valuation. Provided that there was adequate security to achieve this loan to valuation ratio, Westpac was prepared to include capitalised interest over the term of the loan and/or the establishment fee.
1277 Ms Panagiotas said that, for a property development of the type proposed by Pearl Hill, Westpac lent on an interest only basis for one or two years. Westpac required the customer to identify a takeout, or exit, strategy whereby the loan would be paid out after two years. An exit strategy might comprise onselling the property, construction finance or other finance. Westpac did not require formal documentation of the exit strategy but rather an understanding of the client's strategy.
1278 When a customer approached Westpac at the Laverton Business Centre, Ms Panagiotas obtained an understanding of the transaction, comprising the level of debt required, whether interest was to be capitalised, the level of security required and the customer's exit strategy.
1279 Ms Panagiotas had a practice of providing an indicative offer to a customer when appropriate. For this purpose, she obtained from the customer the necessary details, made enquiries, prepared a short form credit memorandum and obtained an indicative approval from one of the credit managers. I infer that an indicative offer was not legally binding and was subject to the issue of a formal letter of approval and a satisfactory valuation. No fee was payable by the customer at this stage. There was no bank template for an indicative offer, which might be in the form of a letter or an email or might even be verbal.
1280 If the customer wished to proceed, the customer made a formal application for the loan. Ms Panagiotas then prepared a full credit memorandum. At this stage, she required a copy of the contract for the purchase of the land and the section 32 vendor statement. She looked at the vendor statement for title details including the name of the vendor/owner and any encumbrances such as unpaid land tax. She went through the credit policy and ensured that the transaction met all of the criteria. The criteria included not only the loan to value ratio but also that the customer had a clean credit history, the capacity to repay the loan and identification of an exit strategy.
1281 After submitting the credit memorandum, Ms Panagiotas obtained an approval from the credit manager (when appropriate). She then prepared a formal letter of approval. If the customer accepted the approval, the customer would be required to pay fees (including a valuation fee) and the Bank commissioned a valuation from a panel valuer. After receipt of a formal application from the customer, it took about two weeks to obtain a formal approval and the valuation and a further two weeks to settle.
1282 Ms Panagiotas gave evidence that she recalls Mr Mimmo being referred to her by another builder. Mr Mimmo came to see her in around February 2009. He was seeking a loan for the acquisition by Pearl Hill of 33 lots within the Martha Cove development at Safety Beach. She recalls the development and Mr Mimmo's involvement in it because his arrangement for the acquisition of the property made an impression on her at the time.
1283 Ms Panagiotas gave evidence that Mr Mimmo told her that the reason he was buying the lots was because the original developer was struggling financially and had issues, owed Pearl Hill money and was going to liquidate the lots. He told her that the purchaser was his company Pearl Hill Pty Ltd. He offered first mortgage security over the 33 lots and, if necessary, a mortgage over other unencumbered property at Safety Beach and a second mortgage over a shopping centre at Barkly Street Mornington.
1284 Ms Panagiotas gave evidence that she obtained financial statements for Pearl Hill and undertook a credit check. She prepared a short form credit memorandum and obtained indicative approval from the credit manager.
1285 Ms Panagiotas gave evidence that she issued an indicative offer to Mr Mimmo for a loan to Pearl Hill by way of a commercial bill facility with an interest margin of 2.5% per annum initially for one year with a capacity of being rolled over. Ms Panagiotas said that she made the indicative offer by email but did not have access to her Westpac emails from 10 years ago. She accepted that there was a possibility that she conveyed the indicative offer to Mr Mimmo verbally. The indicative offer was mainly subject to receipt of a satisfactory valuation and achieving a 65% loan to valuation ratio. The Bank would also have required the submission of the purchase contracts and the submission of a formal loan application as described above.
1286 Ms Panagiotas gave evidence that Mr Mimmo told her that he was shopping around to various banks and she left the indicative offer in his hands. Some time later, he told her that he did not proceed with the purchase.
1287 Ms Panagiotas was asked in cross-examination about the letter from Peter Smith of Westpac addressed to Coastal Group Properties dated 1 April 2009. Mr Smith described himself as a Business Banking Manager at relationship sales in Westpac's office at 360 Collins Street Melbourne. In the letter, he confirmed Westpac's expression of interest to assist with finance for the blocks of land being considered for purchase at Safety Beach. He said that, once Mr Mimmo had copies of the contracts, he should forward them to Mr Smith together with the additional information requested from Mr Morello. He said that the expression of interest was subject to formal valuation by bank panel valuer.
1288 Ms Panagiotas said that she and those at the Laverton Business Centre did not use terms such as 'expression of interest'. She did not know Mr Smith. She had not previously seen the letter or known anything of it.
1289 There is no challenge to the honesty or general reliability of Ms Panagiotas' evidence.
1290 I find that Ms Panagiotas was a careful witness with a thorough knowledge of finance matters relevant to the contemplated loan by Westpac to Pearl Hill and of Westpac's practices and procedures in relation to such lending. I accept her evidence generally.
1291 The parties make submissions about what Ms Panagiotas' evidence does or does not prove, which I address below.
1292 Mr Mimmo gave evidence in chief that he 'had no concerns that the residential finance I was seeking would satisfy the bank's loan to value ratios requirements' and 'on the basis of my discussions with Jerry Triantos, Stacey Panagiotas and the letters I had received from NAB and ANZ, I was confident that I had a number of options available to me to finance the whole of the purchase price, including GST, costs of the loan and if necessary, capitalised interest'. On its face, this does not purport to be objective evidence as to the prospect of Pearl Hill obtaining finance but only evidence of Mr Mimmo's state of mind. Pearl Hill does not contend otherwise.
1293 Mr Mimmo gave brief evidence in chief of his dealings with Mr Triantos and Ms Panagiotas. His evidence was consistent with the more detailed evidence given by Mr Triantos and Ms Panagiotas and was not challenged in cross-examination.
1294 Mr Mimmo gave little other evidence in chief concerning seeking finance and was not significantly cross-examined on this topic.
1295 Pearl Hill contends that the question whether it would have obtained finance to complete the acquisition of the 33 lots is a contingency on which the valuation of loss depends and is therefore to be assessed by reference to degree of probability rather than forming part of causation of loss which must be proved on the balance of probabilities.
1296 The defendants contend that the question whether Pearl Hill would have obtained finance depends partly on the hypothetical conduct of third party financiers and partly on the hypothetical conduct of Pearl Hill and that, at least insofar as it depends on the hypothetical conduct of Pearl Hill, it must be proved on the balance of probabilities.
1297 I accept Pearl Hill's contention. Pearl Hill could not itself decide whether it would be granted finance. The grant of finance was an action that only a lender could take, not a borrower. While it is of course true that a borrower must cooperate with the lender in the sense of providing information or documents required by the lender to make a decision or provide finance, the borrower's role is very much a subsidiary one compared to the lender's decision-making role. It is not practicable or possible to attempt to separate out the borrower's minor role from the lender's major role in this respect.
1298 I assess the prospects of Pearl Hill obtaining finance via EMS or from Westpac by reference to degree of probability.
1299 I accept Mr Triantos' evidence that he, and hence EMS, was in favour of lending up to $22.88 million or 65% of valuation for the purchase of the 33 lots. Although EMS was only a finance broker and its willingness to lend was only a step towards the willingness of its lenders, I accept his evidence that his views carried great weight with his lenders (Banner and his private investors) due to their relationship.
1300 I accept Mr Triantos' evidence that, subject to obtaining a valuation addressed to EMS in the requisite amount, Banner had agreed to act as lender in respect of the proposed lending transaction set out in Mr Triantos' 8 January 2009 letter and so had the requisite number of EMS's private investors.
1301 Mr Triantos did not give evidence of the period for which a valuation was considered current. Ms Panagiotas gave evidence that at Westpac a valuation was regarded as current for three months. If hypothetically Mr Mimmo had informed Mr Triantos in the second half of May 2009 that he wished to proceed with finance, the valuation Mr Triantos had seen would have been over four months old. I infer that, before EMS and its lenders would have relied on that valuation, it would not only have to be re-addressed to EMS but it also would have to be refreshed or an alternative valuation would have to be obtained.
1302 In the absence of tender, or further details, of the valuation that Mr Triantos saw, the best evidence of the valuation that would have been obtained and relied on by EMS is Mr Kilby's valuation as at May 2009 of $31.35 million. At a 65% loan to value ratio, this would have enabled lending of $20.38 million, which would have been sufficient to cover the purchase price of $15 million, GST of $1.5 million that would have been recovered in the short term by Pearl Hill from the Australian Taxation Office, borrowing fees and more than one year of capitalised interest.
1303 Mr Triantos said that there would have been a need to identify the relevant corporate entities and obtain personal identification from Mr Mimmo. This would have been a straightforward process. It is evident from Mr Triantos' evidence that, although his 8 January 2009 letter was addressed to Coastal Group Properties, he would have been amenable to the borrower being Pearl Hill provided that the mortgage security was adequate. The defendants do not submit otherwise in closing address.
1304 In the case of EMS' private investors, there would have been a need for the solicitors used by EMS to produce acceptable mortgage documentation. This would have been a straightforward process.
1305 The defendants observe that Pearl Hill did not call anyone from Banner or any of EMS's private investors. The evidence given by Mr Triantos is not inadmissible hearsay because it comprises evidence of communications to EMS of the prospective lenders' (non-legally binding) agreement to participate in the lending transaction. It is unlikely that they could have given any useful evidence given the passage of 10 years since the events in question. Evidence from EMS' lenders confirming their (non-legally binding) agreement to participate in the lending transaction would have given me additional confidence in assessing the degree of probability of Pearl Hill obtaining finance. However, its absence is not fatal to Pearl Hill's case.
1306 On the one hand, based on Mr Triantos' evidence, there was a very high prospect that Banner or EMS' private investors would have provided the requisite finance to Pearl Hill. On the other hand, given the hypothetical nature of the question and the difficulty of obtaining conclusive evidence, there are various contingencies that need to be taken into account in determining the prospect of such finance being provided. EMS' lenders were not legally committed to provide the finance and might have decided not to proceed on being provided with further details. There are risks that a finance transaction would not have proceeded for various other reasons.
1307 I defer further consideration of the prospects of finance being provided by EMS' lenders until considering the prospect of finance being provided by Westpac.
1308 Ms Panagiotas gave evidence, which I accept, that in about February 2009 she issued an indicative offer to Mr Mimmo for a loan to Pearl Hill by way of a commercial bill facility initially for one year with a capacity of being rolled over. For this purpose, she had obtained financial statements of Pearl Hill, undertaken a credit reference check, prepared a short form credit memorandum and obtained indicative approval from a credit manager.
1309 The indicative offer was not legally binding and Westpac was free to disclaim it without cause. However, in practice it provides a reasonably sound indication of the prospect of Westpac approving the loan, subject to the contingencies identified by Ms Panagiotas. I accept Ms Panagiotas' evidence that the most important contingency was obtaining a satisfactory valuation from a Westpac panel valuer.
1310 The defendants observe that, because the proposed loan was for more than $2 million, Ms Panagiotas did not have authority to approve it and it required approval by one of the credit managers at the Laverton Business Centre. However, I accept Ms Panagiotas' evidence that she obtained indicative approval from one of those credit managers. I also accept her evidence that her knowledge and experience was such that she was in a position confidently to predict whether a credit manager would approve a loan.
1311 It is unlikely that the credit manager at the Laverton Business Centre could have given any useful evidence given the passage of 10 years since the events in question and it is unlikely that Westpac now retains documents relating to the matter. Evidence from the credit manager would have given me additional confidence in assessing the degree of probability of Pearl Hill obtaining finance. However, its absence is not fatal to Pearl Hill's case. I accept Ms Panagiotas' evidence that, subject to the contingencies she identified, if Mr Mimmo had wished to proceed, it is likely that his application would have been approved.
1312 In relation to the contingency of valuation, I proceed on the same basis as in respect of EMS that a hypothetical valuation in May 2009 would have valued the 33 lots at $31.35 million.
1313 In relation to the contingency of Westpac sighting the Contracts of Sale, Ms Panagiotas said that, aside from the issue of encumbrances disclosed in the section 32 vendor statement, Westpac would ordinarily rely on the valuer to identify any issues arising from the terms of the sale contract. The evidence given by Mr Kilby indicates that the terms of the Contracts of Sale would not have adversely affected the value of the land because the obligation to construct a house within three years was not unusual in relation to such estates.
1314 The defendants observe that Pearl Hill did not tender its financial statements which Ms Panagiotas said were required to assess an application for finance. No evidence was given by Mr Mimmo concerning Pearl Hill's financial statements and he was not cross-examined in relation to them. However, I accept Ms Panagiotas' evidence that she saw the financial statements at the time and the indicative approval was given on the basis of them.
1315 In relation to other contingencies, the position is similar to that in respect of EMS.
1316 The defendants observe that Ms Panagiotas was not involved, and had never seen, the letter from Peter Smith of Westpac dated 1 April 2009. However, that letter is irrelevant to her assessment whether Pearl Hill would have been granted finance because it involved a separate approach by Pearl Hill (presumably Mr Morello) to a different office of Westpac. Mr Smith's letter was in fact deployed by Pearl Hill simply to show the necessity of obtaining signed contracts before the banks would consider issuing unconditional approval.
1317 The defendants refer to the conditions referred to in Mr Smith's letter and the fact that they were not fulfilled. This is irrelevant in itself for the same reason. Insofar as Mr Smith referred to receipt of a satisfactory valuation and a satisfactory review of the sale contracts, I have addressed that above.
Combined prospects of obtaining finance via EMS or Westpac
1318 The relevant contingency is whether Pearl Hill would have obtained finance either via EMS or from Westpac to purchase the 33 lots.
1319 The prospects of Pearl Hill obtaining such finance fall to be determined primarily on the basis of the evidence given by Mr Triantos and Ms Panagiotas and such objective circumstances as were established referred to above.
1320 The defendants point to the fact that Mr Mimmo was aware from 28 January 2009 to 9 April 2009 that Marina Cove's financiers required Pearl Hill to obtain an unconditional offer of finance as the price of dispensing with a deposit. They observe that the only offers of finance that were tendered over the period between 9 January and 1 April 2009 were preliminary and conditional. They contend that no adequate evidence was adduced why Mr Mimmo did not take steps with any of those financiers to secure unconditional finance. They submit that an adverse (Jones v Dunkel) inference should be drawn from the absence of such evidence in respect of the period up to 9 April 2009.
1321 The defendants observe that Pearl Hill did not adduce any evidence of Mr Mimmo's attempts to secure unconditional finance after 1 April 2009. They submit that an adverse (Jones v Dunkel) inference should be drawn from the absence of such evidence in respect of the period after 1 April 2009.
1322 However, Mr Mimmo sent an email to Mr Hoey on 1 April 2009 saying that he had approval for finance for the 33 lots but could not get an unconditional letter of approval because all banks wanted to see signed contracts. He attached the NAB letter dated 23 January, the ANZ letter dated 13 February and the Westpac letter dated 1 April 2009. He was not challenged in cross-examination in relation to this explanation for his not being able to obtain unconditional finance. This explanation is corroborated by the evidence given by Ms Panagiotas about the sequence of events whereby the Bank required production of the contract before issuing a letter of approval.
1323 In respect of the period after 9 April 2009, the Commonwealth Bank was no longer seeking that Pearl Hill obtain an unconditional offer of finance.
1324 No adverse inference should be drawn from the fact that Pearl Hill did not obtain unconditional approval for finance between January and May 2009.
1325 I assess the prospects of Pearl Hill obtaining finance via EMS as being somewhat higher than its prospects of obtaining finance from Westpac. However, it is necessary to assess the prospects of obtaining finance from either source because either source would have been sufficient. Taking into account the contingencies to which the provision of finance was still subject and the uncertainties associated with the provision of finance, I assess the relevant prospects of obtaining finance at 60%.
1326 The gross loss is $4,990,000. I apply the successive contingencies of the Commonwealth Bank and Marina Cove agreeing to proceed (40%) and Pearl Hill obtaining the necessary finance (60%) to give a net loss of $1,197,600.
1327 It is common ground that Pearl Hill's claims against the defendants are 'apportionable claims' within the meaning of Part IVAA of the Wrongs Act; the defendants, if liable, are 'concurrent wrongdoers' within the meaning of that Part; and that Part IVAA applies to Pearl Hill's claims. It follows that it is necessary to apportion responsibility pursuant to section 24AI for Pearl Hill's loss as between Hoeys and Mr Digby QC.
1328 I ruled during closing addresses at trial that I would hear submissions on the apportionment of responsibility after delivering my reasons for judgment on all other issues. I will hear counsel on that question.
1329 Mr Digby QC pleads that his liability is capped at $2 million pursuant to the Professional Standards Act 2003 (Vic) because he was in May 2009 a member of the Victorian Bar Incorporated Professional Standards Scheme, the applicable monetary ceiling of which was $2 million. It is common ground that Mr Digby QC's liability is so capped. However, in view of my assessment of loss, that is irrelevant.
1330 Pearl Hill is entitled to judgment against Hoeys and Mr Digby QC for damages provisionally assessed at $1,185,000 (subject only to hearing the parties on arithmetical aspects of the calculation of wholesale value). I will hear those parties as to interest and costs.
1331 Pearl Hill's action against Mr Oliver is dismissed. I will hear those parties as to costs.
I certify that this and the 305 preceding pages are a true copy of the reasons for judgment of Blue AJ of the Supreme Court of Victoria delivered on 26 February 2021.
[1] All dollar figures are GST exclusive, unless otherwise indicated.
[2] All dollar figures are rounded to the nearest whole dollar and are GST exclusive, unless otherwise indicated.
[3] Mr Mimmo's letter was not tendered. However, its contents can be inferred to some extent from Mr Donaldson's letter dated 31 August 2005.
[4] All dollar figures in millions of dollars are rounded to the nearest $10,000 and are GST exclusive, unless otherwise indicated.
[5] Although not necessarily present in this email, many of the emails extracted in this judgment contain typographical and/or grammatical errors. In general terms, I have not identified all errors with the word 'sic'.
[6] Mr Oliver referred erroneously to clause 34.4 but his intent was clear.
[8] Subsequently published as [2009] VSC 621.
[9] Rogers v Whitaker [1992] HCA 58; (1992) 175 CLR 479 at 483 per Mason CJ, Brennan, Dawson, Toohey and McHugh JJ; Yates Property Corporation v Boland [1998] FCA 8; (1998) 157 ALR 30 at 50-51 per Drummond, Sundberg and Finkelstein JJ; Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 51 NSWLR 1 at [146] per Malcolm AJA and [362] per McPherson AJA.
[10] Saif Ali v Sydney Mitchell & Co [1980] AC 198 at 214 per Lord Wilberforce; Boland v Yates Property Corporation Pty Ltd [1999] HCA 64, (1999) 74 ALJR 209 at [309] per Callinan J; Rosenberg v Percival [2001] HCA 18, (2001) 205 CLR 434 at [68] per Gummow J and [219] per Callinan J.
[11] Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61, (2007) 233 CLR 115 at [44]- [56] per Gleeson CJ, Gummow, Heydon and Crennan JJ.
[12] There will also be a right to terminate if a statute confers a right to terminate in defined circumstances and the requisite circumstances exist. However, there is no suggestion in the present case that there was a relevant statute conferring a right to terminate.
[13] Concut Pty Ltd v Worrell [2000] HCA 64, (2000) 176 ALR 693 at [23] per Gleeson CJ, Gaudron and Gummow JJ.
[14] Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd [1997] NSWSC 473; (1997) 42 NSWLR 462 at 479-480 per Gleeson CJ, Handley JA and Brownie AJA; Emhill Pty Ltd v Bonsoc Pty Ltd (No 2) [2007] VSCA 108 at [68] per Warren CJ (with whom Buchanan and Ashley JJA agreed).
[15] Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd [1997] NSWSC 473; (1997) 42 NSWLR 462 at 479-480 per Gleeson CJ, Handley JA and Brownie AJA; Emhill Pty Ltd v Bonsoc Pty Ltd (No 2) [2007] VSCA 108 at [68] per Warren CJ (with whom Buchanan and Ashley JJA agreed).
[16] See for example Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd [1997] NSWSC 473; (1997) 42 NSWLR 462 at 480 per Gleeson CJ, Handley JA and Brownie AJA.
[17] Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 655-656 per Mason J; Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 at 38-39 per Deane, Toohey, Gaudron and McHugh JJ.
[18] Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 656 per Mason J; Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 at 38-39 per Deane, Toohey, Gaudron and McHugh JJ.
[19] Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 656 per Mason J; Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 at 38-39 per Deane, Toohey, Gaudron and McHugh JJ.
[20] Newbon v City Mutual Life Assurance Society Ltd [1935] HCA 33; (1935) 52 CLR 723 at 733 per Rich, Dixon and Evatt JJ .
[21] McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 at 469-470 per Starke J and 476-477 per Dixon J (with whom McTiernan J agreed).
[22] Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827 at 845 per Lord Wilberforce.
[23] McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 at 476-477 per Dixon J (with whom Rich J and McTiernan J agreed); Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd [1936] HCA 6; (1936) 54 CLR 361 at 379-380 per Dixon and Evatt JJ.
[25] At 476-477 per Dixon J (with whom Rich J and McTiernan J agreed).
[26] The Commonwealth of Australia v Aman Aviation Pty Limited [1991] HCA 54; (1991) 174 CLR 64 at 80 per Mason CJ and Dawson J and 98 per Brennan J.
[27] See Mason, Carter and Tolhurst, Mason & Carter's Restitution Law in Australia (LexisNexis Butterworth, 2nd ed, 2008) [1112]-[1145].
[28] Mayson v Clouet [1924] AC 980 at 985-987 per Lord Dunedin delivering the judgment of the Privy Council on behalf of his Lordship, Lord Phillimore and Lord Carson); McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 at 476-478 per Dixon J (with whom Rich J and McTiernan J agreed). See generally Mason, Carter and Tolhurst, Mason & Carter's Restitution Law in Australia (LexisNexis Butterworth, 2nd ed, 2008) [1117], [1125]-[1127].
[29] Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344 at 350-351 per Mason CJ (with whom Brennan J and Toohey J relevantly agreed) and 374-375 per Deane and Dawson JJ. See generally Mason, Carter and Tolhurst, Mason & Carter's Restitution Law in Australia (LexisNexis Butterworth, 2nd ed, 2008) [915]-[930], [1119]-[1124].
[30] Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344 at 350-351 per Mason CJ (with whom Brennan J and Toohey J relevantly agreed), 374-375 per Deane and Dawson JJ, 384-387 per Gaudron J and 388-393 per McHugh J; Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68, (2001) 208 CLR 516 at [17]- [19] per Gleeson CJ, Gaudron and Hayne JJ and [105]-[109] per Gummow J . See generally Mason, Carter and Tolhurst, Mason & Carter's Restitution Law in Australia (LexisNexis Butterworth, 2nd ed, 2008) [1119]-[1124].
[33] Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516 at [17]- [19] per Gleeson CJ, Gaudron and Hayne JJ and [105]-[109] per Gummow J. See generally Mason, Carter and Tolhurst, Mason & Carter's Restitution Law in Australia (LexisNexis Butterworth, 2nd ed, 2008) [1119]-[1124].
[34] See Mason, Carter and Tolhurst, Mason & Carter's Restitution Law in Australia (LexisNexis Butterworth, 2nd ed, 2008) [1161]-[1165]; Carter, Peden and Tolhurst, Contract Law in Australia (LexisNexis Butterworths, 5th ed, 2007) [38-25]; Seddon and Ellinghaus, Cheshire and Fifoot's Law of Contract (LexisNexis Butterworths, 9th ed, 2008) [26.6]
[35] See the view expressed in Seddon and Ellinghaus, Cheshire and Fifoot's Law of Contract (LexisNexis Butterworths, 9th ed, 2008) [26.6] compared to the view expressed in Mason, Carter and Tolhurst, Mason & Carter's Restitution Law in Australia (LexisNexis Butterworth, 2nd ed, 2008) [1161]-[1165].
[36] Mason, Carter and Tolhurst, Mason & Carter's Restitution Law in Australia (LexisNexis Butterworth, 2nd ed, 2008) [1151] and [1153].
[37] Mason, Carter and Tolhurst, Mason & Carter's Restitution Law in Australia (LexisNexis Butterworth, 2nd ed, 2008) [1153], [1154], [1171]; Carter, Peden and Tolhurst, Contract Law in Australia (LexisNexis Butterworths, 5th ed, 2007) [38-20].
[41] See for example Mason, Carter and Tolhurst, Mason & Carter's Restitution Law in Australia (LexisNexis Butterworth, 2nd ed, 2008) [1429]-[1430]; Carter, Peden and Tolhurst, Contract Law in Australia (LexisNexis Butterworths 5th ed 2007) [38-39]; Seddon and Ellinghaus, Cheshire and Fifoot's Law of Contract (LexisNexis Butterworths, 9th ed, 2008) [26.7]
[42] Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, (2007) 230 CLR 89 at [135] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ.
[43] [2005] VSC 237, (2005) 22 BCL 92 at [858].
[45] [2005] VSC 237 at [863].
[47] At [22], [25]-[26]. (Citations omitted)
[48] Kane Constructions v Sopov [2005] VSC 237; (2005) 22 BCL 92 at [876]-[877] per Warren CJ; Kane Constructions v Sopov (No 2) [2005] VSC 492 at [36]- [43] per Warren CJ.
[49] Rawson v Samuel (1841) Cr & Ph 161 at 178, 41 ER 451 at 458 per Lord Cottenham LC.
[50] Government of Newfoundland v Newfoundland Railway Co [1888] UKLawRpAC 7; (1888) 13 App Cas 199 at 212-213 per Lord Hobhouse delivering the judgment of the Privy Council on behalf of Lord Fitzgerald, Lord Hobhouse, Sir Barnes Peacock and Sir Richard Crouch; Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] 1 AC 1056 at 1102-1103 and 1110-1111 per Lord Brandon of Oakbrook (with whom Lord Keith of Kinkel, Lord Oliver of Aylmerton, Lord Goff of Chievely and Lord Jauncey of Tullichettle agreed); Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd [1997] NSWSC 473; (1997) 42 NSWLR 462 at 481-482 per Gleeson CJ, Handley JA and Brownie AJA.
[53] Mr Oliver did not plead and does not advance a contention of immunity.
[57] At [31], [34], [43], [45]. (Footnotes omitted).
[58] At [34], [35], [37]. (Footnotes omitted).
[60] At [25], [86]-[87]. (Footnotes omitted).
[62] (1988) 165 CLR 543 at 559. See also D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1 at [89]- [91] per Gleeson CJ, Gummow, Hayne and Heydon JJ.
[63] There is a dispute, considered below, whether this was Pearl Hill's case since the close of its opening address at trial.
[78] These are authorities cited in Ben Curtin, 'A Framework for the Valuation of Loss of a Commercial Opportunity' (PhD Thesis, University of Sydney, 2016) at 103.
[79] Daniels v Anderson (1995) 37 NSWLR 438 at 528-529 per Clarke and Sheller JJA; Heenan v Di Sisto [2008] NSWCA 25, (2008) Aust Tort Reports 81-941 at [31] per Giles JA (with whom Mason P and Matthews AJA agreed); Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd [2011] FCAFC 55, (2011) 192 FCR 445 at [166] per Keane CJ, Lander and Besanko JJ.
[80] Daniels v Anderson (1995) 37 NSWLR 438 at 528-529 per Clarke and Sheller JJA; Price Higgins & Fidge v Drysdale [1996] VicRp 22; [1996] 1 VR 346 at 354-355 per Winneke P (with whom Ormiston J and Charles JA agreed); Feletti v Kontoulas [2000] NSWCA 59 at [27]- [28] per Mason P (with whom Sheller JA and Rolfe AJA agreed); GW Sinclair & Co Pty Ltd v Cocks [2001] VSCA 47 at [29] per Charles JA (with whom Brooking and Buchanan JJA agreed); Bak v Glenleigh Homes Pty Ltd [2006] NSWCA 10 at [73]- [74] per Hodgson JA (with whom McColl JA agreed); Hammond Worthington v Da Silva [2006] WASCA 180 at [114] -118] per Buss JA (with whom McLure and Pullin JJA agreed); Heenan v Di Sisto [2008] NSWCA 25, (2008) Aust Tort Reports 81-941 at [28]-[33] per Giles JA (with whom Mason P and Matthews AJA agreed); Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd [2011] FCAFC 55, (2011) 192 FCR 445 at [166] per Keane CJ, Lander and Besanko JJ; Doolan v Renkon Pty [2011] TASFC 4, (2011) 21 Tas R 156 at [60] per Crawford CJ, Blow and Porter JJ; Pritchard v DJZ Constructions Pty Ltd [2012] NSW CA 196 at [291]- [297] and [454] per Whealy JA; Falkingham v Hoffmans [2014] WASCA 140, (2014) 46 WAR 510 at [38]- [41] per Pullin and Murphy JJA.
[81] See [886] ff; [1231] ff; [1295] ff below.
[82] See for example: Kitchen v Royal Air Forces Association [1958] 2 All ER 241; Hanif v Middleweeks [2000] Lloyd's Rep PN 920 at [21], [41]-[42] per Mance LJ (with whom Roch LJ agreed); Dixon v Clement Jones Solicitors (a firm) [2004] EWCA Civ 1005, [2005] PNLR 6 at [27], [47] per Rix LJ (with whom Carnwath LJ and Lord Slynn agreed); Perry v Raleys Solicitors [2017] EWCA Civ 314.
[83] Assuming that the clause 15 condition is a condition precedent to the parties' obligations to perform. See generally JW Carter, Contract Law in Australia (LexisNexis Butterworths, 5th ed, 2007)[13-18] ; NC Seddon and M P Ellinghaus, Cheshire and Fifoot's Law of Contract (LexisNexis Butterworths, 9th ed, 2008) [20.5].
[84] See generally JW Carter, Contract Law in Australia (LexisNexis Butterworths, 5th ed, 2007) [30-02].
[85] Kitchen v Royal Air Forces Association [1958] 2 All ER 241 at 250-251 per Lord Evershed MR, 252-253 per Parker LJ and 254 per Sellers LJ; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 119 per Deane J; Hanif v Middleweeks [2000] Lloyd's Rep PN 920 at [14]-[18] per Mance LJ (with whom Roch LJ agreed); Pearson v Sanders Witherspoon [1999] EWCA Civ 3032; [2000] PNLR 110 at 134 -135 per Ward LJ (with whom Chadwick and Peter Gibson LJJ agreed); Dixon v Clement Jones Solicitors (a firm) [2004] EWCA Civ 1005, [2005] PNLR 6 at [27] per Rix LJ (with whom Carnwath LJ and Lord Slynn agreed); Phillips & Co (A Firm) v Whatley [2007] UKPC 28, [2007] PNLR 27 at [2] per Lord Mance (delivering the opinion of the Privy Council on behalf of Lord Hope of Craighead, Lord Scott of Foscote, Lord Rodger of Earlsferry, Lord Walker of Gestingthorpe and Lord Mance); Perry v Raleys Solicitors [2017] EWCA Civ 314at [34]-[38] per Gloster LJ (with whom McFarlane LJ and Sir Stephen Tomlinson agreed).
[86] See O'Neill v Geddes [1971] 2 NSWLR 143 at 144 per Hope J.
[88] [2009] SASC 220 at [33] per Vanstone J (with whom Doyle CJ and Layton J agreed).
[89] National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548 at 550 per Casey, Hardie Boys and Tipping JJ.
[90] Davis v CGU Insurance Ltd [2009] SASC 220 at [33] per Vanstone J (with whom Doyle CJ and Layton J agreed) citing The August Leonhardt [1985] 2 Lloyds Rep 28 at 34-35 per Kerr LJ (delivering judgment of the Court of Appeal on behalf of Oliver, Kerr and Lloyd LJJ).
[91] Davis v CGU Insurance Ltd [2009] SASC 220 at [33] per Vanstone J (with whom Doyle CJ and Layton J agreed).
[92] [2009] SASC 220 at [33] per Vanstone J (with whom Doyle CJ and Layton J agreed).
[93] Adopting the test formulated by the New Zealand Court of Appeal in National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548 at 550 per Casey, Hardie Boys and Tipping JJ.
[94] [2008] WASC 239 at [3534] per Owen J.
[95] Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, (2007) 230 CLR 89 at [135] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ.
[96] Queensland Independent Wholesalers Ltd v Coutts Townsville Pty Ltd [1989] 2 Qd R 40 at 46 per McPherson J (with whom Andrews CJ and Demack J agreed).
[97] Grundt v The Great Boulder Proprietary Gold Mines Limited [1937] HCA 58; (1937) 59 CLR 641 at 676-677 per Dixon J (with whom McTiernan J agreed).
[98] The email was not tendered but its content can be inferred from Mr Axarlis' reply.
[99] Objectively, I do not consider that Mr Mimmo's construction of clause 4 was correct.
[100] Hodge Malek et al, Phipson On Evidence (Thomson Reuters, 19th ed, 2018) [6-06].
[102] [1974] VicRp 3; [1974] VR 24 at 28 per Winneke CJ, Little and Stephen JJ.
[103] [2013] SASCFC 100, (2013) 118 SASR 11 at [6] per Kourakis CJ (with whom Nicholson J relevantly agreed).
[105] JW Carter, Contract Law in Australia (LexisNexis Butterworths, 7th ed, 2018) [30-02].
[106] This would be required so that consideration was provided to Marina Cove to enter into the contract of variation. It would also be needed by Pearl Hill and by Marina Cove.
[107] [1978] HCA 12; (1978) 138 CLR 423 at 431-433 per Stephen, Mason and Jacobs JJ (with whom Aickin J agreed). See also R & A Cab Co Pty Ltd v Kotzman [2008] VSCA 68 at [49] per Ashley JA (with whom Kellam JA and Osborn AJA agreed).
[108] Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 at 642-643 per Deane, Gaudron and McHugh JJ (with whom Brennan and Dawson JJ relevantly agreed).
[109] Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 at 642-643 per Deane, Gaudron and McHugh JJ (with whom Brennan and Dawson JJ relevantly agreed).
[110] I have concluded above that the Heads of Agreement was not validly terminated by Marina Cove on 13 May 2009 and decided this question on the balance of probabilities. However, from the perspective of Marina Cove, this would not have been certain and it is sufficient for present purposes that it was strongly arguable that Marina Cove's termination was not valid.
[111] Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355 per Mason CJ, Dawson, Toohey and Gaudron JJ.
[112] Todorovic v Waller [1981] HCA 72; (1981) 150 CLR 402 at 412 per Gibbs CJ and Wilson J; Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 355 per Mason CJ, 367 per Wilson, Toohey and Gaudron JJ, 371 per Brennan J and 386 per Dawson J.
[113] Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 355-356 per Mason CJ, 367 per Wilson, Toohey and Gaudron JJ, 370 per Brennan J, 380 per Deane J and 386-387 per Dawson J.
[114] Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 355-356 per Mason CJ, 367 per Wilson, Toohey and Gaudron JJ, 370 per Brennan J, 380 per Deane J and 386-387 per Dawson J.
ACN 115 918 959 Pty Ltd
Hoeys Lawyers Pty Ltd [2021] VSC 79
(1992) 175 CLR 479
(1998) 157 ALR 30
(2000) 51 NSWLR 1
(1999) 74 ALJR 209
(2001) 205 CLR 434
(2007) 233 CLR 115
(2000) 176 ALR 693
(1997) 42 NSWLR 462
(1974) 131 CLR 634
(1993) 182 CLR 26
(1935) 52 CLR 723
(1933) 48 CLR 457
(1936) 54 CLR 361
(1991) 174 CLR 64
(1993) 176 CLR 344
(2001) 208 CLR 516
(1992) 26 NSWLR 234
(2007) 230 CLR 89
(2005) 223 CLR 1
(2016) 259 CLR 1
(1988) 165 CLR 543
(1990) 169 CLR 638
(1994) 179 CLR 332
(1986) 160 CLR 1
(1984) 157 CLR 149
(1995) 37 NSWLR 438
(2011) 192 FCR 445
(2011) 21 Tas R 156
(2014) 46 WAR 510
(1937) 59 CLR 641
(2013) 118 SASR 11
(1978) 138 CLR 423
(1981) 150 CLR 402
(1988) 166 CLR 351