Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd & Ors [2014] VSC 57

2 On 17 January 2011, Ottedin and Goldcare sought to avoid the varied sale contract pursuant to s 29O(2) of the Sale of Land Act 1962 (Vic) ('the Sale of Land Act'). The purported avoidance of the varied sale contract was rejected by Portbury. On 18 January 2011, Portbury served a notice of default and rescission ('the first rescission notice') on Ottedin and Goldcare, and on Mr Ottewell and Mr Kosta. A second notice of default and rescission ('the second rescission notice') was served on the same parties on 31 March 2011.

3 On 15 April 2011, Ottedin issued a writ against Portbury and another party seeking to establish that it had avoided the varied sale contract under s 29O(2) of the Sale of Land Act ('the earlier proceedings'). Portbury was successful. The proceedings were summarily dismissed, and a caveat lodged by Ottedin over the title to the property was removed.[1]

4 Following the failure of Ottedin and Goldcare to complete the varied sale contract, Portbury came under increasing pressure from the National Australia Bank ('the Bank') to reduce its debt to the Bank. It appointed Knight Frank Australia Pty Ltd ('Knight Frank') to resell the property. Over April and May 2011, the property was offered for sale by tender together with four adjoining lots of land totalling approximately 49.2 hectares. Despite extensive marketing and advertising, including print- and web-based advertisements, brochures, and the erection of signage on each lot, the tender for the sale closed without any offers.

5 In June 2011, Portbury put the property back onto the market for auction as a separate block. Knight Frank undertook further marketing, including print- and web-based advertisements, sign boards and brochures.

6 The property was passed in at the auction on 29 June 2011. Only one non-vendor bid in the amount of $2 million was made at the auction. The bid was made by Mr Andrew Facey ('Mr Facey'), on behalf of Parklea (Estates) Pty Ltd ('Parklea'). Subsequently, the property was sold by Portbury to Parklea for $2.1 million ('the Parklea sale').

7 From 8 July 2011, negotiations took place between Mr Facey, Mr Khay Taing ('Mr Taing') and Ms Helen Li ('Ms Li'). On or about 31 October 2011, the property was on-sold ('the Biltex sale') by Parklea to Biltex Group Pty Ltd ('Biltex') for $6 million including an allowance for civil works of $500,000. By this time, three other investors had been introduced to Biltex and become shareholders in that company.

8 On 14 September 2012, Parklea and Biltex extended the settlement date for the property to 1 November 2012, and removed a condition as to obtaining a planning permit. On 20 December 2012, Parklea and Biltex extended the settlement date to 2 April 2014. $3.6 million remains to be paid on settlement. Biltex took possession of the property on 10 January 2013. Biltex is seeking a permit for the property from Cardinia Shire Council ('Cardinia') for a private hospital, hotel and assisted-living use.

9 In these proceedings, Portbury claims against Ottedin, Goldcare, Mr Ottewell and Mr Kosta for loss on the resale of the property of $4.4 million, less the deposit paid of $1,325,000, being a net loss of $3,075,000. It claims agent's commission on the resale (0.825% of the sale price) of $17,325. It also claims marketing expenses of $11,057.97, being approximately one-fifth of the marketing and advertising expenses incurred in the unsuccessful attempt to sell the property together with four other properties by tender closing 13 May 2011. It claims the further sum of $14,531.52 for marketing and advertising expenses incurred in the auction and sale of the property on 30 June 2011. It also makes alternative claims for interest on the unpaid settlement amount under general condition 26 of the varied sale contract of $26,584, or $154,186.64 depending on whether it was the first or the second rescission notice that was effective to bring the varied sale contract to an end. Finally, it claims interest on its losses under the Penalty Interest Rates Act 1983 (Vic), as amended.

10 Ottedin relies on its avoidance of the varied sale contract, and disputes the rescission of the varied sale contract by Portbury. It resists Portbury's claims of issue and Anshun estoppel, and advances its own claim of estoppel. It contends that the property should not have been sold at auction, and complains of various deficiencies in the tender process and the sale by auction. It says that Portbury sold the property to Parklea at too low a price. It says that Portbury acted in breach of its legal obligations to Ottedin, Goldcare, and the guarantors Mr Ottewell and Mr Kosta when it sold the property to Parklea. It alleges that Portbury acted unreasonably and in wilful or reckless disregard of the interests of the defendants by selling the property to satisfy the demands of the Bank.

11 Ottedin and Goldcare claim the refund of all monies paid by them or on their behalf. They claim the difference between what they say is the value of the property on or about 30 June 2011 and the resale price achieved by Portbury of $2.1 million plus GST. They say that any amount of damages recovered by Portbury should be reduced by the difference between the value of the property, and the resale price achieved by Portbury. They and the other defendants claim declarations that Goldcare avoided the varied sale contract, that the first and second rescission notices are invalid, and that Portbury improperly resold the property.

12 Kaduna Park is a 344-hectare property owned by Parklea. It adjoins the property. It is one of a number of properties in the Pakenham Corridor owned by companies associated with Mr Facey. Parklea and Mr Facey are large land developers. Mr Facey's companies own about 1,012 hectares and control about 1,416 hectares of land in the Pakenham area, having a value which he estimated at probably $300 million. He has recently completed an 1,100 lot subdivision at Heritage Springs in Pakenham, whilst others are underway. Mr Facey is also an experienced real estate agent with a commercial and industrial real estate office in Dandenong.

13 According to Mr James Michael O'Donahue ('Mr O'Donahue'), a senior project manager and civil engineer of SMEC Australia Pty Ltd, the Kaduna Park residential estate is to be serviced by a road to be constructed approximately 150m south of Lecky Road and to the west of Cardinia Road. This road is to be known as the Western Arterial Road. When constructed, the road will contain the services to be extended to the property.

14 The Kaduna Park residential estate is an 18-stage subdivision (Stages 1-16, 5A and 6A), and includes streets, local parks and the Western Arterial Road. A total of almost 770 lots are planned over an area of 54.15 hectares. The Kaduna Park residential estate will adjoin a future activity centre and community facility to be constructed on Cardinia Road.

15 The provision of infrastructure is expensive. Mr O'Donahue estimated the cost of infrastructure, services and charges to develop the 770 lots of the Kaduna Park residential estate at almost $64.85 million, or an average cost of around $84,228 per lot excluding GST. Part of the cost of construction of external water mains and sewers is recoverable from authorities. Likely development contributions are expected to amount to $200,000 per hectare.

16 The proposed Kaduna Park Town Centre is a 12.5-hectare site adjoining the Kaduna Park residential estate. An engineering report prepared by WBCM Pty Ltd concluded that there were no apparent significant constraints to the supply of utility services to the proposed town centre should the Kaduna Park residential estate be constructed prior to commencement of the town centre. In the event that this did not occur, major trunk service works would be necessary to ensure that water, sewerage and recycled water were available. They would include large water mains, large gravity sewer mains, a pump station and kilometres of rising mains to the Officer South Pump station. Telecommunications, and electricity substations would be necessary. Gas supply would be provided from Officer South Road, or south along Cardinia Road.

17 On the basis that the Western Arterial Road is constructed approximately 150 metres south of Lecky Road and to the west of Cardinia Road, and that the arterial road contained the services to be extended to the property on the south side of Lecky Road, Mr O'Donahue estimated that the cost of providing services to the property was between $520,000 and $700,000 (excluding GST).

18 From a time perspective, the development of the property is closely linked to the development of the Kaduna Park residential estate. It is the Kaduna Park residential estate that will bring infrastructure and services to the property, but at a very considerable cost. The Kaduna Park residential estate is owned by Parklea, and controlled by Mr Facey.

19 The property is located at 20 Lecky Road, Officer. It is described in Certificate of Title Volume 9646 Folio 711. The property is located south of the Princes Freeway (Pakenham Bypass), having frontage to Lecky Road and adjoining the road reserve of the Princes Freeway (Pakenham Bypass), Officer. It is vacant, apart from a residence and sheds.

20 The property is included within the Urban Growth Zone 2, and the Special Use Zone 4. It is subject to a Development Contribution Plan Overlay ('DPCO') - Schedule 3. As at 29 April 2011, a growth areas infrastructure contribution ('infrastructure contribution') of $502,784.30 was payable in relation to the property.

21 The property is within the area of the Cardinia Road Employment Precinct Structure Plan ('the structure plan') gazetted on 4 November 2010. The structure plan is incorporated into the Cardinia Planning Scheme as Amendment C130. The plan relates to approximately 590 hectares, and includes the land generally bounded by the Princes Freeway (Pakenham Bypass) to the north, Toomuc Creek to the east, the regional electricity transmission line easement to the south, and Gum Scrub Creek to the west.

22 Under the structure plan, the area will comprise the future uses of Service Business, Industrial, Commercial and Residential including high-density, medium-density and conventional residential. The majority of the industrial land will be located east of Cardinia Road, with the residential land concentrated west of the property in the north western portion of the precinct. Under 8% of the Precinct will comprise commercial land, with industrial use being the dominant use in the precinct.

23 The property fronts Lecky Road to the south. Under the structure plan, Cardinia Road is to be upgraded and duplicated. At the front of the property, Cardinia Road is planned to be a major arterial comprising six lanes. The majority of the property is designated as commercial with a small proportion along part of the western boundary earmarked for high-density residential. The western boundary of the property is impacted by an existing drainage line, and is incapable of development. It will remain as public open space.

24 Of a site area of 8.15 hectares, 4.7 hectares (or 58%) of the property is capable of use as commercial, and 1.48 hectares (or 18%) as high-density residential under the structure plan. The balance of the property is encumbered open space (1.95 hectares or 24%) or to be taken for road widening (0.02 hectares).

25 The property is located approximately five kilometres from the Pakenham City Centre, and 51 kilometres east of the Melbourne Central Business District ('CBD'). The property has excellent road networks, with the Princes Freeway (Pakenham Bypass) adjoining the property to the north. An egress and ingress both east- and west-bound is provided by Cardinia Road. The freeway provides direct access to the CBD. The property is located approximately one kilometre from the Cardinia Road train station.

26 Portbury acquired the property in October 2007 for $4.2 million plus GST. The acquisition was financed by a $5,199,879 bank bill facility from the Bank which included purchase costs and two years of capitalised interest. The facility was subject to a covenant in favour of the Bank that Portbury would maintain a maximum property finance loan to value ratio ('LVR') of 68% for all group entities ('Portbury Group').

27 In late 2008, Mr Ottewell approached Mr Portbury seeking to purchase the property. He offered $6.5 million with $325,000 payable on the day of sale, and the balance in 12 months, which was in December 2009. The sale contract was executed on 18 December 2008. A guarantee and indemnity was provided by Mr Ottewell. Thereafter, Portbury expected to receive the balance of $6.175 million due on settlement in December 2009.

28 On 27 March 2009, Ottedin nominated Goldcare as the substitute purchaser to take the transfer of the property. Under general condition 18 of the sale contract, Ottedin remained liable for the due performance of all of the purchaser's obligations under the sale contract despite the nomination. Mr Ottewell introduced the property to Mr Kosta, an experienced developer, and potential partner.

29 Late in 2009, Mr Ottewell and Mr Kosta went to see Mr Portbury. They told Mr Portbury that Ottedin was unable to settle on the due date under the sale contract in December 2009.

30 Following correspondence between legal advisers, the varied sale contract was agreed between Portbury, Ottedin and Goldcare on 23 December 2009. It provided for a total deposit of $1.325 million consisting of the $325,000 paid on the day of the sale, and the balance of $1 million to be paid no later than 31 January 2010. A payment of $3.675 million, described as an interim payment, was payable on the earlier of 150 days after rezoning (defined as the gazettal of the structure plan) or settlement. The settlement date was now to be 18 December 2010, when the balance of $1.5 million was to be paid. Two new special conditions were agreed. Special condition 1 provided for the infrastructure contribution to be payable by the purchaser. Special condition 2 contained an acknowledgement that the interim payment of $3.675 million would be paid to the Bank in reduction of the mortgage debt secured on the property. The balance of the deposit of $1 million was paid on 2 February 2010.

31 Ottedin and Goldcare did not complete the varied sale contract on 18 December 2010. They never did. On 17 November 2010, Goldcare's solicitors wrote to Portbury's solicitors seeking an extension of the due date for settlement for a further period of three months. On 25 November 2010, Portbury's solicitors declined to provide the extension of time, stating that the purchaser had had an additional 12 months from the original settlement date to secure funding. Portbury's solicitors advised that Portbury had to comply with its own banking covenants, and that the Bank "will not approve any extension beyond 18th December".[2]

32 In a letter dated 14 December 2010, Portbury's solicitors appointed 20 December 2010 for settlement of the varied sale contract, and provided a statement of adjustments.

33 By letter dated 15 December 2010, Goldcare's solicitors requested an extension of the date for settlement to 21 January 2011 on the ostensible basis that a certificate from the State Revenue Office showed that there was an infrastructure contribution of $652,000 payable in relation to the property and that "[t]his has obviously created major complications with our client's finance". The request for an extension of time was declined by Portbury's solicitors. They required settlement by 20 December 2010.

34 On 16 December 2010, Portbury's solicitors confirmed that settlement was to be at 2:00pm on Monday 20 December 2010 at the Bank, at Level 1, 120 Spencer Street, Melbourne. The settlement amount of $5,175,290.19 was to be payable to the Bank.

35 On the day nominated for settlement, Goldcare's solicitors advised Portbury's solicitors that Goldcare was not in a position to effect settlement. An extension until 17 January 2011 was requested to enable the purchasers to finalise their financial arrangements.

36 On 20 December 2010, Goldcare's solicitors referred to a notice under s 201UB of the Planning and Environment Act 1987 (Vic), which was registered on the relevant certificate of title on 1 July 2010. They asserted that Portbury was not in a position to provide clear title. Portbury's solicitors responded that the purchaser was responsible for any notice imposing liability on the property that was issued or made on or after the date of sale.[3] The sale contract was dated 19 December 2008, and the notice had been registered after the date of sale.

37 The correspondence from Goldcare was a charade. Goldcare could not complete the varied sale contract. In his evidence, Mr Kosta was entirely frank about the position. He said that a man had been employed to go round to banks in search of funding, and that none of them would lend on development land because of the financial crisis. Approaches had been made to all the major banks, as well as smaller banks including the Bendigo Bank and the Bank of Queensland. Not only were the banks not lending money, but they wanted to be paid back money that had previously been lent.

38 Goldcare's solicitors were able to arrange finance from Viking Capital Group Pty Ltd ('Viking'). On 2 December 2010, Viking made a proposal to lend Mr Ottewell and Mr and Mrs Kosta $5.8 million for a period of 12 months at an interest rate of 11.95% per annum, capitalised quarterly in advance, with an establishment fee of $95,700 (inclusive of GST), which equated to 1.65% of the gross loan amount. There was also an application consulting fee of $4,400 (inclusive of GST), payable on execution of the loan agreement. On 15 December 2010, Viking made a second proposal to Mr Ottewell and Mr and Mrs Kosta in the amount of $6 million, on similar terms and conditions.

39 On 17 December 2010, Goldcare's solicitor, in an email to Mr Ottewell, advised that Viking could still get the money by 5 January 2011, but that "every hour is now critical otherwise they will run out of time".

40 Mr Kosta graphically described the dilemma he was facing. The finance proposal came from "sharks from Sydney ... after the one years [sic], it's finished, you're in their hands and they skin you alive." He could not accept this situation. He did not like the finance terms and said that "[Mr Ottewell] who hasn't got anything accepted it, possibly." Mr Kosta acknowledged that Mr Ottewell may possibly blame him for the fact that they did not get finance. However, if they had got finance, they would have gone broke. If they went and borrowed money from the sharks, they would be in their hands on a one-year term. They couldn't settle the contract.

41 In his evidence, Mr Ottewell stated that Mr Kosta had a 60% interest in Goldcare, and that he had a 40% interest. Mr Kosta was the senior partner in terms of voting power. Mr Kosta was concerned about the size of the establishment fee and the short-term nature of the loan, and believed that he might not be in a position to meet the interest payable at the end of the 12-month period given his other commitments. He wanted to get out. Mr Ottewell wanted to continue. Mr Ottewell was confused as to Mr Kosta's position. Mr Kosta had been happy to pay the $1 million deposit, and the structure plan had been gazetted. All approaches by Mr Kosta and Mr Ottewell to find partners, or alternative purchasers, were unsuccessful.

42 On 22 December 2010, Mr Kosta retained Knight Frank through Mr Leigh Morris ('Mr Morris') of that firm to on-sell the property for $6.5 million to $6.8 million. Knight Frank spoke to a number of potential purchasers. None was interested.

43 In December 2010 or January 2011, Mr Ottewell had a discussion with Mr Taing about selling the property to him and his partner Ms Li for $6.5 million. Mr Taing had recently committed to a nearby development site, and was active in buying and selling broadacre land for development.

44 On 12 January 2011 at 10:28am, Portbury's solicitor advised Goldcare's solicitor that Portbury agreed to settle on Monday 17 January 2011, provided that Goldcare agreed to pay interest under general condition 26 and paid Portbury's costs for re-arranging settlement.[4] Settlement was scheduled for 3:30pm on Monday 17 January 2011 at the Bank at Level 1, 120 Spencer Street, Melbourne.

45 On the same day, at 12.13pm, Portbury's solicitor emailed Goldcare's solicitor seeking confirmation whether Goldcare agreed to Portbury's offer to extend the settlement date of 17 January 2011, adding that unless Portbury's offer was accepted by 3:00pm, a notice of rescission for the failure of the purchaser to settle on 20 December 2010 would be served.

46 Goldcare's solicitors responded noting the extension granted to 17 January 2011 and agreeing to pay interest pursuant to general condition 26 and reasonable costs for re-arranging settlement. They requested advice as to the amount of the vendor's costs. They advised of the preparation of vendor statements, a settlement statement and a statement of adjustments.

47 Goldcare and Ottedin were again unable to settle. Portbury's solicitors duly attended the Bank for settlement at 3:30pm. No-one attended on behalf of Goldcare and Ottedin. They could not settle.

48 At 4:51pm on 17 January 2011, Goldcare's solicitor emailed and sent by facsimile a letter to Portbury's solicitors which purported to avoid the varied sale contract on the basis that it was a terms contract for the purposes of the Sale of Land Act. The letter asserted that Goldcare was entitled to avoid the varied sale contract under s 29O(2) of the Sale of Land Act, and did so. All money paid by Goldcare under the varied sale contract was to be repaid within the next seven days. From this time on, Goldcare has maintained the position that the varied sale contract was rescinded on 17 January 2011, and that Goldcare and Ottedin are entitled to repayment of all monies paid under the sale contract, and the varied sale contract.

49 Later that day, Portbury's solicitor responded to the effect that the issue of a terms contract was addressed at the time of the variation, and that the varied sale contract was not a terms contract. He complained about Goldcare's solicitors' failure to take calls or to confirm settlement arrangements. He asserted that Goldcare's request for an extension of time was a ruse to buy time.

50 On 18 January 2011, Portbury's solicitor served the first rescission notice. It was addressed to Ottedin and Goldcare, and to the guarantors, Mr Ottewell and Mr Kosta. It referred to the due date of 17 January 2011, and stated that, unless the balance due under the varied sale contract was paid, together with interest and costs, within 14 days of the service of the notice, the contract would be rescinded pursuant to general condition 28. Service of the first rescission notice on all of the defendants is not disputed.

51 In his evidence, Mr Portbury recalled having a telephone conversation with Mr Ottewell around 18 January 2011 in which Mr Ottewell asked for more time to settle. Mr Portbury said that when Mr Ottewell rang he did not know how to respond. He said that he would talk to his lawyer. Subsequent communications were to be through Portbury's solicitors. The 14-day period of the first rescission notice expired without further response from the defendants.

52 During the period of the first rescission notice, Mr Portbury was contacted by Mr Morris of Knight Frank. Initially, Mr Portbury told him that he could not talk to him as the contract was still on foot. After the varied sale contract was rescinded, Mr Portbury was in contact with Mr Morris again and asked Knight Frank to present to Portbury on the best way to resell the property.

53 According to Mr Ottewell, in or about early March 2011, Mr Portbury rang him. He said that Mr Portbury told him that "the bank was pushing him hard", and that Mr Ottewell "better come up with the money and settle this." Mr Ottewell responded "I am still interested in the property if I can buy it. I am looking for someone to come in with me to take George [Kosta] out. I am working on that with some people that I know are interested in the property". According to Mr Ottewell, Mr Portbury replied, "If you've got someone interested, get on with it, because if you can come up with the balance of the purchase price, you can still have the property." Mr Ottewell responded: "I'm working on it, I just need some time to get it over the line." Mr Portbury replied, "Okay, but get back to me as soon as you can."

54 Mr Portbury's recollection of this telephone conversation with Mr Ottewell in March 2011 was different in a number of respects. He agreed that he told Mr Ottewell that the Bank was pushing him hard, and that he told Mr Ottewell that the property was going for auction, that it was going to be sold, and that "[i]f there is a shortfall, we will be looking to you for the difference." Mr Portbury accepted that Mr Ottewell said, "Why should there be a shortfall? We have an $8.1 million valuation as at December [2010]." Mr Portbury says he responded "where did the valuation come from?" Mr Ottewell said that he was looking for someone to come in with him. He suggested that Mr Portbury should be his new partner. Mr Portbury dismissed this suggestion.

55 Late in March 2011, Portbury's solicitor expressed doubt as to whether the first rescission notice had been properly served (although in fact it had been). Out of an abundance of caution, Mr Portbury gave instructions to serve a second rescission notice.

56 On 31 March 2011, the second rescission notice was served on each of the defendants. It was in an identical form to the first rescission notice. The 14-day period of the second rescission notice also expired without any response from the defendants.

Claim by Ottedin against Portbury for return of the deposit

57 The earlier proceeding was issued on 18 April 2011. Ottedin claimed that the varied sale contract was a terms contract as defined in s 29A(1) of the Sale of Land Act and was required to comply with s 29O(1) of that Act. The mortgage to the Bank had not been discharged within 90 days of the making of the contract. As the purchaser was not in default under the varied sale contract, it was alleged that Ottedin was entitled to avoid the varied sale contract and recover the deposit. In fact, the property had been encumbered by a mortgage to the Bank over the period from 23 December 2009, when the property was sold, until 17 January 2011, when Ottedin purported to rescind.

58 The parties to the earlier proceeding included Ottedin and Portbury. Goldcare, Mr Ottewell and Mr Kosta were not parties to the earlier proceeding. The earlier proceeding was initiated by Ottedin alone. Goldcare could have been named as a co-plaintiff.

59 By summons dated 6 May 2011, Portbury sought summary dismissal of the earlier proceeding, and the removal of a caveat lodged by Ottedin over the title to the property ('the caveat').

60 The summons was heard by Dixon J sitting in the Practice Court on 13 May 2011. Judgment was handed down on 27 May 2011.[5] The affidavits filed in support of the summons referred to the second rescission notice, but did not make mention of the first rescission notice. At no stage was his Honour informed that there was a first rescission notice.

61 In his judgment, his Honour recorded the agreement of the parties for different reasons that the varied sale contract was now at an end. Portbury alleged that it had validly terminated the contract, while Ottedin contended that it had avoided the contract under s 29O(2) of the Sale of Land Act.[6]

62 Dixon J noted that when the summons was called on pleadings were not closed, and the defendants had not filed defences. There was no relevant factual dispute.[7]

63 His Honour held that there was no need for a trial to resolve the proceeding. Ottedin was in default as particularised in the second rescission notice. The validity of the second rescission notice was not challenged and the default described in it was not remedied.[8]

64 Dixon J held that the varied sale contract was not a terms contract as defined by s 29A of the Sale of Land Act. There was no ambiguity or uncertainty in the definitions of 'deposit' and 'final payment' adopted in that section. There was no relevant unsatisfactory consequence.[9]

65 His Honour held that the second payment of $1 million made in February 2010 was a deposit. It was plain that the deed of variation created a deposit for the transaction that was to be effected by two payments. The purchaser initially defaulted on a very substantial transaction, having removed the vendor's property from the market for a year. A re-negotiating vendor was entitled to increase the deposit, as Portbury did, as assurance of the purchaser's willingness to commit a second time to that transaction. As the contract made clear in its terms, the parties characterised the second payment of $1 million in February 2010 as a deposit. Being a payment made to the vendor before the purchaser became entitled to possession, it was a deposit within the plain language of s 29A. On this basis, Dixon J stated that it was fanciful to contend that the second payment was not deposit.[10]

66 His Honour considered that there was an air of unreality about the third payment, which was not made and fell into the residue - the final payment. The contingent obligation to make the interim payment was either an obligation to make a payment which was a deposit, or if the contingency failed, it was part of the final payment. The characterisation of these payments by the contract was clear and unambiguous. His Honour held that, even if the payment was a payment obligation prior to settlement, there was only one such payment, which did not satisfy the definition of a terms contract under s 29A of the Sale of Land Act.[11]

67 Ottedin's contention that the varied sale contract was a terms contract was fanciful. His Honour concluded:[12]

In Project Blue Sky Inc v Australian Broadcasting Authority the High Court explained that the duty of the court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have which, ordinarily, will correspond with the grammatical meaning of the provision. Here, there is no difficulty in undertaking that assessment. In my view, the just, efficient, timely and cost effective resolution of the issues in this proceeding, bearing in mind the consideration specified in s 9 of the Civil Procedure Act 2010, is to order that the proceeding be summarily dismissed. The plaintiff's contention that the contract was a terms contract is fanciful. I would go further. Had Part 4.4 of the Civil Procedure Act 2010 not been enacted, I would, applying the old law, find the contention that the contract was a terms contract to be hopeless, hopelessly untenable and bound to fail. I would add that as a major commercial transaction conducted between apparently experienced parties with the assistance of professional advisors, it is hardly surprising the evidence reveals that the parties had alluded to the risk of creating a terms contract. I reject the suggestion that the definition of deposit, which is unambiguously clear and workable in establishing that this contract is not a terms contract, should be rendered uncertain in the manner proposed by the plaintiff.

68 There was a second reason why Ottedin could not avoid the varied sale contract under s 29O(2) of the Sale of Land Act. It was in default when it purported to avoid the varied sale contract on 17 January 2011, having failed to attend settlement and complete at 3:30pm that day.[13]

69 On 27 May 2011, Dixon J gave judgment for Portbury against Ottedin with costs, and ordered that the caveat lodged on the title to the property be removed.

70 The judgment of Dixon J resolved the issues in the earlier proceeding by holding that:

(a) the varied sale contract is not a terms contract as defined in s 29A of the Sale of Land Act;

(b) on and from 3:30pm on 17 January 2011, Ottedin was in default under the varied sale contract for having failed to attend and complete that contract at settlement;

(c) Ottedin's avoidance of the varied sale contract took place after it had failed to attend settlement of the varied sale contract;

(d) the default established by Portbury was the failure by the defendants to pay to Portbury the balance due under the varied sale contract by the due date (17 January 2011);

(e) Portbury validly rescinded the varied sale contract;

(f) there was no serious issue to be tried that Ottedin had a caveatable interest; and

Each of these issues is legally indispensable to the judgment and orders of his Honour.

71 In reconsidering these issues, I am bound by the principles of stare decisis and am obliged to follow a previous decision of a single judge of the Supreme Court unless I am persuaded that the earlier decision of the Court is clearly wrong.[14] The decision of Dixon J in the earlier proceeding is such a previous decision of the Court. As will appear, I do not consider his Honour's decision to be clearly wrong. To the contrary, I consider the decision of Dixon J to be correct on the issues decided by his Honour that were sought to be re-argued before me.

72 Section 29A of the Sale of Land Act provides:

(1) For the purposes of this Act a contract is a terms contract if it is an executory contract for the sale and purchase of any land under which the purchaser is―

(a) obliged to make 2 or more payments (other than a deposit or final payment) to the vendor after the execution of the contract and before the purchaser is entitled to a conveyance or transfer of the land; or

(b) entitled to possession or occupation of the land before the purchaser becomes entitled to a conveyance or transfer of the land.

deposit means a payment made to the vendor or to a person on behalf of the vendor before the purchaser becomes entitled to possession or to the receipt of rents and profits under the contract;

final payment means a payment on the making of which the purchaser becomes entitled to a conveyance or transfer of the land.

73 Mr Bick QC renewed the arguments that the varied sale contract was a terms contract as defined in s 29A, now on behalf of all defendants. He reiterated many of the arguments that were put to Dixon J:

(a) the second and third payments (viz the further payment of $1 million due by 31 January 2010 and described in the varied sale contract as part of the deposit, and the interim payment of $3.675 million) constituted two payments (other than a deposit or final payment) made to the vendor after execution of the contract before the purchaser is entitled to a transfer of the land;

(b) the characterisation of the further payment of $1 million under the deed of variation as part of the deposit, or as an increase in the deposit must fail;

(c) the logic employed by Dixon J would mean that provided the purchaser did not become entitled to possession or receipt of the rents and profits until final settlement, there could be any number of payments made after the payment made on the signing of the contract and prior to settlement, and if they were described as deposit, or increased deposit, the contract could not become, and would not be a terms contract; and

(d) the third payment, if paid at settlement, would not entitle the purchaser to a transfer or possession of the property. Only payment of the final payment at settlement would do so. Under general condition 10.1(b)(ii) of the varied sale contract, the purchaser would not be entitled to either a transfer or vacant possession of the property until settlement by payment of the final payment.

74 I reject the renewed arguments for the contention that the varied sale contract was a terms contract. The second payment of $1 million was intended by the parties to be part of the deposit, and was so described in the varied sale contract. There were not two or more payments other than a deposit or final payment before the purchaser became entitled to a transfer of the property. The purchaser was not entitled to possession or occupation of the property before it became entitled to a transfer of the property.

75 I agree with the analysis and conclusions arrived at by Dixon J in the earlier proceeding.

76 Historically, a deposit paid under a contract of sale serves two purposes. If the sale is completed, it counts as part-payment of the purchase money; but primarily it is a security for the performance of the contract. Unless the contract taken as a whole shows an intention to exclude forfeiture, the vendor is entitled, by virtue of the purpose of the deposit, to retain it as forfeited if the contract goes off due to the purchaser's default.[15]

77 In the Appendix, the history of the Sale of Land Act as it relates to the protection of deposits is briefly summarised. The legislative expansion of the concept of a deposit beyond that found in the common law is intended to give greater protection to purchasers in relation to moneys paid prior to the completion of a contract. I reject Mr Bick QC's argument that some adverse consequence may follow if the two payments are permitted to form part of the deposit as the parties agreed in the varied sale contract. The payments that constitute the deposit are protected by the provisions contained in Divisions 3 and 4 of Part 1 of the Sale of Land Act, and the important legislative scheme that this legislation embodies.

Were Ottedin and Goldcare in default when the varied sale contract was avoided under s 29O(2)(b) of the Sale of Land Act?

78 In the email sent by Portbury's solicitors on 12 January 2011 at 10:28am, Portbury agreed to settle on Monday 17 January 2011, provided that the purchaser paid interest pursuant to general condition 26 and paid the costs of the vendor for rearranging settlement. By an email sent at 11:08am on the same day, Portbury's solicitor rescheduled settlement for Monday 17 January 2011 at 3:30pm at the Bank, Level 1, 120 Spencer Street, Melbourne. Following a further email sent at 12:13pm by Portbury's solicitor, Goldcare's solicitor noted the extension granted to 17 January 2011 and agreed to the conditions proposed by Portbury's solicitor. Goldcare's solicitor requested advice as to the reasonable costs of rearranging settlement and advised of the preparation of vendor statements, a settlement statement and a statement of adjustments.

79 General condition 10.3 of the varied sale contract provides:

Settlement must be conducted between the hours of 10:00 a.m. and 4:00 p.m. unless the parties agree otherwise.

80 Mr Bick QC argued that settlement could have occurred any time up to midnight on 17 January 2011, and that therefore Ottedin and Goldcare were not in default until midnight.

81 I reject this argument. The parties were not at large as to when settlement was to occur on 17 January 2011. General condition 10.3 required settlement to occur between 10:00am and 4:00pm unless there was agreement between them as to another time.[16] There was no request, let alone agreement, to conduct settlement after 4:00pm on the settlement day. As a result, settlement had to be conducted by 4:00pm. There is no ambiguity or uncertainty as to the construction of general condition 10.3 - a standard condition in contracts for the sale of land.

82 As a result of the arrangements made by the solicitors for the parties, settlement was appointed for 3:30pm on 17 January 2011. Ottedin and Goldcare defaulted under general condition 10.1, which required the purchaser to pay the balance of purchase price at settlement. The default consisted of the failure of the purchaser to attend settlement and pay the balance of purchase the price.

83 Mr Bick QC also argued that the offer made by Portbury's solicitor at 10:28am on 12 January 2011 was in terms that the vendor agreed to settle provided that the purchaser paid interest pursuant to general condition 26, and the costs of the vendor for rearranging settlement. He argued that it was conditional and not sufficient to reinstate time as being of the essence. He submitted that the response at 2:31pm on 12 January 2011, by which Goldcare "notes the extension granted to 17 January 2011" and "agrees to pay interest pursuant to general condition 26 and to your reasonable costs for rearranging settlement", was insufficient to reinstate time as being of the essence. As a result, the agreement to settle on 17 January 2011 was not an agreement that required anything other than settlement on that day. It did not have to be at any particular time on that day, and it did not make time of the essence.

84 I reject Mr Bick QC's argument that the offer made by Portbury's solicitor by email at 10:28am on 12 January 2011 to extend time to 17 January 2011, as accepted by Goldcare's solicitor in the email sent at 2:31pm on 12 January 2011, was in any way ineffectual because time had ceased to be of the essence. Time was of the essence, and continued to be of the essence. The fact that a vendor does not immediately serve a rescission notice on every occasion on which the contract is not settled does not mean that the vendor has waived the right to rescind for non-payment of the purchase money. There was no waiver by Portbury, and time remained of the essence.[17]

85 In a contract where the parties have stipulated that time is of the essence, a mere extension of time where a new date is substituted for the agreed date does not result in time ceasing to be of the essence, either for performance of the obligation in respect of which the extension is granted or in respect of the performance of other obligations.[18]

86 Here, there was an agreed extension of time between the solicitors for the parties fixing 17 January 2011 as the date for settlement. By further email at 2:54pm on 12 January 2011, Portbury's solicitors acted on the agreed extension by inviting submission of the amended statements so that they could be checked.

87 Subsequently, the defendants did not dispute the accuracy of the default described in the second rescission notice. This is the same default as is described in the first rescission notice. They did not contend that there had been no extension of the settlement date to 17 January 2011 or that by that stage time had ceased to be of the essence. There was no argument to this effect advanced by counsel to Dixon J sitting in the Practice Court on 13 May 2011 or at any time in the earlier proceeding.

88 For these reasons, the purported avoidance by the purchaser of the varied sale contract under s 29O(2)(a) of the Sale of Land Act was void and of no effect. The varied sale contract is not a terms contract, and the purchaser was in default when the varied sale contract was purportedly avoided.

89 The first rescission notice is admitted to have been served on all of the defendants. The default described in the first rescission notice is proven on the evidence before me. The defendants failed to settle the varied sale contract on 17 January 2011. They failed to comply with the first rescission notice. Therefore, the first rescission notice was effective to rescind the varied sale contract.

90 The second rescission notice was served because there was doubt at the time as to whether the first rescission notice had been properly served on all defendants. The second rescission notice was served out of an abundance of caution.

91 Between the expiration of the first rescission notice and the service of the second rescission notice, no party acted in any respect in pursuance of the varied sale contract. Ottedin and Goldcare acted on the basis that they had avoided the varied sale contract. Portbury acted on the basis that it had rescinded the varied sale contract and that it was no longer on foot.

92 There was no waiver of the condition of the varied sale contract that time was of the essence over the short period that constituted the Christmas break when solicitors' offices were closed. The fact that the time for settlement was extended by agreement between the parties to a later date does not amount to a waiver of a condition that time is of the essence.[19]

93 The first rescission notice expired without any attempt by the defendants to address the default described in it. Their position was that the contract had already been avoided by them on 17 January 2011, so that they had no need to take any step to comply with the first rescission notice.

94 As a result, the varied sale contract was rescinded after the expiration of the 14-day period allowed by the first rescission notice. The effect of the expiration of the period was that the first rescission notice took effect "automatically", and the varied sale contract came to an end.[20]

95 The second rescission notice followed the discussion between Mr Portbury and Mr Ottewell in March 2011.[21] In this conversation, at the highest, Mr Portbury said to Mr Ottewell that if he could come up with the balance of the purchase money, he could still have the property. This was no more than an invitation by Mr Portbury for Mr Ottewell to put a proposal for the property. It was not suggested, and did not mean that either party treated the varied sale contract as being on foot. In fact, neither party did for different reasons.

96 Nothing came of the telephone conversation in March 2011 between Mr Portbury and Mr Ottewell. No proposal was ever put by Mr Ottewell. Within a month, Ottedin commenced proceedings seeking to recover the deposit monies.

97 In Rona v Shimden,[22] a vendor under a contract of sale, claiming to have terminated the contract, gave notice to complete which was expressed to be without prejudice to its contention that the contract was terminated. White J elegantly summarised the legal consequences of what had been done:[23]

However, the second notice to complete was given without prejudice to the earlier termination on 13 February, 2004. As counsel for the vendor submitted, it is possible for a party who has terminated a contract to give a notice to complete without prejudice to its rights to treat the contract as at an end pursuant to its earlier termination. Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 9177 was such a case. The giving of a notice to complete may give rise to an estoppel which precludes the party giving the notice from asserting that the contract has been terminated. Here, the purchaser did not do anything consequent upon the service of the notice which could create such an estoppel. Estoppel aside, the service of a notice to complete without prejudice to a prior notice of termination takes effect as an offer to revive the agreement, capable of being accepted by performance in accordance with the terms of the notice to complete: Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 9177 at 9184, 9187.

98 In Naval and Military Club v Southraw,[24] Byrne J accepted this analysis in the context of the facts before him.

99 In the present case, as in Rona v Shimden, the purchaser did not do anything consequent upon the service of the second rescission notice that could create an estoppel. There was no material change of position or reliance by either Ottedin or Goldcare. Neither Ottedin nor Goldcare sought to remedy the default set out in the second rescission notice. There was no attempt to complete or perform the varied sale contract. The period allowed in the second rescission notice simply expired without any action or response by the purchaser.

(a) Goldcare continued to rely on the termination letter of 17 January 2011 under s 29O(2) of the Sale of Land Act, treating the varied sale contract as at an end;

(b) Ottedin withdrew the previous purchaser's caveat, and on 7 March 2011 lodged a new caveat to secure the return of the deposit on the basis that the contract had been avoided;[25] and

(c) Ottedin brought proceedings on 18 April 2011 to seek to recover the deposit monies on the basis that the varied sale contract had been avoided.

101 In the earlier proceedings, Portbury relied on the second rescission notice. It was produced as exhibit RMP-6 to the affidavit of Mr Portbury sworn 6 May 2011, and is referred to in paragraph 17 of that affidavit. It is also referred to in paragraph 52 of the affidavit of Francis James Lynch sworn 10 May 2011, filed by Portbury. Neither rescission notice is referred to in the affidavit of Peter Gigliotti sworn 12 May 2011, and filed by Ottedin.

102 The first rescission notice was not in evidence before Dixon J. There is no reference to it in the transcript or in the judgment of the court.

103 The issue whether it was the first rescission notice or the second rescission notice that terminated the varied sale contract was not argued or decided in the earlier proceedings, which were concerned with Ottedin's avoidance of the varied sale contract under s 29O(2) of the Sale of Land Act, and with the removal of Ottedin's caveat. It was commercially expedient for both parties that the status of the varied sale contract and of the property be resolved as expeditiously as possible, and a decision made as to the total deposit paid of $1.325 million.

104 The following is a summary of the key conclusions that I have reached concerning the termination of the varied sale contract:

(a) the notice of avoidance given by the purchaser on 17 January 2011 was ineffective to avoid the varied sale contract, as that contract was not a terms contract under the Sale of Land Act and the purchaser was in default under that contract at the time when the notice of avoidance was served;

(b) the varied sale contract was terminated by the first rescission notice, on the expiration of the time allowed in that notice;

(c) the conversation in March 2011 between Mr Portbury and Mr Ottewell did not affect the termination of the varied sale contract by the first rescission notice, as the purchaser did not attempt to complete or perform the varied sale contract or engage in any conduct responsive to the March 2011 conversation;

(d) the service of the second rescission notice did not affect the termination of the varied sale contract by the first rescission notice, as the purchaser did not attempt to remedy the default described in it, materially change its position or engage in any conduct responsive to that notice; and

(e) the varied sale contract was terminated on or about 1 February 2011 and never subsequently revived.

105 Both the purported avoidance by the purchaser under s 29O(2)(b) and the failure of the purchaser to complete on 17 January 2011 were repudiations capable of forming the basis for rescission of the varied sale contract as well as a claim for general damages. However, Portbury chose not to rescind on the basis of the repudiations on 17 January 2011. It chose to affirm and require Ottedin and Goldcare to complete the varied sale contract. This was because it wanted the varied sale contract completed in order to reduce its bank debt. Portbury remained willing to accept completion of the varied sale contract even as late as March 2011. It served the first and second rescission notices pursuant to general condition 27 of the general conditions of the varied sale contract. It now seeks to recover the deficiency in the price on resale of the property, as well as expenses by way of liquidated damages under general condition 28.4(c)(ii) of the general conditions. Portbury does not seek to recover any liquidated damages falling outside the scope of general condition 28.4(c)(ii) of the general conditions. It has no need to claim general damages, not having sustained any class of loss other than a deficiency in the purchase price, expenses and interest.[26]

What is the position of the parties following the judgment of Dixon J in the earlier proceeding?

(a) in the earlier proceedings, Ottedin and Portbury were the only relevant parties. Goldcare was not a party, nor were the guarantors, Mr Ottewell and Mr Kosta;

(b) Portbury sought summary dismissal, and removal of the caveat which precluded the sale of the property;

(c) Portbury is now estopped by an Anshun estoppel from bringing proceedings against Goldcare;

(d) Portbury could have elected to bring a counterclaim in the earlier proceeding against the guarantors, Mr Ottewell and Mr Kosta, so as to bind them by the outcome; and

(e) the guarantors are entitled to raise an Anshun estoppel against Portbury, even though not parties to the earlier proceeding.

107 In the earlier proceeding, Ottedin and Portbury were the only relevant parties. Goldcare, Mr Ottewell and Mr Kosta were not parties.

108 Mr Bick QC submitted that Portbury should now be considered estopped in any proceedings against Goldcare, Mr Ottewell or Mr Kosta on the basis of the principle set out in Port of Melbourne Authority v Anshun Pty Ltd.[27]

109 The Anshun principle arises where a given matter is the subject of litigation and adjudication by a court of competent jurisdiction. The court requires the parties to that litigation to bring forward their whole case, and will not permit the same parties to open the same subject of litigation in respect of a matter which might have been brought forward as part of the subject matter in contest, but which was not brought forward only because they have from negligence, inadvertence, or accident, omitted part of their case.[28]

110 The principle is subject to limitations. There is no Anshun estoppel unless it appears that the matter relied on as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim and the subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. There may be a variety of reasons why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in a later proceeding for example expense, importance of the particular issue, and motives extraneous to the actual litigation.[29]

111 The Anshun principle extends to cases where the party asserting the Anshun estoppel was not a party to the first proceeding.[30] In Solak v Registrar of Titles,[31] the Court of Appeal held that it was not necessary in that case to decide whether special principles or a different test apply where the person asserting Anshun estoppel was not a party to the first proceeding. It was clear that the test is at least as strict as the test applicable in a case where the parties are the same.

112 The defendants claim an Anshun estoppel against Portbury arising out of the earlier proceeding. The earlier proceeding was commenced by Ottedin. It could have joined Goldcare as a plaintiff or defendant to that proceeding. It chose not to do so. It could have joined the guarantors Mr Ottewell and Mr Kosta as plaintiffs or defendants to that proceeding. Again it chose not to do so. Presumably Ottedin, as the purchaser under the varied sale contract, considered that it was sufficient if the proceeding was initiated in its name alone, and that there was no need to add the other parties. Given Ottedin's decision as to how the proceedings were to be commenced and conducted, it is hard to see why Portbury should be criticised for failing to do what Ottedin itself did not do.

113 Moreover, Portbury was a defendant in the earlier proceeding. It promptly sought summary dismissal, and issued an interlocutory application to that end. It wished to resell the property and needed the removal of the caveat lodged by Ottedin relating to the property. It was successful in its summary application obtaining both summary dismissal and removal of the caveat.

114 The earlier proceeding was issued on 18 April 2011. On 6 May 2011, Portbury issued a summons seeking summary dismissal and removal of the caveat. The summons was heard in the Practice Court on 13 May 2011. Dixon J reserved his decision and gave judgment on 27 May 2011. Final orders were made on the same day.

115 The earlier proceeding did not proceed to trial. No interlocutory steps were taken beyond Portbury's application for summary dismissal and removal of the caveat. Pleadings were never closed. Portbury took the shortest, most direct and least expensive route to obtain summary judgment and the dismissal of the earlier proceeding. It had no need to join additional parties or seek relief against them to achieve its purpose. The earlier proceeding was over in less than six weeks.

116 Goldcare had been nominated by Ottedin to take the transfer of the property. Under the doctrine of privity of contract, it was not a party to the varied sale contract. Until the property was sold, it was not known whether any recourse would be necessary to the guarantee executed by Mr Ottewell and Mr Kosta. While Mr Ottewell and Mr Kosta were the guarantors of the varied sale contract, it was not known in May 2011 that it would be necessary to call on the guarantees, or proceed against them. This was dependent on the sale price ultimately achieved for the property. It would have been premature and inappropriate to join them as parties in May 2011.

117 Nor can Portbury be estopped under the Anshun doctrine, or any other form of estoppel from relying on the first rescission notice. As at 13 May 2011, there was doubt on the part of Portbury's legal advisers as to whether the first rescission notice had been served on all of the defendants. In fact, it had, as is now conceded by the defendants, but this was not known to Portbury or its legal advisers at the time. As I have said, there were not yet pleadings, and the failure by either party to mention the first rescission notice in an interlocutory application before Dixon J does not operate as an estoppel from even relying on the first rescission notice. Given the doubt as to service of the first rescission notice, and the fact that the issue whether the first or second rescission notice rescinded the varied sale contract was not germane to the principal disputes before Dixon J, Portbury's conduct was reasonable and appropriate, and does not give rise to any estoppel or abuse of process.

118 No Anshun estoppel arises against Portbury on any basis. Portbury's conduct was reasonable and appropriate. There was no benefit in joining additional parties as defendants to its application for summary dismissal shortly after it was served by Ottedin with a writ. Joinder of additional parties would have been a needless distraction and was unnecessary having regard to the relief which Portbury sought, and the time frame which prevails in an interlocutory application for summary dismissal in the Practice Court prior to filing a defence.

119 There were good reasons why Portbury conducted the earlier proceeding in the manner in which it did. It was not established in May 2011 that it would incur a loss on resale. It was yet to call on the guarantees of Mr Ottewell and Mr Kosta for any loss on resale. It did not know as at May 2011 that it would need to take proceedings against all or any of the defendants seeking to recover the substantial losses ultimately suffered by it on the resale of the property. It would be premature to do so.

120 There is no abuse of process by Portbury in issuing and pursuing the current proceedings.[32] Portbury's object was to obtain summary dismissal of the earlier proceeding, remove the caveat and so free the property for resale. The earlier proceeding and the caveat were obstacles which Portbury needed to overcome to exercise its right of resale. As Mr Kirby put it, it was reasonable for Portbury to take a minimalist approach. It was not required at this early time to throw a net over everyone who was involved. Two proceedings were needed - the first to clear the way forward so that a resale could occur, and the second to recover any losses that might be incurred on resale.

Issue estoppel and res judicata - position of Goldcare

121 There can be no doubt that Ottedin is bound by the doctrines of res judicata and issue estoppel having regard to the judgment of Dixon J in the earlier proceeding.[33] It was the unsuccessful plaintiff in the earlier proceeding against Portbury. It is not open to Ottedin to dispute in the current proceeding the issues decided by Dixon J in the earlier proceeding.[34] They are conclusively decided against it.

122 The doctrines of res judicata and issue estoppel extend not only to the party actually involved in the prior proceedings but also to privies of that party.[35] The general rule is that a judgment does not bind a person who is not a party to the proceedings in which it is granted unless he is directed to be bound by it or is a privy of one of the parties.[36] Mr Kirby contended that Goldcare, as a substituted or nominee purchaser in place of Ottedin, was a privy of Ottedin. He also contended that Mr Ottewell and Mr Kosta, as the sole directors, shareholders, controlling minds and guarantors of Ottedin, were privies of Ottedin. Alternatively, he contended that Goldcare, Mr Ottewell and Mr Kosta had stood by during the earlier proceeding and were bound by a species of estoppel.[37]

123 The concept of privy is of considerable antiquity. There are three classes of privies.[38] Privies by blood include ancestor and heir; privies in law, which includes testator and executor, intestate and administrator, bankrupt and trustee in bankruptcy; and privies in estate or interest, the most common category. Privies in estate or interest include testator and devisee, vendor and purchaser, landlord and tenant, assignor and assignee of a bond.[39]

124 In order to establish the relationship of party and privy, it is not enough that the two persons have a similar interest in the property to which the estoppel relates, the privy must derive title from the party.[40] Likewise, in order that a judgment may be conclusive as against a person as privy in estate to a party in litigation, it is necessary to show that the privy derived title to the property subsequent to the judgment, or at least to the beginning of the proceeding, and that the judgment affected the property to which title was derived.[41]

125 In Ramsay v Pigram,[42] Barwick CJ held that the basic requirement of a privy in interest is that the privy must claim under or through the person of whom he is said to be a privy. In that case, the Government of New South Wales or the Police Department could not be said to be the privy of a police officer who carelessly drove a vehicle in the course of his employment as a constable in the Police Department of New South Wales.

126 On 27 March 2009, Goldcare was nominated by Ottedin as the substitute purchaser to take a transfer of the property in lieu of Ottedin. Under the nomination form as executed and under general condition 18 of the varied sale contract, both Ottedin and Goldcare were jointly and severally liable for the due performance of the obligations of Ottedin under the varied sale contract.

127 Goldcare was nominated by Ottedin to take the transfer of the property on 27 March 2009. This followed the purchase of the property by Ottedin on 18 December 2008. Goldcare's solicitors renegotiated the sale contract in December 2009 resulting in the execution of the varied sale contract on 23 December 2009. Goldcare's solicitors corresponded with Portbury's solicitors prior to 20 December 2010[43] when settlement of the varied sale contract was due to take place, and prior to, and on, 17 January 2011[44] when the postponed settlement was due to occur. The rescission notices were served on Goldcare on 18 January 2011. The earlier proceeding was issued and conducted on behalf of Ottedin by the same solicitors who were acting for Goldcare. Goldcare through its solicitors was closely involved in the sale contract, the varied sale contract and the earlier proceeding. While not a party to the earlier proceeding, Goldcare's solicitors acted for Ottedin throughout and arranged on its behalf for an ANZ bank cheque for $1 million to be provided to Portbury's solicitors. These funds were provided by Goldcare Eco Villages Pty Ltd, a company controlled by Mr Kosta as to 60% and Mr Ottewell as to 40%. Goldcare's directors were fully informed as to the circumstances of the proceedings. During argument before Dixon J on 13 May 2011, Senior Counsel for Portbury referred to Goldcare's position commenting that "it would be a simple matter to make Goldcare the plaintiff".[45] Neither party sought to do this, predominantly because it seemed to make little difference to the substantive issues to be determined by Dixon J whether Ottedin or Goldcare was the plaintiff.

128 The legal relationship between a substitute purchaser by nomination and the other parties to contracts for the sale of land or shares has been considered previously. In Salter v Gilbertson,[46] Phillips JA held on the construction of a contract for the sale of shares that the nominee clause "had in contemplation only the ordinary course of nomination, and not the rather special situation in which nomination results in the substitution of the purchaser."

129 Likewise, in 428 Little Bourke Street Pty Ltd v Lonsdale Street Cafe Pty Ltd,[47] Judd J held in the case of a nomination form identical to that in the present case that there was no change in the identity of the parties to the contract or their respective obligations. It was the intention of the parties to the instrument of nomination that the nominee's role was only to take a transfer in lieu of the purchaser.

130 In Commissioner of State Revenue v Politis,[48] Nettle J as his Honour then was stated that under most nomination clauses, the nominee would not acquire any rights as against the vendor, let alone the rights of a purchaser, for most nomination clauses constitute no more than a power of the purchaser to require a vendor to complete the transaction by transfer of the land to the purchaser's nominee. The nominee does not acquire any rights as against the vendor, because the nominee is not privy to the contract. For the same reasons, the nominee has no standing in equity to obtain an order for specific performance of the contract, but must sue in the name of the purchaser or join the purchaser as a defendant.

131 Nettle J described any interest, that the nominee may have in the land, as "one which derives from the purchaser, and relevantly the most that can be said is that the nominee may acquire an interest in the land equivalent to that which the purchaser had or would have had under the contract of sale."[49]

132 In my opinion, Goldcare has a privity of interest with Ottedin. To adopt the words of Nettle J, Goldcare can only acquire an interest in the land equivalent to that which Ottedin had or would have had under the varied sale contract. It follows as a necessary inference that Goldcare derives any interest it may acquire in the property under or through the interest of Ottedin as purchaser of the property. The circumstances therefore satisfy the test laid down in Ramsay v Pigram[50] and later authority to establish that Goldcare is a privy of Ottedin. It follows that, just as Ottedin is bound by issue estoppel as to the legally indispensible issues determined by Dixon J in reaching his conclusions set out in his judgment, so is Goldcare as the privy in interest to Ottedin. I have listed these issues above.[51]

Issue estoppel and res judicata - position of Mr Ottewell and Mr Kosta

133 Mr Kirby contended that Mr Ottewell and Mr Kosta were privies to Ottedin and bound by the judgment of Dixon J. His submissions as to their involvement may be summarised:

(a) Mr Ottewell is and at all relevant times was the sole director and shareholder of Ottedin, the purchaser of the property;

(b) Mr Ottewell and Mr Kosta are and were at all relevant times the only directors and shareholders of the nominee, Goldcare;

(c) Mr Ottewell and Mr Kosta were the controllers and directing minds of the two companies, and came together in a joint venture to try to settle and develop the property;

(d) according to an undated letter from Goldcare's solicitor to Mr Facey, Goldcare held the property on trust for Mr Ottewell and Mr Facey - Mr Ottewell stated that there was a trust deed or instrument and that Goldcare held the property "for two sub-companies";

(e) Goldcare assumed ownership of the purchaser's interest in the property and tried to sell the property through Knight Frank in December 2010;

(f) the finance offer in December 2010 from Viking was directed to Mr Ottewell and to Mr and Mrs Kosta, who were obliged to give guarantees under it;

(g) the $1 million deposit payment was funded by Mr Kosta through Goldcare Eco Villages Pty Ltd, a company controlled as to 40% by Mr Ottewell, and 60% by Mr Kosta;

(h) Mr Ottewell signed a guarantee and indemnity as part of the sale contract;

(i) Mr Ottewell and Mr Kosta each signed the nomination form on 27 March 2009 as directors of Goldcare; while Mr Ottewell signed for and on behalf of Ottedin also;

(j) Mr Ottewell and Mr Kosta each acted as guarantor for Ottedin and Goldcare of their obligations under the varied sale contract;

(k) Mr Ottewell and Mr Kosta were both served with copies of the rescission notices;

(l) the defendants failed to pay Portbury's claim; and

(m) Mr Kosta was intimately involved in the earlier proceeding as well as Mr Ottewell.

134 Mr Kirby submitted that while there were some authorities such as Sandtara Pty Ltd v Abigroup Ltd[52] that suggest that generally a guarantor is not bound by a judgment against the principal debtor, there was an exception to the general position in the case of parties such as Mr Ottewell and Mr Kosta who execute an indemnity and are on notice as to the dispute but "stand by and watch" and elect not to intervene. He relied on Jeans v Bruce,[53] House of Spring Gardens v Waite,[54] Thomas v Balanced Securities Ltd[55] and contended that Mr Ottewell and Mr Kosta were bound by a species of estoppel in these circumstances. Alternatively, he contended that to the extent that the guarantors sought to outflank the judgment of Dixon J in the earlier proceeding they were either bound by the result or alternatively were engaging in an abuse of process in trying to re-litigate the same case.[56]

135 Mr Bick QC contended that the guarantors were not the privies of either Ottedin or Goldcare. They had separate and distinct interests, legal rights and remedies.

136 A surety has not in the past been regarded as a privy of the principal debtor.[57] In Begley v Attorney-General (NSW),[58] Griffith CJ stated:

The law on the subject was explicitly laid down by the Court of Appeal in the case of Ex parte Young; In re Kitchin. The headnote to that case, which correctly states the effect of the judgments, is as follows:- "In the absence of special agreement a judgment or an award against a principal debtor is not binding on the surety, and is not evidence against him in an action against him by the creditor, but the surety is entitled to have the liability proved as against him in the same way as the principal debtor."

To like effect were the opinions of the other members of the Court.[59]

137 The decision in Begley was considered in Gracechurch Holdings Pty Ltd v Breeze.[60] As a result of earlier litigation, there were two judgments against the principal debtor and a guarantor. The question was whether either of the judgments was admissible in a separate proceeding against the second guarantor. The court held that the judgments were not binding or admissible in the separate proceeding, Pidgeon J referring expressly to the Begley decision.

138 In Ann Street Mezzanine Pty Ltd (in liq) v Beck,[61] Finkelstein J discussed the different rules and principles developed in the United States of America where close economic or financial connections are considered sufficient to establish privity, recognising however that this was not the law of Australia.[62]

139 These authorities have been followed in a number of cases including the Western Australian case of Clambake Pty Ltd v Tipperary Projects Pty Ltd (No 5)[63] where Heenan J helpfully summarises the current state of the law and in Jeans v Bruce,[64] a decision of Einstein J of the Supreme Court of New South Wales.

140 In Australian Associated Motor Insurers Ltd v NRMA Insurance Ltd,[65] Conti J held that a surety is not the privy of the principal debtor referring to Lloyds Bank Plc v Independent Insurance Co Ltd.[66] The same view was expressed by Stewart Maiden in his article "Recent Steps in the evolution of res judicata, cause of action estoppel and the Anshun doctrine in Australia".[67]

141 In Thomas v Balanced Securities Ltd,[68] the Queensland Court of Appeal concluded that the liability of a guarantor was not identical to that of a principal debtor with the result that a guarantor is not a privy, and is not bound by issue estoppel on an identical issue which affects him unless the guarantor is so closely associated with the subject matter of the proceedings and takes no steps to defend (or advance) his own interest (where he is in a position to do so).

142 Finally, in Sandtara Pty Ltd v Abigroup Ltd,[69] the New South Wales Court of Appeal consisting of Gleeson CJ, Meagher and Handley JJA held that a principal debtor does not claim through or under a guarantor and is not a privy of the guarantor.

143 Since the conclusion of the trial, the decision of Davies J of the Supreme Court of New South Wales in Commonwealth Bank of Australia v Ekes[70] has become available, although now the subject of a Notice of Intention to Appeal. Given the conclusions reached in this case, I invited counsel to make further written submissions concerning this decision.

144 Davies J referred to Champerslife Pty Ltd v Manojlovski[71] where Handley AJA said:[72]

I see no reason in principle why an issue estoppel binding on a company should not bind its controlling shareholder/director and vice versa where, as will generally be the case, the shareholder has a real financial "interest" in proceedings brought by the company. Nor do I see any reason why the converse should not also apply, although ordinarily a company will have no equivalent interest in proceedings by or against its controlling shareholder/director.

An alternative ground for reaching that result may be the principle that identity of parties is a matter of substance, not form. In Carl Zeiss (above) at 911 Lord Reid said:

"There does, however, seem to me to be a possible extension of the doctrine of privity as commonly understood. A party against whom a previous decision was pronounced may employ a servant or engage a third party to do something which infringes the right established in the earlier litigation and so raise the whole matter again in his interest. Then if the other party to the earlier litigation brings an action against a servant or agent, the real defendant could be said to be the employer, who alone has the real interest, and it might well be thought unjust if he could vex his opponent by relitigating the original question by means of the device of putting forward his servant."

On the other hand, in the same decision, Giles JA said:[73]

That Mr Lawrence was sole director and shareholder of Champerslife did not give rise to privity of interest in the sense considered in Ramsay v Pigram.

145 Davies J disagreed with the decision in Australian Associated Motor Insurers Ltd v NRMA Insurance Ltd,[74] where Conti J expressed the view that a surety was not a privy of either the principal creditor or the principal debtor referring to Lloyds Bank Plc v Independent Insurance Co Ltd[75] where the respective interests do not sufficiently coincide. His Honour saw nothing in Lloyds Bank Plc v Independent Insurance Co Ltd which justified the conclusion that was reached by Conti J. His Honour also disagreed with the views expressed in the article of Stewart Maiden.[76]

146 Davies J analysed the position of a guarantor:[77]

(a) generally speaking, a guarantor is entitled to defend a claim in reliance on any defence and claims available to the principal debtor;

(b) in that way, the guarantor is claiming through the principal debtor; and

(c) a defence no longer available to the principal debtor would no longer be available to the guarantor, if claiming through the principal debtor.

147 With due deference to the decision of Davies J in the Ekes case, the principles set out in decision of the High Court in Begley's case, following Ex parte Young; Re Kitchin, the Western Australian Full Court decision in Gracechurch Holdings Pty Ltd v Breeze, the recent Queensland Court of Appeal decision in Thomas v Balanced Securities Ltd and the other authorities to which I have referred, lead to the conclusion that whilst a guarantor may have a similar interest to that of the principal debtor, the interest is not identical. Moreover, the interest of a guarantor is not derived under or through the interest of the principal debtor. It is typically a concurrent relationship, rather than a successive or subsequent interest, and the guarantor does not derive any interest from the principal debtor. Likewise, the principal debtor is not a privy of the guarantor, but may have a similar interest to that of the guarantor.

148 However, under the body of dicta to which the Queensland Court of Appeal made reference in Thomas v Balanced Securities Ltd,[78] a guarantor may nonetheless be bound by issue estoppel where he is so closely associated with the subject matter of the proceedings and takes no steps to defend (or advance) his own interest (where he is in a position to do so) and the determination by the other parties of an identical issue affects him.

149 In Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (in liq),[79] Northrop and Lee JJ held that the party sought to be made a privy had an economic or financial interest in the earlier action. Nonetheless, this did not amount to a privity of interest under the doctrine enunciated by the High Court in Ramsay v Pigram.[80] Burchett J referred to the decision of the Full Court of the Supreme Court of Western Australia in Manners v Transfield Pty Ltd[81] where an employee was paid workers' compensation for injuries said to have been sustained when his car was struck by another car. After the employee sued the other driver for damages, and failed, the employer sued the other driver for an indemnity in respect of the compensation paid. The Full Court held by a majority that the employer's action was estopped because the employer was relevantly a privy of the employee. The right to indemnity given to the employer was, in a real sense, derivative from the right of the employee to recover damages in respect of the disability independently of the workers' compensation statute. In the view of the majority of the court, the employer was claiming under or through the employee.

150 Referring to Clegg v Abel,[82] Burchett J held that a director and shareholder of a company is not, as such, a privy.[83] The acts and assistance given in the earlier proceedings by the party sought to be made in a privy were not enough. The mere promotion of someone else's claim, in circumstances where some advantage might accrue from its success, is not enough to constitute that party a privy.[84]

151 In my opinion, Mr Kosta and Mr Ottewell do not have a privity of interest with Ottedin or Goldcare. While they were guarantors of the varied sale contract, this relationship is not sufficient to constitute them privies of Ottedin or Goldcare. Their obligations under the guarantee of the varied sale contract are not obligations which arise under or through the principal debtor, but are obligations that were concurrently assumed by them in favour of the vendor. Their obligations under the guarantee are similar to those of Ottedin and Goldcare, but they are not identical. They are not obligations which are successive or subsequent to those of the purchaser.

152 In addition, in the circumstances of this proceeding, I do not consider that Mr Ottewell and Mr Kosta should be bound as a matter of issue estoppel or estoppel generally by the result determined between Portbury and Ottedin in the earlier proceeding. Whilst both were involved and active at or around the time of the earlier proceeding, it was not clear at that time that the guarantees which they had executed would be relied upon, or that Portbury would have any need to take proceedings against them. The property was yet to be sold, and might yet be sold for such a price, or in such a manner, as would obviate the need for Portbury to rely on the guarantees. It would be unfair to treat parties as estopped from contesting their liability at a later stage when at the time that the earlier proceeding was heard and determined it was not clear that they personally would be involved in legal proceedings at all. It was only when the property was sold that it became apparent that the guarantees would be relied on to recover the loss and expenses of resale.

General condition 28.4 of the varied sale contract

153 The defendants claim that Portbury failed to mitigate its loss or acted in breach of its duty when it resold the property to Parklea. In considering this claim, the starting point is to review the terms of the varied sale contract. General condition 28.4 of the general conditions provides:

If the contract ends by a default notice given by the vendor:

(a) the deposit up to 10% of the price is forfeited to the vendor as the vendor's absolute property, whether the deposit has been paid or not; and

(b) the vendor is entitled to possession of the property: and

(c) in addition to any other remedy, the vendor may within one year of the contract ending either:

(i) retain the property and sue for damages for breach of contract; or

(ii) resell the property in any manner and recover any deficiency in the price on the resale and any resulting expenses by way of liquidated damages; and

(d) the vendor may retain any part of the price paid until the vendor's damages have been determined and may apply that money towards those damages; and

(e) any determination of the vendor's damages must take into account the amount forfeited to the vendor.

154 General condition 28.4 provides for the resale of the property "in any manner" within one year of the contract ending, and for the vendor to recover "any deficiency in the price on the resale" and "any resulting expenses by way of liquidated damages". The expression "in any manner" authorises the vendor to resell by public auction, tender, expressions of interest or private sale. It does not relieve the vendor from any responsibility for the resale process. The reference to "liquidated damages" reflects the agreement of the vendor and the purchaser, at the time when the contract was made, that the damages as so defined are payable in the event of default by the purchaser and resale of the property by the vendor.

155 The defendants did not suggest that the calculation of liquidated damages under general condition 28.4 might constitute a penalty, or for any other reason might be unfair or inequitable. As a result, the amount of damages to be paid by the defendants to Portbury stands to be calculated in accordance with general condition 28.4.

156 There are a number of different ways to approach the duty owed by a vendor to a defaulting purchaser on the resale of land. One approach arises from the law relating to mitigation of loss. If a vendor acts unreasonably in failing to minimise loss arising from a purchaser's breach of contract, any damages arising out of the breach of contract will be reduced to the extent to which the vendor's loss would have been reduced, had the vendor acted reasonably. A second approach is that the duty imposed on a vendor on the exercise of a power of resale provided under a contract for the sale of land is similar to the duty imposed on a mortgagee exercising a power of sale granted under a mortgage security, the duty being to act in good faith and not recklessly in disregard of the purchaser's interests. A third approach is that there is an implied term in a contract for the sale of land that a vendor will exercise the power of resale in a reasonable manner. While the legal basis for each approach is different, it does not follow that the duty or term so derived will differ in practical effect. The present case is a good example. Having regard to the facts of this case, the result would be the same regardless of whether the principles relating to mitigation of loss are applied, or whether a duty or term is imported into the contract. This is so whether the duty or term imported was a duty to act in good faith and not recklessly in disregard of the purchaser's interests; or a duty to exercise the power of resale in a reasonable manner.

157 The law relating to mitigation of loss was stated by the New South Wales Court of Appeal in Karacominakis v Big Country Developments Pty Ltd:[85]

A plaintiff who acts unreasonably in failing to minimise his loss from the defendant's breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the plaintiff is not under a positive duty. The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which he has not. Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did.

158 This statement of the law highlights a number of important principles that guide the assessment of loss in cases where mitigation is in issue:

(a) there is in fact no duty to mitigate loss - rather, damages are reduced to the extent that the plaintiff has not acted reasonably;

(b) the onus of proof is on the defendant to show that the plaintiff has not acted reasonably in minimising loss arising from the defendant's breach of contract;

(c) the defendant must prove the extent of the plaintiff's failure to minimise loss, i.e. the amount of the plaintiff's loss that was occasioned by the plaintiff's failure to act reasonably;

(d) a high standard of conduct is not required of the plaintiff, because the defendant is a wrongdoer; and

(e) a plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct, so long as it was reasonable for the plaintiff to act in the way that he did.

159 The second approach commences with the judgment of Adam J in Loughridge v Lavery.[86] Adam J expressed the view that he would have been disposed to treat the vendors exercising the power of sale provided by a condition of a contract for the sale of land as being under a duty similar to that imposed on mortgagees exercising their power of sale, the duty being to act in good faith and not recklessly in disregard of the purchaser's interests.[87] The dicta of Adam J have been followed in a number of cases.[88] In Bullion Sales International Pty Ltd v Fitzgerald,[89] Connolly J described the obligation as imposing on the vendor, for the purposes of that proceeding, an obligation to take reasonable steps to obtain market value.

160 However, Loughridge v Lavery was not followed by Young J in Jampco Pty Ltd v Cameron (No 2).[90] In that case, it was held that it was unnecessary to introduce a mortgagee type duty because the mitigation of damages principle sufficiently covered the field, and equity was usually loath to apply its special rules where there was no need to do so. Windeyer AJ in Kelly v Galafassi[91] considered that the common law duty of mitigation of loss applied, not an equitable duty akin to that imposed on mortgagees exercising a power of sale. Windeyer AJ acknowledged that there was some debate as to whether the duty was to resell without sacrificing the purchaser's interests or to act reasonably in respect of the resale pursuant to an implied term to do so, which duty was akin to the common law duty to mitigate loss.[92] In AHR Construction Pty Ltd v Maloney,[93] the Queensland Court of Appeal preferred the view expressed by Young J in Jampco Pty Ltd v Cameron (No 2).

161 The third approach as to the nature of the duty to resell is exemplified by the decision of Slicer J in J Boag & Son Pty Ltd v Bridon Investments Pty Ltd.[94] His Honour held the following in relation to the agreement under consideration in that case:

(2) The terms contained an implied term that the vendor will exercise the power of resale in a reasonable manner.

(3) The term 'reasonable manner' includes price, time of sale and conduct in the form or method of sale.

...

(5) The implied term is not a condition to the right of recovery, but governs the extent of remedy. Breach of the term does not necessarily preclude all remedy.

(6) The duty imposed on the unpaid vendor is not fiduciary in nature.

(7) No extraordinary duties are imposed on the unpaid vendor. The defaulting purchaser remains a wrongdoer.

(8) The term imposes a duty defined by commercial prudence referable to valuation, market, locality, form and method of sale, and the existence or otherwise of intending purchasers.

...

(10) The unpaid vendor has a duty not to conduct the resale in such a manner as to increase the loss occasioned by the purchaser's default.

...

(12) The person claiming breach of the term bears the onus of proof...

162 Slicer J observed that different remedies arise in the event of default by a purchaser in a contract for the sale of land, depending on whether the vendor elected to sue for general damages or chose to claim liquidated damages under a condition contained in the contract. The general principles of duty to mitigate loss were inappropriate in a case of liquidated damages and required recourse to the terms, actual or implied, in the agreement. These terms would determine the extent of recovery by way of liquidated damages. The rights of an unpaid vendor to take possession of property and to effect resale were given by the terms of the agreement, in the same way as those afforded a mortgagee. However, the legal interests of the two were not identical. In that case, there was no equity of redemption or other equitable interest, and it could not be said that an unpaid vendor was placed in a fiduciary relationship.[95]

163 J Boag & Sons Brewing Ltd v Bridon Investments Pty Ltd was followed by Blow J in Falcone v Mentyn[96] and by White J in Hansmar Investments v Perpetual Trustee.[97] It is discussed by Hammerschlag J in Bydand Holdings Pty Ltd v Pineland Property Holdings Pty Ltd,[98] where the vendor contended that no term should be implied because the case did not meet at least one of the tests laid down in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[99] namely that it must be necessary to give business efficacy to the contract.

164 In Bydand Holdings Pty Ltd v Pineland Property Holdings Pty Ltd,[100] the vendor also submitted that the resale condition was intended to make the vendor's position easier, and so long as what was entered into by the vendor was a 'resale' within the meaning of the condition, it would operate on its face. A resale was submitted to be one which was genuine, at arms length and did not involve the vendor sacrificing the purchaser's interests. Acceptance of this submission required the court to be satisfied that the approach taken in J Boag & Son v Bridon, Hansmar Investments v Perpetual Trustee and Falcone v Mentyn was clearly wrong. Ultimately, Hammerschlag J found that it was not necessary to resolve this issue because the defendants had not in any event discharged the onus on them to establish that:

(a) the vendor failed to act reasonably in the resale of the property;

(c) had the vendor taken the steps which the purchasers contend it should have, the outcome would have been any different.

165 The law relating to mitigation of loss applies to a claim for unliquidated damages arising from the breach of a term of a contract for the sale of land in much the same way as to a claim for breach of a term of a contract generally, and is conveniently stated in Karacominakis v Big Country Developments Pty Ltd.[101] However, in the case of contractual stipulations that consist of genuine pre-estimates of loss, and give rise to claims for liquidated damages, there can be no duty to mitigate, as "a duty to mitigate is entirely foreign to a claim for liquidated damages."[102]

166 As the right to recover liquidated damages under general condition 28.4 of the general conditions is not fiduciary or equitable in its character, an implied term can be imported into the varied sale contract if the suggested implied term satisfies the requirements for an implied term set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[103] and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales:[104]

(b) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(c) it must be so obvious that "it goes without saying";

(e) it must not contradict any express term of the contract.

167 In paragraph 8A of their defence, the defendants allege in substance that the varied sale contract contained implied terms (alternatively in paragraph 8B that there were duties) binding on Portbury in the exercise of the power of resale contained in general condition 28.4(c)(ii):

(a) to act in good faith in the exercise of its rights;

(b) to act reasonably in the exercise of its rights;

(c) not to act wilfully or in reckless disregard of the defendants' interests; and

(d) not to exercise its rights so as to increase the loss or damage occasioned by the purchaser's default.

168 They also allege that they are not liable for any deficiency in the price on the resale and any resulting expenses caused by Portbury exercising its power of resale -

(c) wilfully or recklessly in disregard of the purchasers' interests.

169 Alternatively, they allege in paragraph 8C of the defence that -

(a) Portbury owed a duty to the defendants to take all reasonable steps to mitigate any part of the loss or damage resulting from any default by Ottedin or Goldcare in the performance of its or their obligations; and

(b) Portbury would not be entitled to recover from any of the defendants any part of the loss or damage resulting from Portbury's failure or neglect to take all reasonable steps to mitigate any such loss or damages.

170 By contrast, Mr Kirby submitted that at the highest Portbury had a requirement to mitigate its damage, which would also apply in the case of a claim by Portbury for general damages. The implied terms of the varied sale contract alleged by the defendants in paragraph 8A of the defence could not arise unless they were necessary to give business efficacy to the contract so that no term could be implied if the contract were effective without. Mr Kirby relied on the principles set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings,[105] that the implied term must be so obvious that "it goes without saying" and it must not contradict any express term of the contract. He referred to general condition 28.4(c)(ii), which permitted Portbury to "resell the property in any manner", and to "recover any deficiency in the price on the resale and any resulting expenses by way of liquidated damages", and contended that some of the duties asserted by the defendants in their defence did not exist or contradicted the terms of general condition 28.4(c)(ii).

171 Further, Mr Kirby contended that fiduciary duties did not exist as a matter of law in respect of a resale by a vendor under an express term of a contract for the sale of land relying on Jampco Pty Ltd v Cameron (No 2),[106] J Boag & Sons Brewing Ltd v Bridon Investments Pty Ltd,[107] and Simpson v Donnybrook Properties Pty Ltd.[108] He argued that any fiduciary or other implied duty must be consistent with and conform to the terms of a contract.[109] Paragraph 8B of the defence alleged duties which were inconsistent with, and did not arise in relation to a claim for liquidated damages or general damages. Liquidated damages need not be a fixed sum, but could be arrived at in another way.[110]

172 Finally, Mr Kirby contended that there was no authority to support the implication of a duty of good faith generally into a contract for the sale of land. Rather, the High Court's position as stated in Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Ltd[111] was that reasonableness informs much of the law of contract, and, in particular, the assessment of damages for breach. In Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL,[112] the Court of Appeal held that the duty of good faith should not be implied into all commercial contracts but may be imported to protect a vulnerable party where the relationship between the parties was unbalanced. There is no basis to imply such a term here, and it could not apply to fetter the rights of the vendor where the purchaser is in default. Rights against defaulting purchasers under contracts for the sale of land have generally been construed strictly in Australia.[113] Mr Kirby argued that the alleged implied terms and duties pleaded in the defence were contrary to the terms of the varied sale contract, and the guarantees, and were not implied as a matter of law. He said that there were no such duties owed to the defendants.

173 I accept Mr Bick QC's submissions in final address that there is an implied term which arises in conjunction with general condition 28.4(c)(ii) of the varied sale contract that the vendor will act reasonably in the exercise of its power of resale. This implied term extends to all aspects of the resale. In the absence of such a term, the power would be unfettered and unconstrained, the vendor being entitled to resell the property in any way it saw fit and still recover the deficiency in the price of the resale and any resulting expenses by way of liquidated damages. A wide range of possible unfortunate consequences might ensue if the right of resale in a far-reaching condition such as general condition 28.4(c)(ii) were not subject to a limitation that the power must be exercised in a reasonable manner.

174 In Cooper v Ungar,[114] the High Court gave consideration to the implication of a term that a power of resale must be exercised within a reasonable time and that time could not be permitted to run on indefinitely. In Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL,[115] Warren CJ referred to the fact that the duty of good faith may be "no more than a duty to act reasonably in performance and enforcement, a long established duty". Although each individual contract must be looked at in its own right, an implied term to act in a reasonable manner has been accepted in the context of similar clauses giving vendors the right to recover liquidated damages for loss suffered on the exercise of a right to resell.[116]

175 The existence of an implied term to act in a reasonable manner in exercising the right of resale does not mean that a vendor must put the interests of the defaulting purchaser ahead of his own. That would be contrary to the very purpose of the right. The right of resale, and the right to recover liquidated damages, are intended to benefit the vendor as against the purchaser in breach, and do not subordinate the vendor's interests to those of the party in breach. Where the interests of a vendor and the purchaser in breach are in conflict, for example as to the urgency or method of the resale, the vendor is entitled to prefer his own interests to those of the purchaser in breach, provided that in so doing the vendor acts in a reasonable manner. The obligation on the vendor to act in a reasonable manner has been held to apply to price, time of resale and conduct in the form or method of resale.[117] It would also extend to the terms of resale to be offered by the vendor.

176 In my opinion, such an implied term meets the necessary requirements for an implied term.[118] It is reasonable and equitable. It is necessary to give business efficacy to the contract. It is so obvious that it goes without saying. It is capable of clear expression, and it does not contradict any express term of the contract.

177 The varied sale contract is a contract between land developers for the sale of englobo land for future commercial and high-density residential development at an unknown time in the future. It involves land banking where capital gain is sought to be achieved through an increase in land prices and favourable rezoning. There is no suggestion that Ottedin or Goldcare were under any disadvantage or suffered from any apparent vulnerability. The contract always entailed very high risks to Ottedin and Goldcare including the risk that they would not be able to finance completion of a speculative transaction. There is no reason why a duty or implied term of good faith additional to the duty to act reasonably in the resale of the property should be imported into the varied sale contract. Even if I am wrong in this, and a duty or implied term of good faith in the resale of the property should be imported into the varied sale contract so as to stand alongside general condition 28.4(c)(ii), and the implied term to act reasonably in the resale of the property, it would make no difference to the ultimate result in this proceeding. For the reasons which follow, I have concluded that Portbury did not act in breach of a duty or implied term to act in good faith. I accept that Portbury did act in good faith in all that it did to achieve the highest possible price on the resale of the property to an arm's length purchaser. It did not act recklessly in disregard of the purchaser's interests.

178 Mr Bick QC, in his written and oral submissions, did not press the other implied terms or duties pleaded by the defendants to be imported into the varied sale contract. Nor did he refer to any decided case or text that might support the imposition of the other suggested implied terms or duties. I am of the opinion that no such duties or implied terms are necessary or appropriate. Nor would they add in any material way to the duties of the vendor having regard to the existence of an implied term to act reasonably in the resale of the property that I have accepted. An implied term cannot conflict with, or derogate from, an express term of a contract such as general condition 28.4(c)(ii). A duty to act reasonably imports an objective standard. Such a duty largely, if not entirely, subsumes a duty not to act in bad faith, or not to act in wilful or reckless disregard of the defendants' interests, as such conduct by the vendor would clearly be unreasonable.

179 Here, I am in any event satisfied that Portbury did not act in bad faith in the resale, nor did it act in wilful or reckless disregard of the defendants' interests. To the contrary, Portbury did all that it could, Mr Portbury and Ms Kelly did their very best, as did Knight Frank, to achieve the maximum possible resale price consistent with Portbury's own commitments to the Bank. Achievement of the best possible resale price was as much in Portbury's interests as it was in the interests of the defendants.

180 As to the duties alleged in paragraph 8C of the defence, I accept Mr Kirby's submission. Those duties are expressed in a mandatory form arguably inconsistent with the vendor's right to obtain liquidated damages as set out in general condition 28.4(c)(ii) of the general conditions. The liquidated damages to which Portbury is entitled include the deficiency in purchase price and "any resulting expenses". A vendor may choose to expend significant resources in marketing, advertising, repairs and maintenance of the property in order to optimise the price achieved on resale. In these circumstances the vendor should not be at risk of breach of a supposed duty "not to exercise its rights so as to increase the loss or damage occasioned by the default" because of the incurrence of necessary expenditure in an endeavour to achieve the resale of the property. Given the implied term that I have accepted "to act reasonably in the resale", I do not consider that these additional implied terms are "reasonable and equitable", are necessary to give business efficacy to the varied sale contract, or are so obvious as to go without saying. I do not accept that they are imported into the varied sale contract.

Claim by Mr Ottewell and Mr Kosta as guarantors against Portbury

181 Mr Ottewell and Mr Kosta claimed that the security held by Portbury in the form of the property had been sacrificed or impaired in value by Portbury with the result that they had been wholly or partially released from liability. They relied on the principle stated by Brennan J in Buckeridge v Mercantile Credit Limited:[119]

In a case where the act of a creditor does not discharge a surety, but the creditor has nonetheless sacrificed or impaired the security, or by his neglect or default allowed it to be lost or diminished, the surety is entitled in equity to be credited with the deficiency in reduction of his liability.

182 Mr Kirby submitted that the guarantors' liability was in the main circumscribed by the terms of the guarantees. Those terms were wide. Both the first and second guarantees were operative, and included an indemnity. The second guarantee was expressed in condition 3(a) to be "continuous, absolute, unconditional and irrevocable". Condition 3(b)(iii) provided that it would not be affected by "the occurrence of any other circumstances, act or omission regardless of whether we, the Guarantors, consent, or are aware to [sic] any of these matters".

183 For the reasons which follow, I have concluded that Portbury did not sacrifice or impair the property, nor did it allow the property to be lost or diminished. There was no neglect or default by Portbury which occasioned the loss or diminution of the security by the surety. No deficiency arises that stands to be credited to the guarantor in reduction of their liability. As a result, this claim by Mr Ottewell and Mr Kosta fails.

WAS PORTBURY IN BREACH OF ITS DUTY TO MITIGATE OR ACT REASONABLY IN THE RESALE OF THE PROPERTY?

184 The defendants advance a number of reasons which they contend should reduce or entirely offset the damages to be awarded to Portbury. Principally, they say that Portbury has failed to mitigate its loss, or has sold the property at an undervalue, or has failed in various other ways to discharge its obligations to the defendants. I have come to the conclusion that the varied sale contract contains an implied term that Portbury will act reasonably in the resale, and that this implied term, rather than a duty arising from the law relating to mitigation of damage, is the source of Portbury's duty to the purchaser in the resale of the property. However, had I been of the reverse view namely that the source of Portbury's duty on the resale was the law relating to mitigation of damage rather than the existence of any implied term in the varied sale contract to act reasonably in the resale of the property, it would make no difference to the result in this proceeding.

185 Mr Portbury is the sole director of Portbury. Ms Sue Kelly ('Ms Kelly') has been the business manager of Portbury for the last seventeen years. Mr Portbury had conducted a road maintenance business known as RPC Roads in his own right for 24 years, and with his family before him for over forty years. In 2003, Mr Portbury sold the road maintenance business for about $11 million. Portbury then sold its interests at Cardinia Lakes for another $11 million.

186 After clearing its tax debt, Portbury had between $16 million and $18 million to invest. Its strategy was to buy englobo land or investment properties primarily for capital gain. It purchased a pottery works at Officer for $1.8 million, and sold it for $4.3 million. It purchased a property for $2.7 million at the corner of Michael Street and Princes Highway, Pakenham, and sold half to Bunnings for $3.3 million and retained the balance. Portbury Group owned a quarry at Seymour, which was later sold.

187 Portbury enjoyed a very strong relationship with the Bank. Portbury had been a client of the Bank for over twenty years, and was extremely loyal. The Bank considered the Portbury Group to have an excellent track record of success and to be of proven integrity. The balance sheet of Portbury as at 30 June 2006 as recorded in bank documentation showed assets of $16.9 million, and liabilities of $16.9 million including beneficiary loans of about $11 million. Income for the financial year 2005/2006 was $2,665,391 with net profits before taxation at $1,473,325. The income predominantly came from land sales.

5.988 hectares valued by Charter Keck Cramer at $5.975 million following the sale of 3.522 hectares of this land to Bunnings for a Homemakers precinct.

This property had been sold for $4.1 million in 2007 having been purchased for $1.78 million in 2005. Settlement was scheduled for January 2008.

(c) 40-44 Beaconsfield-Emerald Road, Upper Beaconsfield.

This property was purchased in April 2003 for $800,000, and consisted of six five-acre lots. Two of the lots had been sold in previous years for $791,000. Three of the remaining lots sold with settlement scheduled in the second half of 2007 for approximately $900,000. The remaining lot had been retained, and was available as security.

This was an office/warehouse property purchased a number of years ago, and leased to Works Infrastructure on a long term lease. It was valued by Charter Keck Cramer at $1.325 million in May 2007.

189 In 2007/2008, Portbury acquired four properties at 25, 45, 65 and 92 Enterprise Road, Pakenham ('the Enterprise Road properties') fronting the Princes Freeway (Pakenham Bypass) with the expectation that the land value of the properties would rise in coming years through the rezoning of what was considered to be a major growth area of Melbourne. Funding was provided by the Bank on a two year interest capitalised basis. The intention was to sell the majority of the holdings and retain key holdings for further development. Portbury's business plan assumed that property prices would continue to increase. Speculation and industry downturn were regarded by the Bank as key risks with a high likelihood of occurrence.

190 The annual debt servicing costs of Portbury's bills and debts owed to the Bank were projected to exceed $1.05 million for the 2008 financial year, with a Portbury Group LVR of 70%. Portbury's financial results varied greatly over the period 2003-2006 depending on the land sales achieved in any one year. Apart from property sales, in July 2007, Portbury received rent from some of its properties. Group facilities were due for annual review in September 2007.

191 By a letter of 26 October 2007, the Bank offered Portbury fixed and floating rate bill facilities exceeding $11 million. The fixed rate bill facilities were for periods of around two years while the floating rate bill facilities were for shorter periods. They were expected to be rolled over as they became due for repayment. The LVR specified in this offer was 68% for all group entities commencing on 31 October 2007.

192 Portbury purchased a property at 44 Palmerston Street, Warragul ('the Warragul property') in late-2007. This was the last property purchased by Portbury. As a result of property purchases, Portbury had Bank bill facilities of approximately $26 million.

193 By a letter of offer dated 8 October 2008, the Bank offered bill facilities to Portbury in an amount exceeding $6.6 million. The Bank had security over all assets and properties in the Portbury Group including Mr Portbury's home. This letter of offer specified a LVR of 60% commencing on 30 June 2009. The Portbury Group was required to provide to the Bank its formal written strategy by 15 November 2008 to sell property to achieve the LVR. The marketing campaign for sales was to commence by no later than 30 November 2008 to achieve the LVR of 60% by 30 June 2009.

194 The Bank continued to apply pressure on Portbury to sell down property up to the sale of the property to Ottedin in December 2008. As at December 2008, when the property was sold to Ottedin, Portbury had reduced its LVR to around 71% or 72%. As the property was sold to Ottedin for $6.5 million, completion of the sale by Ottedin would significantly reduce the amount of Bank debt, and consequently the LVR. Settlement of the sale of the property to Ottedin was vital to reduce debt and servicing costs monthly accruing to the Bank.

195 Bank records show Portbury as at 30 June 2008 to have assets of $20,617,192, liabilities of $20,898,148 and a negative equity of $280,956. Equity in the form of beneficiary loans amounted to $7.599 million. Income for the year ending 30 June 2008 was $3,648,026 whilst net profits before tax amounted to $2,072.213.

196 As at 30 June 2009, the Bank's records show Portbury's balance sheet as having assets of $23,979,402, liabilities of $26,481,302, and a net negative equity of $2,501,900. Equity was contributed through loans from beneficiaries of almost $7.6 million. No land sales had been achieved in the past year. There was a net loss before tax exceeding $2.2 million.

197 On 1 July 2009, Mr Portbury returned to the road maintenance business at the end of an exclusion period following the sale of RPC Roads in 2003 establishing Services South East Pty Ltd ('SSE') to support ongoing cashflow requirements. He was starting again in the road maintenance business. Portbury's cash reserves were running out. Previously capitalised interest bill facilities were coming to an end.

198 SSE faced plenty of competitors already working in the road maintenance industry. SSE had to attain pre-qualification with government departments, purchase equipment and recruit staff. While there was some equipment left from the last business, starting again was tough. Mr Portbury did extremely well. In the first year, SSE made a $400,000 net profit. SSE's business was supported by $1 million credit for equipment from the local Caterpillar dealer and a $360,000 bank guarantee facility from the Bank. SSE also sought and obtained approval to buy two Ditch Master machines at a purchase price of $250,000 and $470,000. The 25 Enterprise Road, Pakenham property was refinanced to add a further $1 million to working capital.

199 As at 31 January 2010, SSE had achieved revenue of $1.383 million, gross profit of $650,000 and a net profit of $55,000 after management fees of $270,000 had been paid to Portbury. This was an excellent result considering that SSE had only been in business for seven months.

200 Following the execution of the varied sale contract on 23 December 2009, the Bank intended to use $1 million of the deposit to reduce the facility for the property at the next bill rollover. Most of the remaining $0.325 million was to be released to the Portbury Group to restore cash reserves following the start up of SSE, and to provide a buffer to assist with ongoing interest obligations pending further asset sales.

201 As at 2 March 2010, the Portbury Group is recorded by the Bank as indebted in the amount of $23,676,539. The property had been sold for $6.5 million under the varied sale contract with $1.325 million paid by way of deposit, and a progress payment of $3.675 million to be paid within 150 days of the rezoning of the property. The rezoning was expected in late March 2010 resulting in payment of $3.675 million in August 2010. The balance of $1.5 million was due on the revised settlement date of 18 December 2010. The purchaser was to bear the costs associated with the GAIC. As a result, $5.175 million was expected to be received by Portbury by no later than December 2010.

202 The delay in settlement of the sale of the property to Ottedin was described by Mr Kelvin Brown, Senior Business Banking Manager of the Bank ('Mr Kelvin Brown') in a memorandum of 2 March 2010 as having essentially delayed the Portbury Group's compliance with the Bank's 60% LVR requirement. The increase in deposit to $1.325 million meant that the purchasers had "significant cash locked into the fulfilment of the transaction". This was "a satisfactory outcome" and one, he considered, which "should now see this sale completed". He noted that all group property assets remained on the market. The Portbury Group had committed to the de-gearing course of action and expected to be largely debt free by the end of calendar year 2010. Mr Kelvin Brown described the four main entities of the Portbury Group:

(1) Portbury which was the main property owner/developer of the group;

(2) RMP Sales Pty Ltd, which was the equipment dealing entity of the group and currently inactive;

(3) Port-Trac Pty Ltd which was the owner of the two Purton Road properties; and

(4) SSE which conducted the road maintenance business of the group.

203 SSE had quickly become the main income and cash flow generating entity within the Portbury Group. Projected SSE revenues to 30 June 2010 were $5.73 million, expected gross profit was $1.945 million, and net profit of $414,705 after paying planned management fees of $770,000 to Portbury. Portbury's annual debt servicing costs to the Bank were at $1,125,320, reducing with further asset sales.

204 In fact, although remuneration in the first year was affected by wet weather, gross and net profit were higher. In the financial year to 30 June 2010, SSE achieved revenue of $3.936 million, gross profit of $2.477 million and net profit before tax of $471,000. The result was described in submission by the Bank dated 5 April 2011 as excellent "in the first year of trading of the business having commenced the business from scratch and without material funding assistance."

205 In the same memorandum, Mr Kelvin Brown stated that "we have strongly reaffirmed with the group the need to sell down existing property assets asap to ensure that [a sound and conservative LVR position] is achieved." As to the Portbury Group's response, he stated that "[t]his remains a strong focus for the group with all property assets available for the sale. The group are confident that they will be largely debt free within a 12 month period. Accordingly, we seek to extend our group LVR covenant of not more than 60% until 30/12/2010 to align with known asset sales." The principal asset sale was the sale of the property.

206 A close monitoring action plan prepared by the Bank dated 20 July 2010 anticipated that Portbury would revert to an acceptable risk profile by 31 December 2010. This was because the Portbury Group was continuing to pursue property asset sales. The close monitoring action plan went on to state that:

The Lecky Rd property is scheduled to settle December 18th this year which will generate circa $5.1m in debt reduction. The purchasers of this site have contributed $1.325m already toward this purchase and thus we are confident that settlement risk associated with this sale has been lessened.

207 As 18 December 2010, the date of settlement of the varied sale contract, approached, the position can be summarised:

(1) Portbury had engaged in speculative property acquisition for capital gain in accordance with its business strategy directed by Mr Portbury. This strategy is known as land banking.

(2) The strategy included the purchase of englobo land in the Pakenham corridor in a rising property market. This had consumed most of the equity and cash available to Portbury.

(a) the continuance of a rising market for property in the Pakenham corridor;

(b) the achievement of the rezoning of land from farmland to land capable of urban development which was also likely to lead to an uplift in property values; and

(c) the willingness of the Bank to capitalise interest so limiting cash flow pressure given the lack of income available to the Portbury Group other than from land sales.

208 Portbury's position was dependent on continuing financial support from the Bank. Property purchases had been funded using loans and facilities from the Bank. If the Bank ever withdrew support, Portbury would be compelled to refinance or engage in extensive property sales. Mr Portbury and Ms Kelly spent a considerable amount of time ensuring that the Bank was provided with submissions and information as and when needed. Mr Portbury enjoyed an excellent relationship and ongoing support from Mr Kelvin Brown, and other officers of the Bank.

209 Portbury had created SSE to work in the road maintenance business. SSE had done very well despite a quick start up in a competitive and challenging industry. SSE had required significant initial funding from the local Caterpillar dealer to buy plant and equipment, and some funding from the Bank to defray start-up expenses.

210 Portbury's financial position was heavily dependent on completion of the varied sale contract. The deposit of $1.325 million had been paid. Payment of the remaining $5.175 million would substantially reduce Portbury's debt to the Bank, reduce its bank facility servicing costs, and ease its financial pressures. Both the Bank and Portbury expected that settlement would take place.

The effect on Portbury of the purchaser's default

211 I accept the evidence of Mr Kelvin Brown as to the financial consequences of the failed settlement. He considered that the failure of the purchasers to settle the varied sale contract had a dramatic effect on Portbury. The original strategy behind buying the properties with an interest capitalisation component was for Portbury to sell those properties within a two year timeframe to reduce debt and provide for the ongoing interest servicing of the remaining debt. It was never intended that all properties purchased would be held indefinitely, so there was always a strategy for some of the assets to be exited to keep other assets. That was on track to occur when the sale of the property was achieved. The sale of further assets became quite difficult given the illiquid nature of those assets after the global financial crisis ('GFC').

212 Mr Kelvin Brown said that had the varied sale contract settled, Portbury would never have got to the position and stage it was in as at 2011. If the settlement of the varied sale contract had gone through, Portbury would not have got to the quasi managed workout situation. Portbury's debt to the Bank would have been around $16 million to $17 million rather than $23 million. That was a lot easier to service amounting to around $100,000 a month rather than $130,000 a month. There would still be a need for ongoing property sales, as the gearing level was still beyond the Bank's comfort level. SSE did not service the whole of the interest on the bank debt until late 2011 at the earliest.

213 In a memorandum dated 29 November 2010 to Mr Kelvin Brown, Mr Jock Frazer ('Mr Frazer'), Senior Credit Executive, Australian Credit of the Bank described the property sale agenda as "super important". Mr Frazer stated:

We are placing great store in Mr Portbury achieving his stated aim of 31/12/10 for sale of the industrial properties and we similarly place great store in your assessment that he is acting in good faith in that regard. It would be disappointing if this agenda drifted beyond 2010.

The trading business is otherwise at great risk because of a shortage of cash.

214 Mr Portbury gave evidence that Ottedin's failure to complete the purchase of the property caused severe financial hardship to Portbury. The failure meant that Portbury was unable to pay down debt from the proceeds of the sale originally scheduled for 18 December 2009, then extended to December 2010 and to January 2011.

215 The failure of Ottedin and Goldcare to complete the varied sale contract did have a dramatic effect, and did cause a very serious adverse effect on Portbury's financial position. Portbury was dependent on the sale of properties to reduce debt to the Bank, reduce servicing costs and achieve the LVR required by the Bank. While other asset sales would have been necessary, settlement of the sale of the property for $6.5 million would have effected a significant reduction in bank debt, and servicing costs. Portbury's financial position would not have deteriorated to the extent that it did. Bank pressure would have been relieved, or not occurred at all. The default put Portbury into a parlous financial situation at a very difficult time in the market for englobo development land. Mr Kirby relied on Henville v Walker,[120] and contended that a significant cause in the need to sell the property by auction in the way that Portbury did was the financial predicament that Portbury found itself in by reason of the default of Ottedin and Goldcare in completing the varied sale contract. I accept that this is so and that the default by Ottedin and Goldcare was materially and legally causative of Portbury's financial situation in 2011.

216 In November 2010, Ms Kelly initiated steps to sell the Enterprise Road properties. The property was not included as it was under contract to Ottedin. The real estate agent engaged by Portbury at this time was Ashton Ashokkumar located in Noble Park. The vendor's asking price for each property ranged from $3 million to $7 million payable in 60/180 days. Ms Kelly gave evidence that Ottedin's failure to complete the purchase of the property caused significant financial hardship to Portbury as it meant that Portbury was unable to pay down debt from the proceeds of the sale originally scheduled for 18 December 2009. It also added approximately $500,000 to Portbury's holding costs which substantially affected cash flow. Portbury had planned to use the settlement monies from the sale of the property to repay debt and reduce its LVR with the Bank. Mr Portbury referred to an email from Mr Frazer on 17 February 2011 where Mr Frazer stated that Portbury could not "afford to hold illiquid assets for much longer and your new business needs equity ... you know this, so no secrets there. Talk soon. I am sure that suitable compromise is possible."

217 Mr Ashokkumar contacted Australand concerning 25 and 92 Enterprise Road. Boral and Linfox looked at 92 Enterprise Road. Another consortium looked to acquire all four Enterprise Road properties. All efforts were unsuccessful. None of the Enterprise Road properties sold.

218 Mr Kosta had a telephone conversation with Mr Morris, a real estate representative of Knight Frank in December 2010. Mr Kosta told Mr Morris that he had a contract relating to the property due to settle soon, but that he did not have the finance.

219 Mr Kosta asked Mr Morris to try and sell the property for him. Mr Kosta told Mr Morris that he had bought the property for $6.5 million, and had a current valuation of over $8 million for it.[121] On 22 December 2010, Mr Kosta provided a general authority to sell the property for $6.75 million payable in 12 days. Mr Morris provided an agent's estimate of the selling price of the real estate which ranged from $6.5 to $6.8 million.[122]

220 Although it was about the week before Christmas, Mr Morris presented the property to a number of groups who he thought might be interested, including the Pellicano Group, Australand, RCA and others.

221 Mr Morris found that the property was difficult to sell. The Pellicano Group said at a meeting at their offices that they had no interest in land banking opportunities at that time. Andrew Philip of RCA subsequently said that there were planning issues which made it difficult for them to develop the property into a retirement village. Mr Morris could not sell the property, and told Mr Kosta that he could not get it off the ground.

222 Mr Morris was a manager of Knight Frank, which is the largest privately owned global real estate group in the world and is considered to be one of the 'big four' firms, along with CBRE, Jones Lang LaSalle and Colliers. Mr Morris is an associate of the Australian Property Institute, and holds a Bachelor of Business - Property from RMIT. He has worked for Knight Frank since 2006 previously working at Colliers International, the City of Melbourne and the City of Boroondara. His major clients include leading developers such as LendLease, Pellicano Group, AMP, Places Victoria, Salta, FKP, Dexus, Bennelong and Peet Limited. His property experience is broadly based and covers all sectors of the property market including suburban commercial office, major industrial, englobo land, major residential developments, car parks, student accommodation and retail. Mr Morris has a speciality in residential development sites, retirement villages, and health and aged care developments. He was well suited and experienced to act for Mr Kosta and later Portbury in the sale of the property.

223 When he heard that the varied sale contract had not completed, Mr Morris contacted Mr Portbury. Mr Morris and Mr Ken Smirk ('Mr Smirk') of Knight Frank arranged a meeting with Mr Portbury and Ms Kelly. Mr Portbury invited Mr Morris and Mr Smirk to tell him how Knight Frank would sell the property.

224 Mr Smirk is a director of commercial sales of Knight Frank. He has over thirty years' experience in selling residential, commercial and industrial properties with Alexander's Real Estate, Jones Lang LaSalle, DTZ Australia and since 2009 with Knight Frank. He holds the degree of the Bachelor of Commerce from the University of Melbourne, is a licensed real estate agent, and accredited auctioneer. He has over twenty years' experience in Melbourne's commercial real estate market, including preparing marketing, sales strategies and information memoranda, liaising with purchasers, and managing sales negotiations. He has achieved multi-million dollar transactions for Central Equity, Mirvac, News Ltd, Hudson Conway, Australian Red Cross, AMP Capital Investors and many other clients. He is a long term local resident of Pakenham, having both professional and personal knowledge and experience of the area. He has past involvement in the marketing and sale of commercial and residential development sites in the area.

225 Mr Smirk was well qualified by qualification, experience and by his own long term residence in the Pakenham area to be responsible for the marketing and sale of the property.

226 In response to Mr Portbury's request for advice as to how the property should be sold, Mr Smirk and Mr Morris advocated a public tender method where anyone interested could come forward with offers. During a meeting with Mr Smirk, Mr Portbury mentioned that he also owned the four Enterprise Road properties. He said that Knight Frank could look at selling those properties in conjunction with the property on the basis that potential purchasers could take all or one of the lots. Knight Frank prepared a formal submission, and subsequently the Enterprise Road properties were included in the tender and marketing.

227 In Mr Morris' opinion, the marketing of the five lots together was a good idea. One important benefit was that because of the much larger scale of the potential sale, Knight Frank ultimately had a much greater marketing budget of approximately $55,000, approximately five times the likely marketing budget if only one property had been sold. In the experience and opinion of Mr Morris, a $55,000 marketing budget was a large amount for a sale process.

228 In March 2011, Knight Frank prepared a report entitled 'Sale Recommendations' for Portbury. The report contained sections including a "Property Overview", "Market Overview", and "Target Market". The Target Market section included developers and neighbouring owners, and stated that "Knight Frank has established contacts with all the key developers in the region including Australand, Brown Property Group, Stockland, VicUrban, Delfin-Lend Lease, Dennis Family Corporation, Peet and Villawood, who are currently working on some 26 projects in the area."

229 Mr Smirk gave evidence as to the reasons why the public tender method was chosen. The public tender method:

(a) provides the vendor with the opportunity to fully evaluate a variety of proposals comparing differing terms and conditions to establish preferred contract conditions;

(b) provides the vendor with the opportunity to manage the perception of competition in order to realise a premium price;

(c) provides the vendor with the opportunity to accept a preferred offer early or to work with parties to improve offers after the close of tenders;

(d) provides the purchaser with the flexibility required to acquire a property of this size;

(e) allows the vendor to predetermine the required or preferred terms of sale, whilst also providing interested parties the option of submitting non-conforming tenders;

(f) optimises the transparency of the process and removes any ceiling on price;

(g) sets a deadline for all parties to register their interest;

(h) presents the vendor with the opportunity to secure an unconditional sale at the conclusion of the campaign; and

(i) allows the agent to try and optimise price and terms by dealing with interested purchasers.

230 Mr Smirk described the property as development land located approximately 55kms from the city. He described it as an investment opportunity in an area which may take a long time to realise value, given where it is located. Its value depended on the potential uses for which it could be developed and on a buyer obtaining the necessary permits for the proposed use.

231 The proposed marketing schedule included advertising and marketing for a four week campaign. The marketing included:

(a) advertising in The Age on a Wednesday and Saturdays - in the commercial property section;

(b) advertising in the Australian Financial Review on a Thursday - in the commercial property section;

(f) an elite listing on the website realcommercial.com.au; and

232 By an exclusive sale authority dated 18 March 2011, Portbury retained Knight Frank to sell the property with a price range of $7.5 million to $8.25 million. The vendor's price was stated to be $8.5 million.

233 A decision was made to offer the four adjoining Enterprise Road properties in conjunction with the property on the basis that a purchaser could buy all of the five lots in one line or individually. Mr Smirk gave evidence that the prospect of a purchase of a larger parcel of land comprising more than just one lot with a range of possible development options may have appealed to a wider range of potential purchasers. At the same time, the property could have been purchased by itself if that was what a purchaser wanted to do. Mr Rod Neville ('Mr Neville'), a director of industrial sales at Knight Frank, was added to the sales team, as the four Enterprise Road properties were predominantly zoned for industrial use.

234 Portbury accepted Knight Frank's recommendation for a sale by tender. While a number of criticisms were made of the tender process,[123] Portbury's decision to seek to sell the property by tender was not challenged by the defendants in this proceeding, save that it was said that the property should have been offered on a standalone basis rather than in conjunction with the Enterprise Road properties. The revised marketing schedule provided for expenditure totalling $51,235.12 plus GST. In Mr Smirk's opinion, the marketing campaign was an extensive, professional and high quality marketing campaign. Knight Frank prepared a comprehensive information memorandum for the sale of the five lots by tender closing at 4:00pm on Thursday 12 May 2011. A comprehensive tender document was prepared by Portbury's solicitors.

(a) photographs, plans and a summary of the parcels of land;

(b) information as to the planning status of the properties - they were in the Urban Growth Zone under the Cardinia Planning Scheme. The property was the most flexible as it could be developed for commercial as well as for medium and high density residential use. Most of the Enterprise Road properties to the east were in an employment zone and were industrial in use;

(c) details and articles about the location of all properties in the suburbs of Pakenham and Officer, approximately fifty kilometres south east of the Melbourne CBD;

(e) the stipulated method of sale either in one line or separately by tender closing at 4:00pm on 12 May 2011; and

(f) the terms of sale: 1% deposit payable on lodging a tender document; balance of 9% deposit payable on acceptance of tender; and balance of purchase price payable 180 days from the acceptance of tender.

236 Portbury decided to conduct the marketing campaign recommended by Knight Frank with large advertisements in major daily papers and on selected websites.

237 Knight Frank maintained a database of prospective property purchasers for commercial properties. A flyer about the tenders was sent by email to approximately 414 persons and organisations. A large hard copy brochure for the tender was sent out to over 970 selected prospective purchasers. A press release about the tender was issued on or about 7 April 2011, and published in different versions in The Age (13 and 30 April 2011), the Jewish News (15 April 2011) and the Pakenham Gazette. A copy of the information memorandum was sent to Mr Facey, a large landholder in the local area, and an adjoining landowner.

238 Following the distribution of emails and brochures which commenced on 12 April 2011, the properties were advertised by:

(a) large advertisements in the Australian Financial Review on 14 and 28 April 2011;

(b) large advertisements in The Age on 20 April and 4 May 2011;

(c) publication on Knight Frank's website and on the website known as realcommercial.com.au (a specialist website for commercial properties); and

(d) boards erected on the properties consisting of one large board on the property; a second large board on the property on a small mound close to and facing the freeway frontage; and four large boards on the Enterprise Road properties.

239 Knight Frank personnel contacted prospective purchasers, including neighbouring owners, clubs, hotel operators and the Epworth Hospital which had expressed an interest in securing a site in Melbourne's south-eastern suburbs. The information memorandum was sent to local real estate agents, accountants, solicitors and other possible purchasers. Knight Frank's database was searched by Mr Smirk and Mr Morris to identify potential purchasers.

240 Mr Neville of Knight Frank had an established relationship with the Gillon Group whose principal is Mr Peter Gillon ('Mr Gillon'). The Gillon Group is a large private developer, and has undertaken a number of developments in the area.

241 On 12 May 2011, the Gillon Group submitted a proposal in an email to Mr Neville to purchase all of the lots. However, as the email explained, Abacus Property Group ('Abacus') was the joint venture partner of the Gillon Group, and had not had time to evaluate the proposed tender by the Gillon Group for the 49 hectares of land at Cardinia. The email was submitted as the tender was closing on that day.

242 On 20 May 2011, Mr Morris met with Mr Gillon. During the meeting it became apparent to Mr Morris that Mr Gillon had misunderstood the planning and zoning status of the different properties. Once Mr Morris explained the current planning status, it became apparent that Mr Gillon was not interested. Following the meeting, Mr Morris reported to Mr Portbury that the interest from Mr Gillon had evaporated. Despite an email dated 23 May 2011 from Mr Morris to Mr Gillon advising that Portbury would accept an amount of $14.8 million plus GST with settlement in 120 days, or an amount of $16.5 million plus GST with settlement in 12 months, no further interest was shown by Mr Gillon. Abacus did not at any time display any interest.

243 Mr Morris gave evidence that the marketing campaign for the tender did not gain much traction, as there was little interest at the time in buying such a site. The area was only in an initial planning phase, and there was still a degree of speculation as to how long it would take to realise the benefits and profits of property in the area. There were also potential delays in the planning and zoning process and negotiations to be successfully undertaken with Cardinia.

244 Mr Smirk's evidence was that the tender process did not generate much interest. He said that regardless of the stated tender terms, Knight Frank was quite prepared to negotiate on terms, such as longer and staggered settlement arrangements. Only the Gillon Group asked for an extended settlement period.

245 Despite Knight Frank's efforts, there were no formal offers received in response to the tender. There was only the informal and non-conforming proposal from the Gillon Group, from which nothing eventuated. Mr Smirk explained that Mr Gillon could not convince Abacus, as the prospective joint venturer, as to the merits of acquiring such a large parcel of land that was, in the main, unlikely to be developed for some years. He was told that Abacus had other opportunities which were preferable to the Portbury holdings. Mr Gillon mentioned the possibility of an extended two to three year settlement, but could not get Abacus to commit to any deal at all.

246 Mr Smirk gave evidence that following the tender closing date, it remained open to an interested party to come and negotiate with Knight Frank on behalf of Portbury. The tender closing date was not the end of the sale process. If any prospective purchaser had sought more time to respond to the tender, Knight Frank would have talked to Portbury.

Portbury's financial position following the unsuccessful tender

247 On 22 February 2011, Mr Kelvin Brown emailed Mr Frazer of the Bank:

Following the Lecky Rd, Officer property settlement falling over, [Mr Portbury] is putting in train the auction of the property and also the Warragul property. Additionally, in the event that Australand do not present an offer by the end of the week, [Mr Portbury] will move to take all of the bypass properties to auction.

248 Portbury then had interest costs of $130,000 per month, and other monthly expenditure of $70,000 a month. December creditors were overdue, and there were tax obligations and employee obligations for December 2010 and January 2011 also overdue. $600,000 was needed to rectify the cash position. Mr Kelvin Brown commented in the same email to Mr Frazer as to the impact of the failure of the purchaser to settle:

The rescission of the Lecky Rd, Officer property settlement sees the planned debt reduction of $4.794m not occur, plus the release of some $380k of the sale proceeds to the group cash flow not occur. The latter has put the group's cash flow into a serious situation.

249 As to Portbury's LVR ratio, Mr Kelvin Brown said:

We are currently at 69% with the provision of an additional $1.25m increasing our LVR to 73% as at 30 June 2011. Note that the Pakenham bypass properties have recently been rezoned from rural to industrial which is likely to have a positive impact to our valuations. It is suggested that updates would likely see our LVR at still sub 70% ...

250 In an internal bank memo of 15 March 2011, Mr Kelvin Brown noted as to the failed settlement:

Of the $5.175m to be received at settlement, an approval was in place to see debt reduction of $4.795m and $380k released to the group for cash flow purposes. This has not occurred causing current cash flow position ...

251 On 16 March 2011, Mr Brent Sallman ('Mr Sallman'), Credit Executive of the Bank responded:

It is my firm view that we need to be cognisant of the position that we find ourselves in. Our client has a very significant holding of non-income producing land. A previous settlement of $5.175m for the Lecky Road property has failed to occur; ... There is a strong argument to suggest that the land (and our security) is illiquid. The problem we face here is that the Bank is taking an ever-increasing position on what is essentially illiquid security.

...

From what I can see from the info provided to date, it would seem that a successful sale of the Warragul property will form the cornerstone of the strategy. If this fails to materialise by say 30/4, and the client still cannot meet interest, my feel is that this will form a trigger for an immediate formal referral to SBS.[124]

252 On 5 April 2011, Mr Kelvin Brown of the Bank prepared a further submission in relation to the Portbury Group describing the Group as cognisant of "the calamitous situation it is facing":

Senior Partner, Paul Wood, has met with the clients to assess the progress in respect of the sale of their land holdings. The SP has clearly articulated the NAB's position in regard to continuing to allow interest to capitalise on these properties. The clients are fully aware that any proposed increase in funding would be of a very short-term nature and that the sale of a property or injection of equity via a joint venture must be achieved in the coming weeks. Failure to do so will result in the Bank exercising its power of sale under its first registered mortgage over the properties.

FORWARD PLAN:

Plan A

• Sale by auction (44 Palmerston St Warragul / 20 Lecky Rd Officer).
• Appointment of Knight Frank (marketing campaign for the Enterprise Rd properties and Lecky Rd Officer)

• 44 Palmerston St Warragul - 12th May 2011
• 20 Lecky Rd Officer - 31st May 2011 (to be confirmed) OEMV $7.2m

• For sale 32 Henry Road Pakenham (16 acres known as 25 Enterprise Road) - OEMV $5.76m (conservative)
• 290 Henry Road Pakenham (10 acres known as 45 Enterprise Road) - OEMV $3.80m (conservative)
• 4 Henry Road Pakenham (7 acres known as 65 Enterprise Road) - OEMV $2.98m
• 20 Lecky Road Officer (for sale by tender in addition to planned auction) - OEMV $7.20m (conservative)

• Introduction of investment partners to buy shares in land portfolios

[Mr Portbury] has informed the NAB that he has progressed discussion with a group of 15-20 high net worth business contacts, with a view to having them buy into this land holdings, should sales not be achieved in the coming weeks or at auction.

Plan C

• Mortgagee auction of property to achieve clearance of debt (should aforementioned plans fail)

Portbury Development Co Pty Ltd (PDC) have failed to achieve sales in key land holdings in the Pakenham area of Victoria. Funding was initially provided with 2 year interest capitalisation to facilitate the purchase of this land for speculative investment in what has been earmarked as a major urban growth area of Melbourne. The stagnation of property price rises in a post global financial crisis environment has impacted the company twofold. It has caused purchasers of these vast parcels of land to reconsider the terms contracts they have entered into (in spite of the large deposits paid). This is due largely to the purchase price being greater than the true value of land that has become an increasingly illiquid asset in a political and economic environment that has hampered land development and construction. This has also delayed planned rezoning of the group's property portfolio, a key requirement to improving the value of the assets and their marketability to potential investors/developers.

The group is cognisant of the calamitous situation it is facing and is under no illusions that support from its funding partner (NAB) is by no means infinite. Properties have now been placed for sale via auction (44 Palmerston St Warragul) and via a concerted marketing campaign undertaken by Knight Frank (Cardinia Rd Employment Precinct properties). The Warragul property is 6 titles with street frontage zoned business 1 and is the last piece of land in that area. The property will go to auction on 12th May 2011 with a reserve price of $4 million. However, the group will accept offers of $3.5m+ in order to achieve an urgent sale, given only 60 day settlement time frames will be accepted.

The bank's position has been made clear in several face-to-face meetings and conversations in recent months including Partner, Kelvin Brown, Senior Partner, Paul Wood and Senior Credit Executive, Jock Frazer (refer eBL attachments for correspondence). A sale must [be] achieved by 31st May 2011. Consequently, additional funding of $1 million (including interest capitalisation) is sought for the group until 31st May 2011.

253 Senior Partner Paul Wood ('Mr Wood') had made the Bank's position clear to Portbury. The Bank would no longer allow interest to be capitalised, and expected interest amounting to about $130,000 per month to be paid by Portbury after June 2011. The Bank stipulated that the sale of a property or the introduction of equity by way of a joint venture must be achieved in the coming weeks. As the introduction of equity was unlikely in the short term, and was not in contemplation, this meant that a property had to be sold in the near future. Failure to do so would result in the Bank exercising its power of sale under its first registered mortgage over the Portbury properties. The properties earmarked for auction under Plan A were the Warragul property, where the auction was to be conducted on 12 May 2011, and the property which was to be auctioned on 31 May 2011 although this date was to be confirmed. In addition to the planned auction, the property was also shown as for sale by tender.

254 Mr Wood and Mr Kelvin Brown subsequently received an internal memo from Mr Sallman and Mr Frazer by way of response. An increase of funding of $1 million to Portbury was approved, but only to 31 May 2011 after the foreshadowed auctions. Various other facilities were extended to the same short expiry date. The submission of 5 April 2011 from Mr Kelvin Brown effectively formed "a quasi-workout strategy" allowing time for Portbury to sell the Warragul property and the property at auctions then scheduled for 12 May and 31 May 2011 respectively. The additional funding would clear the current Portbury Group excess of about $474,000 and accommodate interest capitalisation on core debt load. The short expiry date of 31 May 2011 was to be a trigger point for a full review by the same date. The success of the auction process would be reviewed by the Bank by 1 June 2011. The ultimate decision as to whether the action plan had succeeded or not would depend on whether both properties sold at auction, the actual sale prices achieved, settlement terms and account conduct in the meantime. As an ambit position, the Bank was expecting all proceeds (net of selling costs) to be applied to permanent debt reduction. The file had been comprehensively workshopped within the Bank over the previous 4-6 weeks by Bank partners and senior credit executives. The memo made it clear that Plan A was the action plan the Bank would follow. Plan B was a longer term solution, which might make sense once some immediate debt reduction were obtained, but it was questionable how quickly this plan could be achieved in the event that the forthcoming auctions failed. Plan C was a full asset realisation by the Bank.

255 Mr Kelvin Brown gave evidence that the Bank did not specify the assets that Portbury was to sell. The choice of the assets that were to be sold was a choice of Mr Portbury rather than the Bank. The funding provided by the Bank to the Portbury Group ultimately covered the position to the end of June 2011. After June 2011 "all bets were off as far as the bank assisting further". It was up to the Portbury Group to cover interest after June 2011. The possibility that Portbury could not cover the interest bill after June 2011 was a serious concern. Mr Portbury needed to pursue asset sales and debt reduction. Mr Kelvin Brown did not expect that SSE would be able to generate sufficient profit or cash flow to service the debts of the Portbury Group.

256 The result was that Portbury was committed by Plan A to take the property to auction. Agent's sale authorities including for the property were to be held by the Bank. The Bank would review the position after the completion of the auction process, and decide whether facilities would be extended when it reviewed the results of the auction plan. LVR covenants would be removed as an interim measure. The Bank would consider reimposing an LVR condition once the outcome of the auctions was known. The provision of a further $1 million by the Bank would permit the excess of $474,000 to be cleared.

257 Following the decision that the property would be sold by tender, and would, if necessary, go to auction, Portbury implemented Plan A as it had promised the Bank it would. It had no alternative. The date for the sale of the property was ultimately fixed for 29 June 2011.

258 On 12 May 2011, the auction of the Warragul property was unsuccessful. On the same day, tenders for the sale of the property also closed. There were no tenders or offers for the property.

259 The failure to sell the Warragul property, and the failure to sell the property by tender exacerbated the calamitous situation faced by the Portbury Group. There were very great difficulties in finding a buyer for development properties in the post-GFC property market for greenfields sites. By email on 2 June 2011, Mr Kelvin Brown reported on the lack of success to his superiors within the Bank. There was no good news to share.

260 On 2 June 2011, Mr Smirk advised Ms Kelly by email as to the strategy to be pursued to achieve the sale of the property and the Enterprise Road properties. He referred to the continuing need to promote the sale of the land in a unified approach on the basis that the public campaign had just concluded. In the email, Mr Smirk said that the campaign was relatively fresh and that there was merit in continuing efforts to secure genuine interest in the sites on an individual basis for a shorter settlement period. Knight Frank was continuing to have discussions with interested parties. There had been a couple of new enquiries since the campaign finished - one was a Chinese group with whom Knight Frank had already arranged a meeting.

Should the above approach not produce meaningful interest after 2 - 3 weeks, we agree that an offering of Lecky Road in a stand-alone campaign has little downside & may well produce a buyer. However, we do not believe that a public auction would be the most effective method of sale, as a less than satisfactory result is likely to create a more negative sentiment around all sites. Rather, we believe that an Expressions of Interest campaign could flush out a purchaser without the possible side effects of negative market sentiment as we would be able to manage the perception of buyer interest & competition much more effectively than in the very public forum of an auction.

Should we get to the point where a decision is taken to run a campaign for Lecky Road, all boards should be removed from the sites so that, from a formal marketing perspective, there is an absolute focus on the sale of Lecky Road.

262 On 6 June 2011, Mr Wood and Mr Kelvin Brown met with Mr Portbury and Ms Kelly to discuss Portbury's debt reduction program. Portbury was instructed by Mr Wood and Mr Kelvin Brown to achieve a debt reduction of at least $2 million to $3 million by 30 June 2011. Mr Kelvin Brown said in evidence that he was informed by Mr Portbury and Ms Kelly that they expected a sale for the property at the auction in June 2011.

263 There were differences in the evidence as to what was said at this meeting. In his affidavit of 10 September 2013, Mr Portbury swore that Mr Wood and Mr Kelvin Brown of the Bank stated that Portbury had to reduce its debt by $3 million to $4 million by 30 June 2011, and that Mr Wood said words to the effect that "if we [Portbury] did not reduce debt, we [the Bank] will do it for you." Portbury was already committed to auctioning the property before 30 June 2011 under Plan A. When Mr Kelvin Brown's affidavit to the effect that a debt reduction of at least $2 million to $3 million was to be achieved by 30 June 2011 was put to Mr Portbury in cross-examination, he accepted that Mr Kelvin Brown's account of the conversation was correct.

264 In a letter dated 2 August 2011 to Mr Kelvin Brown, Mr Portbury gave an account of the conversation that took place on 6 June 2011. He stated in the letter that Portbury was instructed to achieve debt reduction of $2 million to $3 million by 30 June 2011.

265 Ms Kelly had a different recollection. In her affidavit of 6 September 2013, she recalled that "The Bank told us that Portbury had to reduce its debt by $3 million to $4 million by 30 June 2011". She recalled that the Bank representatives also asked whether Portbury would be auctioning the property. Portbury had committed to auctioning the property prior to 30 June 2011. She and Mr Portbury asked the Bank's representatives what would happen if Portbury did not achieve sales by 30 June 2011. They were told that the Bank would take action itself to achieve the required sales.

266 In cross-examination, Ms Kelly adhered to her affidavit and recollection that Mr Kelvin Brown had said at the meeting on 6 June 2011 that the debt had to be reduced by $3 million - $4 million by 30 June 2011. When Mr Portbury's letter of 2 August 2011 to Mr Kelvin Brown of the Bank was put to her, she agreed that she had drafted the letter based on Mr Portbury's instructions. This letter clearly stated that the debt reduction to be achieved was $2 million - $3 million. It was drafted by her at a time much closer than the trial to the date of the conversation on 6 June 2011. She insisted her "recollection" was correct and if she was wrong she was wrong.

267 I accept the evidence of Mr Kelvin Brown that at the meeting of 6 June 2011, the Bank representatives required the reduction of the debt by at least $2 million - $3 million by 30 June 2011, rather than the $3 million - $4 million suggested by Ms Kelly in her evidence. I also accept that the Bank representatives said that if a reduction in debt of this order was not achieved by Portbury by 30 June 2011, the Bank would take action to achieve the required sales. The Bank would take steps to sell assets of Portbury including the property by mortgagee sales. This was the substance of Plan C. Nonetheless, I also accept that Portbury had committed to implement Plan A as agreed with the Bank. There was no turning back from the auction of the property.

268 Mr Portbury adhered to his commitments to the Bank. On 7 June 2011, he put the property back on the market for auction on 29 June 2011. On 8 June 2011, an exclusive agent's authority was given to Knight Frank with an agent's estimate of sale price of $5.5 million to $6.0 million.

269 On 10 June 2011, Mr Sallman of the Credit Executive of the Bank stated in an email to Mr Kelvin Brown:

It is pleasing to see various forms of activity on the sites up for sale. The real test will be whether these progress into unconditional sales with material cash deposits. We need to be alert to any offer that involves terms settlements, and/or nominal deposits.

As discussed, whilst any sale within reason would be a positive, the client ultimately needs to get a sale away of a large parcel of land such that debt cab [sic] be reduced by $10 million or more. The Bank will take the vast majority of sales proceeds for permanent debt reduction, so the relief to the client will mainly be in the form of reduced monthly interest costs. As such, it is probably fair to say that the client will ultimately need to sell several parcels of land in order to achieve this.

270 Mr Sallman's email identified some of the key requirements of the Bank as at mid-June 2011:

(a) the Bank required unconditional sales with material cash deposits;

(b) the Bank did not want offers involving terms settlements or nominal deposits;

(c) the Bank needed debt to be reduced by $10 million or more;

(d) relief to Portbury would be mainly in the form of reduced monthly interest costs; and

(e) the sale of several parcels of land would be needed to achieve the necessary debt reduction.

271 On 23 June 2011, Portbury sold the Warragul property for $2.3 million plus GST with settlement due on 22 August 2011. Mr Kelvin Brown reported this sale to Mr Matthew Mattsson, Senior Manager, Strategic Business Services - Southern Region ('Mr Mattsson') of the Bank. He also reported that the property was expected to bring between $3.5 million - $5 million when auctioned on 29 June 2011. Mr Kelvin Brown advised Mr Mattsson that he had been told that the Portbury Group would be able to meet bank interest costs in full at month's end. In turn, Mr Mattsson recommended that subject to finalising the initial strategy the facilities be extended until 31 August 2011 pending a meeting with the customer to get a better understanding of serviceability issues and the debt reduction process.

272 On 28 June 2011, the day before the auction of the property, the extension of Portbury's bank facilities to 31 August 2011 was approved within the Bank. The extension of bank facilities to 31 August 2011 was at best a temporary reprieve. It did not alter the need to implement Plan A. Portbury's financial predicament remained largely unaltered.

273 There was doubt as to whether on the following day, which was the day of the auction, Mr Portbury was aware that the Bank had approved the extension of the facilities to 31 August 2011. He was not in Melbourne on 29 June 2011 and did not attend the auction. In cross-examination, Mr Kelvin Brown agreed that he communicated the decision to Mr Portbury and/or Ms Kelly. However, he could not recall specifically, and could not be certain. He agreed that the news was good news and important news. His expectation was that he would have told Mr Portbury or Ms Kelly.

274 I find on the balance of probabilities that Mr Kelvin Brown did tell Mr Portbury or Ms Kelly of the extension of bank facilities by the Bank on or prior to the day of the auction, and that if he told Ms Kelly she would quickly have told Mr Portbury. Mr Kelvin Brown attended the auction. While Mr Portbury was not at the auction, he was in regular communication through his mobile phone with Ms Kelly and would have been promptly informed by her of the extension of the bank facilities within a day or two of that decision.

275 The asset sales of the Portbury Group included the sale of the Warragul property on 23 June 2011 for $2.3 million plus GST with settlement on 22 August 2011. On 29 July 2011, Port-Trac Pty Ltd sold Lot 1, 2-4 Purton Road, Pakenham for $950,000 with settlement on 3 October 2011 and Lot 2A, 2-4 Purton Road, Pakenham for $1.6 million with settlement on 1 September 2011. By these sales and that of the property for $2.1 million, Portbury Group achieved asset sales of $6.95 million. In the letter of 2 August 2011, drafted by Ms Kelly and signed by Mr Portbury, it was stated that interest costs decreased by $46,234.00 per month. Portbury Group had achieved the Bank's requirement of $2.0 million - $3.0 million of debt reduction by 30 June 2011. It was implementing every strategy available to it to meet monthly interest payments, achieve further debt reduction and rebuild the financial strength of the Portbury Group.

276 In April 2011, Portbury and the Bank had adopted Plan A. Plan A involved the sale of the property by tender and auction. Mr Portbury said that the property was selected for the auction because it was more flexible and attractive than the Enterprise Road properties from a planning point of view - it had approval for 154 residential units and thus could be developed for residential or commercial uses. The property was the most attractive of the lots because of its pre-approval for residential development and more flexible planning status.

277 Mr Smirk gave evidence that Knight Frank was told that Portbury needed to secure the sale of at least one of the lots by 30 June 2011 due to pressure from the Bank. As a consequence, Knight Frank recommended a public auction of the property by the end of June 2011 given the time frame. It was not unusual to have an auction after an unsuccessful tender. The tender campaign often worked to maintain some interest and momentum in the market. As a result of the decisions to offer a single lot for sale, and to reduce the indicative sale price level to around $5 million, the list of identified target purchasers had been expanded to include a greater number of private developers and investors.

278 According to Mr Smirk, the other options were to continue private negotiations and take expressions of interest, conduct a more formal campaign with a 'deadline' or conduct an auction. An auction is more public and transparent, and the set date engenders a sense of deadline. As by early June 2011, there were no prospective buyers or negotiations on foot, Knight Frank had to stimulate interest, and achieve a result by 30 June 2011. In Mr Smirk's view, an auction was the best way to do this in the circumstances.

279 In his evidence, Mr Smirk said that it was not unusual to auction this type of property. Some years earlier, he auctioned a similar type of property on Princes Highway, Pakenham.

280 Based on a selection of names from Knight Frank's internal database, and that firm's knowledge of prospective purchasers:

(a) an email flyer for the auction was distributed to approximately 794 persons and organisations; and

(b) a different, smaller auction brochure was sent to over 1,850 prospective purchasers.

281 Knight Frank advertised the auction of the property by print and electronic media, and through boards on the property:

(a) the auction was advertised in The Age on 15, 22 and 29 June 2011;

(b) the auction was advertised in The Age Classified on 11, 18 and 25 June 2011;

(c) the auction was advertised in the Pakenham Gazette on 20 and 27 June 2011;

(d) the property was advertised on Knight Frank's website and as an elite listing on the specialist website for commercial properties known as realcommercial.com.au; and

(e) two advertising boards for the auction were erected on the property - one facing the Princes Freeway (Pakenham Bypass) and one facing Cardinia Road.

282 Knight Frank contacted prospective purchasers who had been contacted or identified during the tender campaign. The list for the auction sale of the property was a more targeted list than was compiled during the tender.

283 A new information memorandum was prepared for the auction. The information memorandum was entitled 'premium gateway development land'. It described the auction as a 'Realisation Auction'. The information memorandum contained an aerial photograph of the property featuring the Princes Highway and existing urban development. Significant roads and estates under development were identified. The information memorandum advised that the terms of settlement on which the property was offered included a deposit of 10% payable on purchase, with the balance payable in 60 days.

284 The information memorandum was a comprehensive and professional sales document. It contained an artist's impression of the proposed development, a description of the location of the property in the context of Melbourne's CBD, likely population growth forecasts, and a discussion of the provisions and effect of the structure plan.

285 Following its retainer to conduct the auction, Knight Frank quickly moved to complete the brochure and undertake advertising. The first advertisement was published in The Age on Saturday 11 June 2011.

286 On Wednesday 8 June 2011, Mr Smirk sought approval from Ms Kelly for the form of the press advertisement, brochure and on-site boards. He added:

In the context of pricing & the requirement to get a result prior to 30 June on a short settlement, we believe that (unfortunately) we will need to be pretty aggressive. In targeting buyers & responding to enquiries, it will be very much a case of 'generating initial interest first & working on price second' - particularly as we will be trying to convince someone to commit to a purchase in just 3 weeks. On this basis, we propose that we agree to a 'quoting' price range of $5 million +.

287 Mr Smirk had telephone conversations with Mr Facey about the auction. Mr Facey was emailed a copy of the contract and vendor's statement. Mr Smirk had several inspections of the property with interested parties including a group of Chinese developers associated with a firm of Camberwell accountants. Mr Smirk spoke to other people about the auction. There was not a strong degree of interest.

288 According to Mr Morris, Knight Frank had communications and conversations with various parties, including Mr Facey. As with the tender, it was difficult to get much interest in the marketing campaign for the auction.

289 While the auction terms were sixty days as noted in the information memorandum, Mr Smirk gave evidence that if a prospective purchaser wanted more time to settle, Knight Frank would have negotiated with them. As it happened, no potential purchaser asked for more time.

290 In or about early- to mid-June 2011, Mr Ottewell drove past the property, and noticed an auction board advertising the property for auction on 29 June 2011. He spoke to Mr Taing to inform him of the imminent auction and asked whether he was still interested in making an offer.

291 On the morning of the auction, Mr Smirk and Mr Morris spoke to Ms Kelly. They told her that they had no interest at $5 million. The only real interest was from Mr Facey. There were a number of other parties who had sought information concerning the property. However, when followed up, none indicated any strong interest.

292 About 20-25 people attended the auction. They included Mr Ottewell, Mr Facey, Ms Kelly, Mr Kelvin Brown, as well as Mr Smirk who conducted the auction and Mr Morris. A number of local real estate agents attended the auction. Mr Taing and Ms Li were not at the auction.

(c) a bid of $2 million from Mr Facey - the same level as the previous vendor bid.

The property was passed in after instructions were obtained from Mr Portbury, who was in contact with Ms Kelly by phone.

294 Mr Facey was the only genuine bidder. After the auction, he approached Mr Smirk. He said that he would go another $100,000, but that was it. Mr Smirk said he would go back to Mr Portbury and negotiate. Mr Smirk came back to Mr Facey and asked whether he would go anymore. Mr Facey declined. Mr Ottewell approached Ms Kelly after the auction describing the auction as "terrible" or words to that effect and expressing his concern.

295 On the night of the auction, Mr Smirk went to Mr Facey's home to seek a higher offer. On that night, Mr Facey signed a contract on behalf of Parklea for a price of $2.1 million. He gave Mr Smirk a cheque for $210,000 on the understanding that it would not be presented until Mr Smirk confirmed that Portbury had signed the contract. Subsequently, Mr Facey met with Mr Portbury at a coffee shop at the Pakenham Shopping Centre - Heritage Springs. Mr Facey told Mr Portbury that the $2.1 million offer was all that he was prepared to pay. Mr Facey offered another $100,000 if the Portbury Group were to sell its Michael Street property to him for $1 million. Mr Portbury considered that the Michael Street property was worth much more than that, and declined the offer. No agreement was reached at this meeting.

296 Mr Facey said he subsequently contacted Mr Smirk and said that he needed to know what was going on. The date of the receipt ultimately provided by Mr Smirk to Mr Facey for the deposit of $210,000 was 4 July 2011. Mr Facey did not recall when Mr Smirk advised him that the offer of $2.1 million had been accepted, but on the basis of the date on the receipt surmised that it may have been 4 July 2011.

297 There are some differences in the evidence as to the conversations that occurred following the auction between Mr Ottewell, Mr Smirk and Ms Kelly, and between Mr Kelvin Brown, Ms Kelly and Mr Portbury.

298 Mr Smirk says that Mr Ottewell called him after the auction on 29 June 2011. He had no conversation with Mr Ottewell before the auction. Mr Ottewell expressed his concern about the level of bidding and asked for price guidance. He claimed the property was worth considerably more. He advised Mr Smirk that he was hoping to find a replacement investor/partner for Mr Kosta and asked if Knight Frank would delay any action on the sale for a few days. Mr Ottewell indicated that he had a potential medical use for part of the site and had discussed an involvement with Mr Taing, an investor who owned a parcel of land further south along Cardinia Road. Mr Ottewell advised that he would get Mr Taing to call Mr Smirk. Mr Smirk advised Mr Ottewell that Knight Frank was under vendor's instructions to finalise a sale within 24 hours and that it was negotiating with a party from the auction.

299 On 30 June 2011, Mr Ottewell called Mr Smirk and requested that a copy of the contract and the vendor's statement be emailed to him. This was done. Mr Smirk confirmed that negotiations for the sale of the site were progressing and that Mr Smirk had not heard from Mr Taing. Mr Ottewell expressed his displeasure at the proposed sale price range.

300 Mr Smirk gave evidence that it was on 30 June 2011 that Portbury signed the contract to sell the property to Parklea for $2.1 million. Notes kept by Ms Kelly also record that the contract was executed by Portbury on the afternoon of 30 June 2011. Mr Taing did not ring Mr Smirk until 1 July 2011. He left a message as Mr Smirk was unavailable when he rang at 11:43am. Mr Ottewell called at 12:55pm to enquire as to whether Mr Smirk had spoken to Mr Taing. Mr Smirk advised Mr Ottewell that the property had been sold. Mr Smirk returned Mr Taing's call later in the day, and advised him that the property had been sold the previous day (30 June 2011). Mr Taing enquired whether the purchaser would consider on-selling the property. Subsequently, on 5 July, Mr Smirk spoke to Mr Taing and told him that the purchaser may consider selling subject to a number of conditions for the benefit of his adjoining landholding. He said that he would consider the matter further and may call back in a couple of days to discuss again. Later, Mr Ottewell called to enquire as to the status of the sale and Mr Smirk's conversation with Mr Taing.

301 On 6 July 2011, Mr Taing called and advised Mr Smirk that he was interested in the property and would like to buy it from Mr Facey. Mr Smirk advised that Knight Frank was not in a position to be involved in any subsequent transaction, and he (Mr Taing) would have to make direct contact with Mr Facey. Knight Frank had no involvement in the subsequent sale transaction.

302 Mr Ottewell said that after the auction he spoke to Ms Kelly, and told her that he could put her in contact with someone who would be willing to pay more than $2.2 million. She said to him that the Bank was giving Portbury real grief, and that Mr Ottewell had only one day to find an alternative buyer, not three. After speaking to Mr Portbury, Ms Kelly told Mr Ottewell that he was not to negotiate with her, but could speak to the auctioneer directly. Mr Ottewell confirmed that he subsequently rang the auctioneer, Mr Smirk and asked him to provide him with a copy of the s 32 statement for the property. According to Mr Ottewell, he said that he had a buyer, Mr Taing, willing to pay substantially more than $2.5 million for the property, and that this buyer had other large holdings locally. Mr Smirk forwarded the s 32 statement to Mr Ottewell, who on-forwarded it to Mr Taing that day.

303 Mr Smirk's diary entries show that Mr Ottewell's call to him was on 30 June 2011, as he deposed, and that Mr Taing did not make contact with Mr Smirk until 1 July 2011, the day after Portbury signed the contract to sell the property to Parklea. On 1 July 2011, Mr Smirk advised both Mr Ottewell and Mr Taing that the property had been sold.

304 In cross-examination, Mr Smirk confirmed that at 12:55pm on 1 July 2011 he told Mr Ottewell that the property had been sold. Prior to that conversation, he had had a call from Ms Kelly to confirm that the contract had been signed, and had advised Mr Facey accordingly. He stated that in his conversation with Mr Ottewell on 30 June 2011 he had not asked for, nor being given, Mr Taing's telephone number. This was because Mr Ottewell had advised that he was dealing with Mr Taing. Mr Taing was Mr Ottewell's associate, and it was for Mr Ottewell to get Mr Taing to call Mr Smirk. Mr Ottewell assured Mr Smirk that he would get Mr Taing to call promptly.

305 Ms Kelly gave evidence that after the auction Mr Ottewell approached her and said words to the effect that the auction was terrible. He advised her that Mr Kosta's wife had had a stroke, and that Mr Kosta had been diagnosed with leukaemia. He said that he was trying to find an investor to buy out Mr Kosta but needed time. He also said that the property was worth more than $2.1 million and suggested that he could raise $3.5 million. He needed a few days, and requested this time. Ms Kelly told Mr Ottewell that Portbury had to have a result by 30 June 2011, but that she would discuss it with Mr Portbury.

306 On 30 June 2011, Ms Kelly met with Mr Portbury to discuss what had transpired at the auction, and on the previous day. They also discussed the bid with Mr Kelvin Brown of the Bank to get a guide as to whether the Bank would be supportive of Portbury accepting Mr Facey's offer. Mr Kelvin Brown indicated that he personally thought that the offer was low, but could not say what the Bank's credit department in Melbourne would say. According to Ms Kelly, Mr Kelvin Brown had said "the boys in town would say take it". Given that three weeks earlier, the Bank had advised that if Portbury did not reach the debt reduction target it would commence mortgagee auctions, Mr Portbury and Ms Kelly believed that the Bank would not achieve a better result with a mortgagee sale. Portbury could use the proceeds of sale to reduce debt. On this basis, Portbury agreed to accept the $2.1 million bid. Subsequently, she executed the contract for Portbury and the deposit was banked.

307 After Portbury had accepted the $2.1 million offer, Mr Smirk contacted her to advise that Mr Ottewell had contacted him and requested contracts as he almost had an investor over the line. Ms Kelly advised Mr Smirk that it was too late as Mr Facey's offer had been accepted.

308 Ms Kelly first prepared notes of the events of 29 June 2011 - 1 July 2011 in early July 2011. In her notes, she does not refer to a statement by Mr Kelvin Brown that "the boys in town would say take it". She does refer to a statement by Mr Kelvin Brown that he personally thought that the offer was too low, "however he couldn't say what the Credit Department in Melbourne would say". The notes record the discussion between Mr Portbury and Ms Kelly to the effect that the Credit Department in Melbourne would probably achieve the same result if they had instigated the auction. In his evidence, Mr Kelvin Brown said that he did not recall having any specific conversation with Ms Kelly on the day of the auction or about the auction. He did recall saying that the result was fairly disappointing and below his expectation. The Bank was anticipating something near its valuation on the property which was for $4.4 million.

309 I accept that the day after the auction Mr Kelvin Brown expressed the view that the sale price of the property was "low" or "too low". I also accept that he said that he couldn't say what the Credit Department in Melbourne would say, as is recorded in Ms Kelly's notes of early July 2011. I prefer this account of what was said by Mr Kelvin Brown and I am not satisfied that he said that "the boys in town would say take it". Both Mr Portbury and Ms Kelly regarded the sale price as "low" or "very low".

310 Having regard to all of the evidence, I accept that the sequence of events leading up to the execution of the contract of sale to Parklea was as follows:

(a) After the auction, Mr Facey approached Mr Smirk and said that he would go another $100,000. Mr Smirk sought to negotiate with Mr Facey but without success. Mr Ottewell expressed his concern about the sale price to Ms Kelly after the auction.

(b) On the night of the auction, Mr Smirk went to Mr Facey's house. Mr Facey gave Mr Smirk the signed contract of sale and a cheque for $210,000 for the deposit on the basis that it would not be banked until Mr Smirk had confirmed that Portbury had signed the contract.

(c) Mr Portbury and Ms Kelly met and discussed the position. Mr Portbury and Ms Kelly had discussions with Mr Brown. Mr Brown stated that he personally thought that the offer was low but could not say what the Bank's Credit Department in Melbourne would say. Mr Portbury and Ms Kelly did not believe that the Bank could achieve a better result with a mortgagee sale, and considered that Portbury could use the proceeds of sale to reduce debt. They decided to accept the $2.1 million offer from Mr Facey. The contract of sale was executed by Ms Kelly on behalf of Portbury in the afternoon of that day and dated 30 June 2011.

(d) Mr Ottewell contacted Mr Smirk and requested a copy of the s 32 statement. He advised that he had a potential buyer in the form of Mr Taing. The s 32 statement was forwarded by Knight Frank to Mr Ottewell, who in turn forwarded it to Mr Taing.

(e) When Mr Smirk contacted Ms Kelly to inform her of Mr Ottewell's call, she advised Mr Smirk that it was too late as the other offer had been accepted.

(f) Mr Taing rang Mr Smirk at 11:43am. Mr Smirk was unavailable.

(g) Mr Ottewell rang Mr Smirk at 12:55pm, and was told by him that the property had been sold.

(h) Mr Smirk returned Mr Taing's call later in the day, and advised that the property had been sold the previous day. Mr Taing enquired whether the purchaser would be interested in on-selling.

(i) The deposit was banked by Knight Frank and a receipt issued to Parklea.

(j) Following a conversation with Mr Facey, Mr Smirk advised Mr Taing that the purchaser may consider selling subject to a number of conditions for the benefit of his adjoining landholding.

311 Mr Kelvin Brown gave evidence of Portbury's financial position as it related to the need to sell the property at auction:

(a) Under Plan A, the Warragul property and the property were to be sold by auction on 12 May 2011, and on 31 May 2011 (later deferred to 29 June 2011) respectively.

(b) A sale of at least $2-3 million had to be achieved by 30 June 2011.

(c) After 30 June 2011 "all bets were off as far as the bank assisting further".

(d) Portbury needed to sell further assets to get down to where the Bank was reaching its comfort level. It was an ongoing requirement that Portbury sell assets. That remained the case even after both the Warragul property and the property had been sold.

(e) Portbury ultimately needed to get a sale away of a large parcel of land so that its debt could be reduced by $10 million or more.

(f) The Bank's main concerns were around the gearing position, and servicing leading to the Bank's desire for Portbury to sell assets to reduce debt. Post-GFC valuations of Portbury's properties were decreasing with the result that gearing and LVR position were increasing to beyond the Bank's comfort level.

(g) The LVR level set for the Portbury Group had been 60%. The Portbury Group needed to achieve debt reduction to make servicing comfortable within what SSE was able to achieve on an ongoing basis.

(h) Interest cover was required for the interest accruing on the bank debt to be achieved by reduced monthly interest costs through debt reduction, and through expanding the profit derived from SSE's road maintenance business.

(i) While the sale of the Warragul property took some of the initial heat out of the situation, he was not sure how the outcome would have played out if the property had not also been sold.

(j) Terms settlements were not in the interest of the Bank.

(k) His expectation as to the sale price of the property was that it would be a bit of a margin under, or a bit of a margin over, the bank valuation of $4.4 million.

(l) After the global financial crisis, the Bank had stopped lending on englobo land, although not to the extent of 100%.

(m) Lending secured on englobo land when it occurred was scrutinised significantly more than before the global financial crisis. Other factors like cashflows came into play relative to any decision to lend with that asset class as a security. Gearing levels were substantially reduced from 70% (pre-GFC) to 40% (post-GFC). The basis of lending was significantly different.

(n) It became significantly harder for vendors to sell englobo land, as there was no demand in the market for that asset class and the Bank had stopped lending on that asset class.

312 For the last twelve years, Mr Taing has been in the business of buying and selling land, usually vacant land, mainly in Victoria. Over this time, he has been involved in the purchase or sale of approximately fifteen parcels of land with a total value of in excess of $100 million. Together with a partner based in Sydney, he owns vacant land at 365 Cardinia Road, Pakenham. This land was purchased approximately five years ago for $16 million. Its development potential is not as good as that of the property. It is located further from the Princes Freeway (Pakenham Bypass).

313 In about December 2010 or January 2011, Mr Ottewell called to say that he wanted to sell the property and asked if Mr Taing was interested. Mr Ottewell advised that Mr Taing could have the property for $6.5 million. From a conversation in about February or March 2011, Mr Taing understood that Mr Ottewell now sought $8.1 million. This was apparently a mistake in translation as Mr Ottewell actually had a valuation from Mr Rann of $8.1 million for the property which supported his asking price of $6.5 million.

314 In June 2011, Mr Ottewell rang Mr Taing to say that the property was going to auction. Mr Taing did not attend the auction. On 30 June 2011, Mr Ottewell rang Mr Taing and advised him that the property had been passed in for, as Mr Taing understood it, $2.5 million. Mr Ottewell told him that it was not too late to buy the property, and that he could make an offer that day.

315 On 30 June 2011, Mr Taing spoke to Ms Li, a director of a real estate company, Assets Australia Pty Ltd. He advised Ms Li of the result of the auction. Mr Taing obtained the agent's number from Mr Ottewell. He called the agent's number, leaving a message requesting the agent to call. This would have been on 1 July 2011. On the same day, Mr Ottewell called to advise that the agent had told him that the property had been sold. Mr Taing and Ms Li decided to offer the purchaser $3 million which they believed would give the purchaser an immediate profit of $500,000 (actually $900,000).

316 On 8 July 2011, Mr Taing and his son Huy Taing, and Ms Li met with Mr Facey to discuss the terms on which Mr Facey was prepared to sell the property to them. Mr Facey gave them two options. The first was a straight cash sale for $3 million without conditions. The second was a sale subject to planning permit for $4 million plus $2 million for civil works. No agreement was reached at this meeting.

317 On 16 July 2011, Ms Li sent Mr Facey an email in which she asked whether he would be prepared to sell the property at a price of $3,500,000 plus $2,000,000 for civil works subject to a planning permit. In turn, Mr Facey reiterated the second option viz a purchase price of $4 million plus $2 million for civil works, again subject to the granting of a planning permit.

318 On 23 July 2011, Ms Li and Mr Taing decided to take up the second offer of $4 million plus $2 million for civil works subject to permit.

319 By a letter dated 25 July 2011, Parklea offered to sell the property for $4 million subject to conditions. The conditions were in substance that:

(a) the purchasers would get a permit to build a private hospital, medical facilities and nursing home on the property;

(b) nine months would be allowed to obtain the permit. If the permit was imminent, the time limit could be extended to 12 months subject to performance conditions, i.e. lodging a plan with Council within 90 days, and for the purchaser to do everything possible to expedite the permit;

(c) settlement was within 30 days from the granting of the permit;

(d) Parklea would have signage rights for its development on the property facing the freeway, and the right to acquire Lecky Road which will be closed without objection from the purchaser;

(e) Parklea would service the property with electricity, water, sewer, and an access road as soon as services were brought up to the property. This was subject to the authorities, but envisaged within four years;

(f) when this was completed the purchaser would pay another $2 million; and

(g) when the property was settled, Parklea would lodge a caveat or require some other security for the $2 million.

320 A ten per cent deposit of $400,000 would be invested so that if the sale proceeded, the vendor would get the interest. If the sale did not proceed, the purchaser would get the interest.

321 Time passed, and on or about 10 October 2011, Mr Facey changed his proposal to a price of $5.5 million plus $500,000 for civil works. The deposit remained at $400,000. Ultimately, Parklea sold the property to Biltex by contract of sale executed by Biltex on 31 October 2011, and Parklea on 2 November 2011 for $5.5 million payable by a deposit of $400,000, and balance of $5.1 million on settlement. Settlement was due on 14 August 2012 or 14 September 2012 as provided in special condition 1.1. The contract of sale contained a number of special conditions negotiated between Ms Li and Mr Facey. The contract was guaranteed by Mr Taing, Ms Li and Ms Susan McDonald ('Ms McDonald').

322 The present directors of Biltex are Ms Li, Mr Taing, Ms McDonald and Philip Henry Hall ('Mr Hall'). Ms McDonald is the secretary of Biltex. There are 350 shares in Biltex held as to 75 shares each by Ms Li, Ms McDonald, and Mr Taing and as to 38 and 37 shares by Mr & Mrs Hilary Hall ('Mrs Hall') respectively.

323 Ms McDonald gave evidence that she had been a director of Biltex since 10 October 2011, and its secretary since 8 July 2013. She described her occupation as stockbroker. She has an interest in retirement planning dating back to 1987 with various organisations including as National Chairman of the Australian Retired Persons Association and the State Superannuation Board. She has been a retirement planning and superannuation consultant to major stockbroking firms. She is still working with her older clients as a financial planner, and is still involved in retirement planning, superannuation, self-managed super and stockbroking. She was first introduced to Mr Ottewell when he contacted her in 2004 following a radio program which she had given.

324 Ms McDonald first became involved in purchasing the property when Mr Taing and Ms Li were negotiating with Mr Facey about the purchase of the property. Mr Taing had a liquidity problem. She was asked to come in as an additional investor, and following that two of her friends, Mr & Mrs Hall also came in as investors.

325 When asked in cross-examination to describe Mr Taing's liquidity problem at the time, Ms McDonald said that he had a lot of money coming in, but a lot of mortgages going out. She was asked to come in and assist because of the liquidity problem. Ms McDonald said that she didn't know the details, but presumed that one of Mr Taing's projects had not gone as he hoped and he was temporarily a bit short. Ms Li and Ms McDonald put their respective 25% shares down first. Mr Taing subsequently did come up with his share. Mr Ottewell was appointed project manager of the development, although not contributing any money into the acquisition by Biltex. Mr & Mrs Hall are passive investors. Mr Hall is aged 89 years, and has been appointed Chairman of Biltex. Biltex has no other property interests.

326 When Biltex bought the property, it was intended that part of the property be developed for a hospital and related facilities such as doctors' rooms, rehabilitation and maternity facilities. It was also planned to develop the property with a hotel, and supported living apartments. Ms McDonald had completed previous projects with Mr Kosta and Mr Ottewell.

327 In cross-examination, Mr Ottewell said that Mr Taing had "ran into some trouble in his other projects, being green wedge, and delayed a bit". Mr Taing and Ms Li asked Mr Ottewell for help, and he approached Ms McDonald, and Mr & Mrs Hall. Together they put in $1.5 million cash. Mr Taing and Ms Li needed equity investors because they were having trouble funding the contract, and finding debt finance from a bank. Mr Ottewell agreed that at the time that Biltex entered into its contract and the variations of the contract, things hadn't really changed with the main lenders.

328 Mr Facey estimated that the signage rights over the property would be worth a quarter of a million dollars at least, but possibly as much as $1 million. This is a wide range of values. He thought the Knight Frank advertising campaign on the tender was fine. He considered the advertising campaign leading up to the auction was also okay. There was no question that the property was the most saleable lot to go to auction. It had very good exposure. It was the one that was more likely to be serviced easiest. It had a residential component and a commercial component that you could do a lot more with.

329 Mr Facey explained the position with civil works. Development of the property without adjoining development by Parklea of the Kaduna Park estate was very difficult. The provision of services to the property was dependent on the development of Kaduna Park. A private sewerage pump station was required at a cost of between $300,000 to $500,000. Drainage would have to be provided, and negotiated back through Parklea's land. Negotiations would have to be undertaken with VicRoads. Services such as gas have to come under the freeway. Development of the property was an expensive and difficult exercise if done alone by the owner. If you had to service the property on its own, the servicing costs would have been every bit of $2 million. Parklea was bringing the services up for the Kaduna Park estate. He didn't have the figure yet, but it could be $8 million to $10 million, some of which would be reimbursable by the authorities.

330 The contract was changed by Mr Facey to $5.5 million and $500,000 to provide for Biltex to pay more of the upfront services cost that Parklea had to pay. The $500,000 figure represents what it would cost to service the property or thereabouts once the services had been taken there to the boundary of the property. The property could not be developed without the provision of services. The logical way that services would be provided to the property was through the Parklea land. The effect of the contractual arrangements was to lock in co-operation between adjoining landowners.

331 In the months following the auction, Mr Facey experienced considerable delay in dealing with Mr Taing and Ms Li. In an email dated 10 October 2011 to Ms Li, he reiterated that "if you still wish to go ahead with the purchase of the property I need to have another meeting with you as it has dragged on for three months". He said: "I gave you nine months to obtain the Permit from the day of the sale and, as afar as I am concerned three months of that nine months has already gone." There was still no contract signed or agreement on the servicing. He wanted to know whether Mr Taing and Ms Li were still proceeding with the purchase at the revised price, and where they could meet.

332 Since the execution of the Biltex agreement at the end of October 2011, there have been a number of variations. By an agreement dated 17 February 2012, Parklea agreed to obtain all necessary approvals and complete works by 30 November 2015 or such later date as the parties might mutually agree for the construction of a road from Cardinia Road or the proposed Western Arterial Road together with road, stormwater systems, sewer, water supply and electricity. Subject to a cap of $100,000, gas infrastructure was also to be provided by Parklea. For its part, Biltex would pay $500,000 to Parklea payable as to $50,000 on the date of agreement, and $450,000 on the day when the project is completed. Second mortgage security over the property was to be provided by Biltex to Parklea.

333 This agreement was varied again by Parklea and Biltex on 14 September 2012, with Biltex agreeing by payment deed of the same date to pay $100,000 to Parklea within 14 days. By a deed of variation of contract also dated 14 September 2012, the time for payment of the balance of purchase price was extended to 1 November 2012. At this time, a stipulation whereby the contract was conditional on obtaining a permit was removed in favour of a special condition whereby Parklea agreed to sign any documentation required by Cardinia to assist Biltex in obtaining a planning permit from Cardinia to use the property as a medical centre, retirement village and assisted living facility.

334 A further variation of the contract of sale by Parklea to Biltex was executed on 20 December 2012. Biltex was now to pay $1 million on 20 December 2012, a further $500,000 on 10 January 2013, and balance of $3.6 million on 2 April 2014. Biltex was also to pay interest on the sum of $3.6 million at the rate of 8% per annum calculated from 20 December 2012 until settlement.

335 Effectively, Biltex has now paid Parklea over $1.5 million for the property with the balance of $3.6 million payable on 2 April 2014. Settlement is due on 2 April 2014. In the meantime, interest is running on the vendor finance provided by Parklea of $3.6 million at the rate of 8% per annum. Interest is payable by Biltex quarterly in advance. Biltex is continuing with its efforts to obtain a planning permit. While its development is looked at favourably by Cardinia, it still has to resolve the amount of developer contributions.

336 Parklea is proceeding with its Kaduna Park development. It is also in negotiation with Cardinia as to the amounts that it is required to pay. The GAIC contribution is $3 million for 1,000 blocks. The developer contribution plan will require $180,000 a hectare, and might amount to $5 million. It is a considerable amount. It will be 18 months, or two years, before Parklea is in a position to service Biltex. Parklea plans to start its civil works in January 2015 with an estimated construction period of nine months. Services will not reach the property before late 2015 at the earliest.

337 Valuation of the property needs to be approached with caution. The property is, and was on 30 June 2011, a greenfields site. It yields no income, apart from the insignificant rental obtained from a lease over a dwelling on the property. It will not yield income until it is developed, which is to occur at an unknown future date. The final form of development, and the associated development costs, are unknown.

338 The comparable sales valuation method is the principal method for valuation of the property, and was adopted by all valuers. However, its application presents considerable challenges. Prior to the global financial crisis, the englobo commercial and industrial property market around Melbourne was buoyant, with finance available to support speculative land banking. However, after the global financial crisis reached the englobo property sector, finance became virtually unobtainable, except from second-tier financiers on prohibitive terms. Property flooded onto the market, but there were very few buyers and even fewer transactions. Buyers tended to buy only englobo property available at prices very heavily discounted from those prevailing prior to the global financial crisis.

339 Valuation of the property at 30 June 2011 is a difficult task. It is ultimately dependent on the few comparable sales available in the post-GFC marketplace that involved large greenfields sites destined for future commercial, high-density residential or industrial development, desirably at Officer or Pakenham or similar locations. The valuers found that there were very limited sales of properties similar to the property near to June 2011.

340 I have some sympathy for the view of Mr Portbury that the value of the property as at 30 June 2011 is best set by the sale price of $2.1 million actually achieved in the sale to Parklea following the auction. That was the market on the day, as Mr Kirby put it. Nonetheless, I accept the evidence of Mr Leslie James Brown ('Mr Les Brown') that the sale at $25.00 per metre appeared "quite low". It was a sale that was out of the ordinary, and below expectations. Mr Christopher Edward Torr ('Mr Torr') did not consider that the sale to Parklea offered a reliable guide to the valuation of the property, as it did not meet the requirement that there be a willing but not anxious seller. It is necessary to look further afield than the sale to Parklea to determine the value of the property on 30 June 2011.

341 Four experienced valuers gave evidence as to the value of the property as at 30 June 2011. The valuers were Mr Les Brown, Mr Torr, Mr John Howard Castran ('Mr Castran'), and Mr Christopher Warren Rann ('Mr Rann').[125]

342 The valuations of the property as at 30 June 2011, in ascending order, expressed on a cash equivalent, GST-exclusive basis were:

(b) Mr Torr - $4,602,750 - $4,873,500;[126]

343 Mr Les Brown was first instructed by the defendants' solicitors on 3 August 2012 to assess the market value of the property as at 30 June 2011. His assessment assumed a cash value, i.e. a 10% deposit with the balance payable in 90 or 120 days. It proceeded on the basis that a planning permit had not been issued for the property, and that no compensation was payable for the land within the property that was identified as Special Use Zone 4 and intended for road widening.

344 Of the limited sales available, a number reflected the more buoyant conditions prevailing from 2005 to 2007. Mr Les Brown analysed the sale in February 2010 of 825 Princes Highway, Pakenham at a purchase price of $10.15 million over 7.853 hectares, or $129 per square metre. That property is zoned Urban Growth Zone, and was to be developed in part by a Masters Hardware Store (Woolworths) as well as a bulky-goods style development. This property was superior to the property in respect of location and development potential, given its 374-metre frontage to Princes Highway and the near-regular shaped site. It had the ability to be developed in the short-term as the surrounding development was already advanced. The analysis of this sale provided an upper limit for the value of the property.

345 The property at 285 Cardinia Road, Officer South was in proximity of the property and within the area of operation of the structure plan. It is 1.16 hectares in land area and regular in shape. The sale of this property in May 2008 for $87 per square metre should be adjusted downwards to reflect inferior market conditions and the significantly smaller land area. Mr Les Brown referred to other sales in proximity of the property back to 2005 and 2006, as well as more recent sales in the adjoining Officer Employment PSP area. He also had regard to industrial land sales within the adjoining South East Business Park.

346 Mr Les Brown assessed a value of $4 million for the property based on the future allowable uses.

(a) the inclusion of the property within the Urban Growth Zone 2 of the structure plan;

(b) the mix of commercial and high-density residential uses for the property under the structure plan;

(c) the long-term nature of the 18% of the property intended for high-density residential use. The development of the high-density residential land was reliant on the development of the surrounding land, particularly the Activity Centre immediately to the south;

(d) the fact that approximately 24% of the property cannot be developed and is set aside as encumbered open space, with no compensation payable in respect of this land;

(e) the considerable reduction in the market since early-2009, with buyers for commercial and industrial land being scarce and funding difficult to obtain;

(f) the property and the surrounding land being unlikely to be developed in the short- to medium-term, as demand for serviced commercial and industrial land has slowed due to uncertain market conditions; and

(g) he did not rely on the sale by Parklea to Biltex.

348 Whilst initially retained by Goldcare's solicitors, Mr Les Brown was called by Portbury's counsel to give evidence.

349 In cross-examination, Mr Les Brown was prepared to accept that some value should be ascribed to the 0.2 hectares of land set aside for the widening of Cardinia Road if compensation was payable in relation to it.

350 The period from 2007 to 2008 had been a buoyant period in the market, it was pre-GFC and there was a lot of speculation. Pakenham had seen the Princes Freeway (Pakenham Bypass) constructed and developers were positioning themselves for bigger things to occur. The residential market was doing well, and there was a view that the employment/industrial market would follow.

351 Mr Les Brown's valuation and approach is consistent with the evidence generally as to the state of the market and the unavailability of finance:

(a) it uses the summation method of valuation, adding the values of the respective areas of the property;

(b) it separately values the commercial, residential and open space components of the property by reference to their respective benefits and disadvantages;

(c) it recognises the deferred nature of high density residential land as against other residential land that is more proximate to services and activity centres, and therefore more likely to be developed first;

(d) it identifies that approximately 24% of the property cannot be developed and has been set aside as encumbered open space;

(e) it attributes value to each of the areas of land set aside for future use by reference to comparable sales; and

(f) it recognises that, by 30 June 2011, the englobo land market at Pakenham had slowed considerably and that buyers were very hard to find, with banks having ceased or largely withdrawn from lending on englobo land that was being sold or held for commercial or industrial use.

352 Mr Torr was instructed by the defendants' solicitors by letter dated 2 October 2013 to provide his opinion of the property in or about the period March to June 2011. The first day of the trial was 7 October 2013. He was instructed only five days prior to the commencement of the trial, and was not provided with all of the affidavits that would have assisted him in his valuation.

353 Mr Torr gave particular attention to the four sales of the property. They were:

July-07 (Wallace to Portbury): $4,200,000 cash contract

Dec-08 (Portbury to Ottedin): $6,500,000 on 12 month settlement. Sale did not settle.

Jun-11 (Portbury to Parklea): $2,100,000 cash contract.

Jul-11 (Parklea to Biltex): $5,500,000 on 12 month conditional settlement

354 Mr Torr considered that the global financial crisis had had a dampening impact on most market sectors from around late-2008, with industrial land faring the worst. He considered that the residential market continued to have momentum for some time after 2008, peaking around late-2010 to early-2011 and remaining somewhat subdued since then.

355 Mr Torr considered that the sales of the property, with the exception of the $2,100,000 sale to Parklea, were consistent with wider market trends. He had close regard to analysis of the other sales of the property. He also had regard to sales of other development properties in the area and, to a lesser extent, negotiations on such development properties.

356 Mr Torr's valuation proceeded on the basis of an unconditional sale with a deposit of 10% and the balance payable in two years. He included the proposed road-widening land at full value because this land would have had full commercial development prospects in the absence of the road widening. Compensation for the full loss of market value is payable to the land owner when it is acquired by the authority.

357 Mr Torr was cross-examined on 17 October 2013, the last day of the trial on which evidence was heard. He considered that the impact of the global financial crisis on the value of residential englobo land was different from its impact on non-residential englobo land values. There was an increase in the volume of sales and an increase in values up until 2010, and some decline after that. Equity markets felt the full impact of the global financial crisis during 2008, and bottomed out in early-2009. Property was slower to respond. Residential englobo land suffered a hiccup in late-2009, but then continued on to peak around 2012. Transaction levels in non-residential land dropped off in 2009, and then non-residential englobo land declined in value. Recovery started around 2011. Non-residential land that was further from development suffered the greatest decline. Land closer in time to the development horizon and closer in distance to the development edge suffered less.

358 The property did not fit easily into either a residential or non-residential englobo category - it had a residential component and was earmarked for commercial, rather than industrial, development. Whilst demand for housing lots remained modestly strong despite the global financial crisis, demand for non-residential end use dropped.

359 Mr Torr agreed that difficulty in obtaining finance had a tendency to drive prices down. There was normally a hiatus period of one to two years in which transactions did not take place. Vendors held their old price, whilst purchasers were not prepared to pay the old price.

360 Mr Torr's reliance on the Biltex transaction to establish the post-GFC level of values was strongly challenged by Mr Kirby in cross-examination. Mr Torr agreed that, when analysing future settlement dates, discount rates were not only a product of the cost of funds and the expectation of increase in value over the term giving rise to a netting effect on the discount rate, but were also dependent on the financial position of the purchaser. This called for a commercial decision about the risk weighting of the discount rate, which would partly depend on the amount of deposit already secured. Mr Torr acknowledged that the sale to Biltex was a conditional sale, and the condition represented an advantage to the purchaser. There was obviously a difference between a conditional sale that was subject to permit, and an unconditional sale. If a permit was not obtained, the contract could be rescinded. In final address, Mr Kirby pointed out that Biltex was a $300 company, and there were very real risks that Biltex might not complete, or might fail to meet conditions.

361 Under the structure plan, high-density residential development was defined as development of more than 100 lots per hectare up to three levels. High-density status was a two-edged sword. It was an advantage that development was more intensive. It was also a disadvantage as this type of use usually takes longer to reach commercial maturity within a growth area. Mr Torr did not ascribe either a premium or a discount to the residential component. In his view, there was no significant difference between the englobo values of the higher density residential land versus the non-residential land. While Mr Torr agreed that the rate of change of value of residential englobo and non-residential englobo were different, he ascribed a similar level of value to each.

362 Mr Torr considered that the dominant market in an urban growth area is the conventional standalone dwelling, which was vastly dominant because of the demographic of the people who buy in such an area. There is a different demographic of purchasers who look for two- or three-bedroom apartments. Only when first home buyers and new home builders have gone in, and the location has matured, will there be follow up demand for different types of accommodation.

363 Mr Torr agreed that the pre-GFC transactions were less relevant. Speculators and land bankers were buying, and prices for englobo land were going up significantly. After the global financial crisis hit, prices had generally come down.

364 In relation to the Parklea sale, Mr Torr was not provided with the affidavits of Mr Smirk and Mr Morris of Knight Frank, but only with the affidavits of Mr Ottewell, Mr Gillon and Mr Walton. He was not provided with the affidavits of Mr Taing or Ms Li as to the negotiation process leading up to the sale to Biltex. He acknowledged that the eventual signing of the Biltex contract was in early November 2011 rather than July 2011 as set out in his report. He appeared not to be aware of the initial figure of $2 million for services required by Mr Facey, or the later figure of $500,000 for services. He saw the affidavit of Mr O'Donahue concerning the provision of services only on the morning that he gave evidence.

365 Through no fault of Mr Torr, his valuation was prepared very quickly. He was not provided with all of the relevant affidavits concerning the property or the Biltex contract. Mr Torr's valuation:

(a) uses the summation method, although treating both the commercial and residential developable land as having the same value of $86.50 per square metre;

(b) ascribes neither a premium nor a discount to the residential component, notwithstanding Mr Torr's concession that the rate of change of non-residential englobo land values was different from that the rate of change in value of residential englobo land;

(c) is substantially dependent on the value derived from the sale to Biltex;

(d) did not take into account Parklea's retainer of signage rights in the sale to Biltex, which would likely reduce the sale price;

(e) encounters the significant difficulty that the sale to Biltex is a 'subject to permit' conditional sale. It has been varied and extended on a number of occasions and is yet to settle;

(f) assumed that the Biltex sale, on which he principally relied, took place in July 2011 as set out in his report, rather than in early November 2011;

(g) gives nil value for the 1.89 hectares of encumbered open space;

(h) needs to be discounted, having regard to the terms nature of his valuation, in order to be put on a cash basis;

(i) was prepared only shortly before the trial, which provided a limited opportunity to undertake research and analysis of sale transactions before giving evidence;

(j) was based on limited affidavit material, in that he was not given a number of affidavits relating to the development of the property and the nearby Kaduna Park estate, and the circumstances of the sale to Biltex on which he principally relied; and

(k) did not have the benefit of the affidavit of Mr O'Donahue as to the cost of services to the Kaduna Park estate and the property. Mr Torr sighted this affidavit only on the day of giving evidence at the trial.

366 Mr Castran analysed the Biltex sale of $5.5 million as representing a value of $67.50 per square metre. In his view, the comparable sales evidence indicated a spread of values from $69.00 through to $191.00 per square metre. This is a very wide range. Mr Castran calculated the value of the property during the period from March to June 2011 as having a value within the range of $70.00 - $90.00 per square metre - also a wide range. Adoption of a value of $70.00 per square metre led to a value of $5.7 million on a rounded basis.

367 The comparable sales evidence relied on by Mr Castran included properties at Clyde, Pakenham, Officer South, and Cranbourne. These properties varied in area from 1.112 hectares to 10.6 hectares. The four properties with the lower values ranging from $69.00 to $129.00 were in the Urban Growth Zone. The property that was analysed by Mr Castran as achieving the highest sale price of $191.00 per square metre was in the Residential 1 Zone.

368 Mr Castran analysed three sales of the property. Analysis of the sales of the property in December 2008 (Portbury to Ottedin), June 2011 (Portbury to Parklea) and November 2011 (Parklea to Biltex) produced rates of $79.75, $25.76 and $67.50 per square metre, respectively. In the case of the sale from Parklea to Biltex, if the value of the services component of the agreement of $500,000 were included,.

369 In cross-examination, Mr Castran was asked about the comparability of the sale at 825 Princes Highway, Pakenham, given that Woolworths was interested in the site for the purposes of building a Masters hardware store. He responded that there was no lease in place prior to the purchase, and that Woolworths had made no formal commitment to lease at the time of the sale.

370 He was also asked about his reliance on sales of the property, and the need to discount for terms sales of the property so as to put all sales on a common cash basis. Reliance on the sale by Parklea to Biltex was problematic due to the terms character of the transaction, the significance of the extensions and variations, the contribution to infrastructure and servicing costs - which changed from $2 million to $500,000, with a corresponding increase in purchase price - and the fact that the sale is yet to settle. The contract from Parklea to Biltex has now extended out over two-and-a-half years. There is still $3.6 million to be paid at settlement.

(a) was based on a wide spread of values derived from other transactions relating to developmental land;

(b) does not use the summation method and does not take into account the different uses to which different areas of the property might be put in the future;

(c) does not analyse the different components of the property or their significance in terms of the future development of the property;

(d) does not make any specific allowance for the 24% of the property that cannot be used and is encumbered open space;

(e) does not analyse the development potential of the commercial or high-density residential land that constitutes much of the property;

(f) does not attach any specific value per square metre to the commercial or the high-density residential land;

(g) does not consider whether any deferment in development is likely for the high-density residential land, having regard to the closer proximity of other current and likely future residential estates to facilities and services including the Kaduna Park residential estate, and other land owned by Mr Facey; and

(h) heavily relies on the sale to Biltex, which is problematic having regard to the terms character of this transaction, the variations and extensions, and the fact that this sale is yet to settle.

372 On 8 December 2010, Mr Rann gave a valuation of the property in the amount of $8.1 million. The valuation was in the form of a single page letter addressed to Mr Ottewell. Mr Ottewell had requested that Mr Rann confirm the maximum price that Mr Rann's firm would support by valuation for first mortgage purposes. The valuation referred to the structure plan and the specific location as having created a capital windfall for the owner of the asset. However, the development horizon and development contributions remained an impediment to the site and its liquidity.

373 On 27 July 2012, Mr Rann swore an affidavit in which he stated that although he had not conducted any further research to enable him to provide a definitive expert opinion as to the value of the property, he would not have anticipated any material drop in the value of the property between 15 December 2010 and 30 June 2011. Mr Rann then prepared a letter of 10 October 2013, in which he expressed the view that 2007 was the peak of the recent real estate cycle. In his view, demand for englobo land continued into 2010, partly on the back of Federal Government stimulus packages provoking already strong demand. Since around 2011, rates of sale almost ceased and financial institutions retreated from providing finance following risk profiling and lack of available liquidity. Without bank funding, the only market participants in 2011 were wealthy individuals or syndicates not beholden to a bank.

374 Mr Rann stated that he was now aware that a developer purchaser would be liable for connection fees of approximately $700,000 on top of the GAIC, as well as holding expenses over an uncertain development horizon, which was now understood to be beholden to a neighbouring entrepreneur. As a result, he now adopted a reduced assessment, which he rounded to $6.75 million. Previously, he had assumed that all services were available to the property, but was now aware that this was not the case. On this basis, a prudent purchaser would have made an allowance of $700,000 as a contingency, or an allowance for risk.

375 Mr Rann gave evidence that his practice was to provide preliminary valuation advice, which was followed at a later stage, if requested, by a full comprehensive report. Mr Rann did not refer to any comparable sales in his letter of preliminary advice. He had been told that the property had all services and conducted his initial valuation on this basis.

376 In an email sent on 15 December 2010, Mr Rann said to Mr Ottewell that "Parklea is the key to getting Cardinia Road going by way of headwork and, knowing Andrew Facey, he will capture as much local market interest before you can get a sniff."

377 Mr Rann acknowledged that, as a result of the global financial crisis, industrial englobo land and englobo land zoned for employment reduced in value by probably 60%.

(a) commenced with one page of preliminary advice, undertaken without referring to, or apparently analysing, any comparable sales information;

(b) was initially based on a serious misunderstanding that the property was fully serviced, whereas the property had an uncertain development horizon beholden to a neighbouring entrepreneur over which holding expenses would be incurred as well as connection fees of $700,000 on top of the GAIC;

(c) was completed without full information or details;

(d) did not analyse or sufficiently take into account the effect of the global financial crisis on englobo property values and sales;

(e) reflected a change of heart on his part, as he initially determined the valuation to be $8.1 million in December 2010, giving the opinion on 27 July 2012 that he would not have anticipated any material drop in the value of the property between 15 December 2010 and 30 June 2011, and later giving a valuation in the amount of $6.75 million;

(f) does not use a summation method, nor specifically consider the value of the commercial or high-density residential components of the land;

(g) does not make any specific allowance for the 24% of the property that cannot be used and is encumbered open space;

(h) does not attach any amount to the value of the commercial or high-density residential land having regard to the closer proximity to facilities and services of other land to be developed for residential purposes, including land owned by Parklea. This was despite his view on 15 December 2010 that Parklea was the key to getting Cardinia Road going, and that Mr Facey would capture as much local market interest as possible "before you get a sniff"; and

(i) did not reflect his own evidence and opinion that, as a result of the global financial crisis, englobo land zoned employment or industrial had gone down in value by probably 60%.

379 I accept the valuation of Mr Les Brown. In my view, this valuation adopts an appropriate valuation methodology and best addresses market conditions in the Pakenham area for englobo land at the relevant date.

380 Mr Les Brown's use of the summation method and the separate valuation of the different areas of the property having regard to their future land use is, in my view, the most reliable and accurate way of valuing the property. Clearly, future commercial land and high-density residential land need to be considered separately having regard to their different values and different rates of change in values. In addition, it is very significant that around 24% of the property cannot be developed and must be set aside as encumbered open space.

381 Mr Les Brown gave proper consideration to the likely deferral of the high-density residential land. The further the high-density residential land is from facilities such as activity centres and community services, the longer the deferral. High-density residential development is preceded by the development of conventional residential subdivision, and by the development of associated activity centres. It is only when these facilities and related services are completed that high-density residential development may be contemplated. High-density residential land on englobo estates can be expected to be developed at a significantly later date than conventional residential subdivisional land in the same area.

382 Another helpful guide to the value of the property is the evidence of the developers themselves as to the market conditions prevailing in and around June 2011. Mr Facey was extremely familiar with the Pakenham englobo land market. He considered that there was a 50% difference between the current market and that which existed pre-GFC. There was no doubt that the value of non-residential englobo land had fallen greatly since the global financial crisis and that the englobo land market was illiquid, with banks withdrawing from lending even at reduced LVR ratios.

383 I accept Mr Les Brown's valuation of $4,043,000, which he rounded down to $4 million. In one almost insignificant respect, I consider that Mr Les Brown's valuation may be conservative. That relates to the 0.02 hectares of land to be taken for road widening. Were this 200 square metres of land not required for road widening purposes, it would have been commercial land and worth $750,000 per hectare or $15,000. Compensation would be payable in respect of this land when it was compulsorily acquired for road widening. This would make Mr Les Brown's valuation increase to an amount of $4.058 million. This value is significantly greater than the $2.1 million for which the property was sold to Parklea. The difference between the valuation of the property for $4.058 million and the $2.1 million realised is $1.958 million. I will consider why the price obtained for the property was less than its market value at that date, as well as whether this is the responsibility of Portbury.

The effect of the Global Financial Crisis on the resale of the property

384 Portbury retained Knight Frank, leading estate agents, and one of the big four agents in Australia. Knight Frank were retained by Mr Kosta on behalf of Goldcare on 22 December 2010, and then by Portbury on 18 March 2011. Mr Kosta and Portbury were well served by very experienced and professional partners and managers within Knight Frank. Knight Frank conducted well planned sales campaigns supported by substantial marketing and advertising funds provided by Portbury. Yet the tender campaign attracted no interest, and the auction sale attracted only one genuine bidder. The property sold for a low price that was substantially less than its value. Why was this so?

385 The principal cause of the successive failures of the tender campaign, the auction campaign and the low sale price ultimately achieved was not any misdeed or failure by Portbury. Nor was it any marketing or advertising mishap or oversight by Knight Frank. The paramount reason for the lack of success in finding a purchaser willing to pay market value for the property was that there simply were no such purchasers to be had for most or all of 2011. This was a direct consequence of the unavailability of finance from banks and lending institutions for the purchase of englobo development land, particularly land like the property, which was further from the development horizon. Non-residential land was viewed in the market with greater disfavour than land intended for conventional residential end use.

386 Evidence as to the cataclysmic impact of the global financial crisis on the englobo land market in and around Pakenham in 2011 was given by parties, developers and valuers alike. It was confirmed in the evidence of Mr Leigh Brown of the Bank. Lending institutions would not lend on the security of englobo land, or would lend only on prohibitive terms with high servicing costs. The englobo land market, which had risen strongly in previous years on the basis of land banking and speculative land purchase, fell sharply. Only persons such as Parklea and Mr Facey - with independent property, financial resources and cash flow - had the capacity at this time to buy englobo development land. Even then there was not a lot of interest. Others dependent on finance found that funds were unavailable, that LVR ratios were reduced very significantly, or that co-venturers and partners had scant interest in land that produced little or no return and would not be developed for many years.

387 Mr Kosta, an experienced developer, could not obtain finance to settle the purchase of the property other than on prohibitive terms from a second-tier lender in December 2010 and January 2011. He graphically described how he and Mr Ottewell "went to all the banks" who "nearly sent [him] broke with a development of a retirement village". When money was needed for construction, it was refused because the banks were in financial crisis, and wanted back the money already lent on partially developed land. He described how none of the four major banks or smaller banks such as Bendigo Bank or the Bank of Queensland would lend money on development land because of the financial crisis. Even with the assistance of the finance branch of his solicitors, the only finance available was from Viking in Sydney, and even then on the basis of unacceptable terms and exorbitant costs.

388 Mr Ottewell gave evidence of his own approach to the Westpac Bank at the end of 2010 through a contact in the finance staff of that bank. The answer was that the Westpac Bank was not doing greenfields sites - they did not have an appetite for it. At that time, they were not lending on englobo land, and it was clear that lending conditions had changed for the worse since the property was bought in 2008.

389 Mr Facey was aware that the Bank was pushing Portbury when he bought the property in June 2011. He described the property market in the area of Pakenham in the second quarter of 2011 as being "very tough" and stated that it was greatly different from the market of 2007/2008, before the global financial crisis hit. Based on other sales in the area, he estimated that there was a 50% difference between prices obtained pre-GFC and those prevailing at the time he gave evidence. The industrial/commercial market in particular had taken a dive around four years ago. He described the state of the market for englobo development land in 2011 as very difficult and very hard. There were no buyers around. This was reflected in the attendance at the auction. The market in mid-2013 was much the same as that in mid-2011, but starting to pick up.

390 Mr Kelvin Brown described how, post-GFC, the Bank effectively stopped lending for the asset class of englobo land. Land banking without an income stream became very difficult. There was no demand in the market for the englobo land asset class, and it became significantly harder for vendors to sell that type of property. As a result, there was a policy change within the Bank relative to the asset class of englobo land: englobo land was scrutinised significantly more; pre-GFC gearing levels of up to 70% were reduced post-GFC to 40%. The basis of the Bank's lending practices was significantly different post-GFC. Mr Frazer and Mr Sallman, senior credit executives with the Bank, took a similar view of the situation, expressing concern in February and March 2011 about what they viewed as the Bank holding "essentially illiquid security".

391 The valuers all recognised the massive impact that the global financial crisis had had on the Pakenham englobo land market as at 30 June 2011. Mr Les Brown said that buyers were very hard to find with banks having ceased or largely withdrawn from lending on englobo land sold or held for commercial or industrial use. Mr Torr stated that non-residential land further from development had suffered the worst. There were not many englobo sale transactions going on after the global financial crisis. Transactions of commercial/industrial land dried up to almost a negligible level. Englobo residential land was down less than 15%, although Mr Torr did not give a figure for high-density residential, which could be expected to be more significantly affected than conventional residential. Mr Castran said that the market had turned. If the banks aren't lending, the vendor has to become the bank. Mr Rann referred to the fact that over the period from December 2010 to June 2011, there were very few sales of englobo land. He considered that demand for englobo land continued into 2010 partly on the back of Federal Government stimulus packages. However, in 2011, rates of sale almost ceased and financial institutions retreated from providing finance following risk profiling and lack of available liquidity. In 2011, a lot of his clients who required valuations were told that banks were reducing their LVRs from 50% to 20%. If they looked at an application for a new loan, the banks said they weren't interested. A lot of the major banks were not lending on englobo land at all, while a bank that was only going to lend 20% of land value required the buyer to come up with the other 80%. He considered that the only market participants in 2011 were wealthy individuals or syndicates that were not beholden to a bank. Some of those market participants were clients of his office, and were only purchasing assets on their own terms. In the circumstances, Mr Rann considered that Mr Facey was likely one of only four prospective purchasers to whom the property could be promoted.

392 Mr Smirk stated that, since 2009, the preparedness of major banks to undertake the financing of commercial and industrial property in Australia had reduced significantly. As a consequence, it had been very difficult for developers and purchasers to buy those types of properties, particularly vacant land that offered no holding income and may take some considerable time to develop. In his experience, in 2011, lenders were reluctant to finance developers and investors who were engaged in land banking. Bankers and financiers were not keen to lend to land bankers, especially as the properties were not generating income and were longer term, more risky developments. Mr Smirk described the market conditions for englobo transactions in 2011 as very difficult. Funding was almost impossible to get for many developers from any of the major sources.

393 Mr Morris said that Knight Frank was completely surprised by the lack of interest in the properties, and the potential opportunity that those properties would have in the future. The lack of interest continued over quite a few months and was probably one of the softest periods in the market. By the end of the tender process, Knight Frank's expectations had certainly been substantially lowered.

394 Mr Gillon, a property owner and developer of englobo land for over 50 years, described the global financial crisis as creating a bad period from 2010, during which prices reduced considerably. If you were still holding land at that stage, you would expect it to be worth a lot less. Purchasers couldn't borrow and, like a lot of other developers, the Gillon Group had to help people buying the land to extend their terms on penalty interest and any other method that they could. Banks were revaluing properties downwards and were not lending on these types of properties. Lots of builders who were trying to develop houses on the properties weren't able to finalise their contracts. While the market was tough in 2009, by late-2010 and into 2011, the market was very, very bad for obtaining finance.

395 Mr David O'Callaghan ('Mr O'Callaghan'), an experienced estate agent and expert witness - including as to the sale and disposal of englobo development land, clearly described the effect of the global financial crisis on the market for englobo development properties, stating that "[t]he soft nature of market conditions in mid 2011 meant there was very little appetite to buy speculative development sites." He said:

The unsuccessful outcome at the close of Tenders [sic] was a very common one for development sites across Melbourne in 2011 and 2012. The Global Financial Crisis struck late 2009 and by early- to mid- 2010 the Australian Banking Sector had a dislike for commercial and residential development property. Throughout 2010 and particularly during 2011, the number of development sites offered for sale by tender, expressions of interest and auction was unprecedented since the Recession of the early 1990's [sic]. Few of these properties met with success.

396 As to the attitude of the banks, Mr O'Callaghan said:

Banks took an aggressive stance to problematic property debt in the early 1990's [sic] and exercised their Mortgagee rights at will. The effect was devastating for property values as the limited pool of capable buyers picked over the distressed offerings.

Throughout the Global Financial Crisis Banks also took a very firm hand with their property clients however this time they elected to indirectly control the process. Vendors still 'controlled' their property but were under no illusions that the Bank wanted its money, and quickly.

...

It is evident that a flood of development sites and en-globo [sic] land was on the market in 2011, all chasing a significantly smaller pool of buyer than 12 months previously and substantially less than the levels of 2005-2009 (before the GFC impacted Australia's property markets).

397 Mr O'Callaghan described the property and development site market over the period of 2010-2012 as one of "shifting sands". There was a dearth or lack of transactions occurring, and it was very difficult to know where the market for this particular product was at this particular point of time. Agents were projecting outcomes using historical data. In hindsight and with the lack of transactions, properties were over-quoted, but at the time these quotes were based on sales that had occurred before the global financial crisis hit, and there were probably fair reasons to have arrived at those quotes.

398 The withdrawal of bank finance caused a steep decline in the market for englobo properties in the Pakenham area. Mr Torr said that normally what happens when banks aren't lending is that there is a hiatus period of one to two years during which transactions stop happening. Vendors hold their old price and purchasers aren't prepared to pay it, so there is a gap between them, and transactions don't take place.

399 Mr Torr's evidence of the effect of the withdrawal of bank lending for englobo properties is illustrated by the pricing of the property for sale over the period from late-2010 to 2011. In late December 2010, Mr Kosta retained Knight Frank to try to sell the property on an agent's estimate of between $6.5 million and $6.8 million, whilst in March 2011, Portbury first retained Knight Frank to sell the property on an agent's estimate of between $7.5 million and $8.25 million. It was rapidly apparent that there was little market interest in the property at all, let alone at these prices. After the experience of the tender process, the agent's estimate of selling price was reduced to $5.5 million to $6 million in the auction authority signed on 8 June 2011. Shortly thereafter, the selling price was reduced on the agent's advice, in the context of the forthcoming auction, to a quoting price range of $5 million plus. Subsequently, there was no market interest in the property at $5 million, and the only interest was from Mr Facey, a buyer with independent resources, who had a special interest in the property because of his large adjoining land holdings. Even so, he was only interested in the property at $2.1 million, after Knight Frank had proposed a vendor's reserve of $2.5 million. In these proceedings, it is apparent that the defendants still harbour the view that significantly higher prices were achievable despite the market conditions of 2011 and the effective withdrawal of bank financing for the purchase of englobo properties.

The defendants' criticisms of the resale and the resale process

400 The defendants must show that Portbury either failed to mitigate or did not act reasonably in the resale process and that, as a result, a higher price for the resale of the property was not achieved. Further, they must prove the amount or quantum of loss that resulted from the failure to resell the property in the way that it should have been resold.

401 The main criticisms of the resale process were that:

(a) the attempted resale of the property by tender involved offering the property for sale with the four Enterprise Road properties;

(b) the tender campaign was too short and was inadequately advertised;

(c) the tender should have offered longer terms than 180 days;

(d) the auction process was seriously flawed and unreasonable;

(e) possible purchasers, such as Mr Taing, were not followed up; and

402 The defendants relied on expert evidence from Mr Castran and called evidence from Mr Gillon, Mr Taing, Ms McDonald and Ms Li, whom they said were potential purchasers of the property from Portbury. They also identified a number of other persons who they claimed to be possible purchasers.

The defendants' criticisms of the tender process

403 The main criticisms made by Mr Castran as to the tender process were:

(1) the property should not have been offered for sale with the four Enterprise Road properties described by Mr Castran as "ugly stepsisters";

(2) the marketing focus of the tender campaign was on selling all five properties, and this distracted from the focus from selling the property;

(3) the tender campaign was too short and inadequately advertised;

(a) it should have been of a minimum six week duration;

(c) the 22-day advertising campaign was too short to enable buyers to conduct sufficient due diligence;

(d) a minimum four-week advertising campaign was required;

(e) some of the advertising showed an incorrect tender closing date; and

(f) the advertising was misdirected to larger advertisements, rather than smaller but more numerous advertisements with greater penetration.

404 Mr Castran considered that the tender should have offered longer terms than 180 days. The sale terms needed to be consistent with the terms that prevailed for englobo land, which was commonly sold on extended terms. The reasons for this were the risks associated with the planning process, lending and land tax issues, timing issues in relation to GAIC payments and the fact that infrastructure requirements may render the subject property incapable of being economically developed until surrounding lands in other ownerships are also developed.

405 Mr Smirk stated that a budget of $50,000 plus GST for the tender campaign was quite a generous and substantial budget allowance. Knight Frank conducted marketing campaigns for properties with substantially higher values on a budget of less than that amount. He considered that the marketing campaign for the tender was a good campaign, with an adequate budget, that was effective in getting to the market that Knight Frank wanted to reach. The brochure was a far more expansive and expensive brochure than Knight Frank would normally produce, and included photographic imagery to promote the attributes of the land. Whilst the number of insertions in the Age and the Financial Review was reduced from what was originally planned, the size of advertisements was doubled to two-and-a-half times the size that was originally recommended. Their prominence in newspapers would have been significantly greater, and would have attracted the interest of the target market. Mr Smirk stated that, at the time, the influence of press advertising was declining in favour of online marketing and more direct approaches to targeted buyers.

406 Mr Morris said that, as part of the tender campaign, individual prices for lots were quoted. If someone rang up, and was interested in an individual lot, a price was quoted for the individual lot, and there were a couple of parties who were interested in individual lots. The majority of enquiries, he said, came from e-brochures and eflyers, generally within the first week or two of a campaign.

407 Mr O'Callaghan, gave evidence that Knight Frank adopted a campaign of marketing and presentation that accorded with what was appropriate in the circumstances. In Mr O'Callaghan's opinion:

Knight Frank's components of media advertisements, brochure, recognised websites, on-site signage, direct mail, and a thorough, extensive Information Memorandum were of a very high standard.

408 Importantly, Mr O'Callaghan considered that the settlement period of up to 180 days advertised in the agent's information memorandum for the tender process was in line with industry standards and was acceptable. He stated that a buyer would dictate its own preferences, irrespective of what a vendor wanted. When the market is strong, vendors can ignore such pleas. However, with the market conditions what they were in 2011 for the property, the vendor was able to be forced to accept terms of sale that it didn't want.

409 Mr O'Callaghan calculated that, of the total of 50 enquiries, 58% came from the initiatives of Knight Frank by directly contacting some 29 parties, while only 8% or four enquiries were generated by press advertisements. Additional press advertising may not have altered the response. There were very few englobo land sales around Melbourne in 2011. Of those englobo properties that were offered for sale, the clearance rate was very poor, and it remains poor.

410 Mr O'Callaghan considered that the use of the tender process for all five lots would have diversified the opportunity for interested purchasers, as it gave them the flexibility to bid on all or some of the lots. He found that the tender process generally allowed the vendor to dictate to the market the flexibility that is to be available in terms of offers. As such, it was open to purchasers who did not accept the vendor's terms to submit a non-conforming tender and enter into negotiations.

411 Mr Facey, a very experienced estate agent and developer, received the information memorandum. He was well aware that the property was being offered for sale, and thought that the Knight Frank advertising campaign was fine. The reason he did not participate was that he was "not keen on tenders".

412 I am not satisfied that the tender campaign or the tender process was unreasonable or deficient in any way. To the contrary, Knight Frank's campaign, led by Mr Smirk and Mr Morris and assisted by Mr Neville as director of industrial sales within Knight Frank, was of a very high quality and standard. The offering and marketing of the four Enterprise Road properties with the property meant that the marketing and advertising budget that was available was considerably higher than what could have been spent had only the property been offered for sale. This was a substantial advantage. Moreover, marketing of the property with the nearby Enterprise Road properties gave a possible purchaser options to buy all, or any one or more of the properties. The added flexibility was a significant advantage of the course adopted. Purchasers of englobo estates are sophisticated investors wishing to purchase land for future development for very considerable sums; typically millions of dollars. They are well aware of their capacity to negotiate with vendors to achieve the outcomes and conditions that they desire. They were certainly well able to distinguish between the possibilities of purchasing all or one or some of the lots. They were well able to negotiate on their own terms - particularly in the englobo property market of 2011.

413 I do not accept that the possible sale of the property was prejudiced by presenting a portfolio of five properties rather than one, or that tender campaign lost focus, or was distracted from the focus of selling the property. The information memorandum is very attractive and graphic and refers unambiguously to all of the properties as "being offered for sale either in one line or separately". An excellent, large aerial photograph clearly depicts and identifies the property. All of the Enterprise Road properties are also clearly indicated in the foreground of this photograph, which astutely shows existing development estates of other developers in the background together with the Pakenham township, retail centre and Princes Freeway (Pakenham Bypass). There is no doubt that, had any potential purchaser shown any serious interest in the property or in any of the Enterprise Road properties, Knight Frank and Mr Portbury would have negotiated for the sale of that property. In fact, there was only one party, the Gillon Group, who expressed any interest.

414 The position would have been no different if only the property had been offered for sale by tender. Whilst the marketing campaign would have been significantly smaller, the result would have been the same. The number of lots offered was not the problem - the problem was that, because of the economic conditions following the global financial crisis, banks had withdrawn from lending on the purchase of englobo land - and particularly land distant from the development horizon, such as the five lots offered for sale.

415 Similarly, the length of the tender campaign and the terms offered were not the problem. I am satisfied that, if the advertising campaign had been extended by a week or more, the result would have been no different. As Mr O'Callaghan pointed out, only 8% (four) of the 50 enquiries recorded were generated from the advertising campaign. No party said that more time was needed to submit a tender. No party said that different terms and conditions were required if they were to submit a tender. The tender brochure explicitly stated that "[f]lexible settlement terms" were available. This reflected Knight Frank's position of accommodating possible interested parties. In his email to the Gillon Group on 23 May 2011, Mr Morris advised that Portbury would accept an offer of $14.8 million plus GST with settlement in 120 days, or alternatively $16.5 million with settlement in 12 months. It is plain that the terms of settlement were negotiable as part of a sale, and it is notable that Portbury was willing to offer terms of 12 months - the same settlement period as the original sale contract to Ottedin.

416 As to the incorrect tender closing date, which is said to have been shown in some of the advertising, I am satisfied that this had no material effect on the tender campaign. Review of other available material, or a call or email to Knight Frank, would rapidly have revealed the correct position. There was no party who submitted an expression of interest late or was confused or misled.

417 I am not satisfied that Portbury failed to mitigate or acted unreasonably in any way in the tender campaign. To the contrary, Portbury retained a large and well-known firm of estate agents, whose leading personnel were very experienced in campaigns of this nature. They conducted themselves competently and diligently. It is not without significance that Knight Frank was the same firm of estate agents chosen by Mr Kosta when he gave instructions in December 2010 for the property to be sold.

418 I am not satisfied that the suggestions made by Mr Castran concerning the tender campaign would have led to any better outcome, or that any loss has been shown as a result of what was done. The purchasers were not in the market for reasons that had nothing to do with either the parties or the way in which the tender campaign was conducted. Rather, it had a lot to do with the impact of the global financial crisis and much to do with the effective termination by banks of lending on the security of property in the englobo land sector, which led to a very soft market that was largely devoid of potential purchasers. None of the measures suggested by the defendants would have altered this situation in any material way.

The defendants' criticisms of the auction process

419 The defendants contended that the auction process was flawed and unreasonable for reasons that may be summarised as follows:

(a) Knight Frank's recommendations on how to market the property after the failed tender campaign should have been followed. Auctions will not work unless there is a competitive environment, and englobo land would not normally be sold by auction but by tender or expressions of interest.

(b) The advertising period for the auction was too short, and advertising was deficient.

(d) The advertising lacked national presence, and failed to offer extended terms.

(e) The auction was advertised as a realisation auction.

(f) There was insufficient follow-up with persons who had expressed interest during the tender campaign.

(g) The auction should have been cancelled after the Bank's decision to extend Portbury's facilities on 28 June 2011.

(h) A sensible reserve price should have been set having regard to the market value of the property, and the property should not have been sold for less than the reserve.

(i) Parklea's offer was extremely low and should not have been accepted.

420 Mr Castran considered that the auction process was too short, that extended terms should have been offered in excess of 12 months and that the auction should not have been described as a realisation auction. He suggested an expression of interest campaign rather than an auction.

421 Portbury was placed in a parlous financial situation by the defendants when they defaulted on the varied sale contract and associated guarantees on 17 January 2011, and when they failed to remedy the default under the first rescission notice.[127] Portbury would never have been such a financial position had it not been for the default. Its debt to the Bank would have been significantly less, and it would have incurred reduced holding and servicing costs. It would have used the settlement monies to repay debt, reduce its LVR to the Bank, and reduce its servicing costs to about $100,000 a month. Because of the default, it was necessary to resell the property at a very difficult time in a soft market.

422 Portbury was committed to the Bank to implement Plan A. A failure of Plan A would likely result in mortgagee sales of property by the Bank under Plan C.[128] It was placed in what Mr Kelvin Brown described as a quasi-workout situation. Under Plan A, Portbury was required to auction the property on 31 May 2011 (later 29 June 2011). It was also obliged to auction the Warragul property. The funding provided by the Bank extended until the end of June 2011, after which date "all bets were off as far as the bank assisting further". At the meeting of 6 June 2011 with Mr Wood and Mr Kelvin Brown, Mr Portbury and Ms Kelly were instructed to achieve a debt reduction of at least $2-3 million by 30 June 2011. A sale of the property at the auction in June 2011 was expected. In addition, as the email from Mr Sallman to Mr Kelvin Brown of 10 June 2011 made clear, the Bank required unconditional sales with material cash deposits and was alert to any offers that involved terms settlements or nominal deposits. Portbury's debt needed to be reduced by $10 million or more. The sale of several parcels of land was necessary to achieve the required debt reduction.

423 It is a long-accepted principle of the law relating to mitigation of loss that a plaintiff is not required to sacrifice or risk its property or rights in order to mitigate loss. If a party placed in a difficult position by reason of the breach of a duty owed to that party acts reasonably in the adoption of remedial measures, the party is not disentitled to recover the cost of the remedial measures merely because the party in breach can suggest that other measures less burdensome to the party in breach might have been taken.[129] Mr Kirby placed strong reliance on this principle, contending that Portbury's financial predicament in 2011 was akin to a financial eggshell given the very thin market for englobo properties at that time and given the absence of purchasers, who were reliant on finance.

424 Portbury's decision to proceed to auction the property and, once the decision was made, to adhere to this decision was dictated primarily by its obligations and commitments to the Bank, and the resulting imperative to reduce debt, interest and servicing costs, and to improve Portbury's LVR with the Bank. Mr Les Brown and Mr Rann were of the view that englobo land would not normally be sold by auction. Mr Smirk gave evidence that, after the end of the tender process, he recommended to Portbury that Knight Frank continue to talk to groups on a private basis for a period of time. Depending upon what response and results were at that stage, if there were any offers, Knight Frank might then embark on a formal campaign, whether that be auction or some other approach.

425 In an email to Ms Kelly on 2 June 2011 , Mr Smirk stated as follows:

[W]e do not believe that a public auction would be the most effective method of sale, as a less than satisfactory result is likely to create a more negative sentiment around all sites. Rather, we believe that an Expressions of Interest campaign could flush out a purchaser without the possible side effects of negative market sentiment as we would be able to manage the perception of buyer interest & competition much more effectively than in the very public forum of an auction.

426 The pros and cons of the Knight Frank recommendations were discussed at a subsequent meeting, but Mr Smirk could not recall any details. It is significant to the subsequent decision-making that Mr Portbury and Ms Kelly had met with Mr Wood and Mr Kelvin Brown on a number of occasions during the first half of 2011 to discuss Portbury's debt reduction program, with the property to be sold by tender or auctioned ultimately by 30 June 2011. The auction authority in favour of Knight Frank was provided two days after such a meeting took place on 6 June 2011.

427 Following the decision to go to auction, Mr Smirk advised that the property was the most flexible of the properties held by Portbury, and was the lot that was most likely to produce buyer interest. Three of the four Enterprise Road properties were industrial, and longer-term. Buyer interest was more likely to be focused on the type of mixed-use development that was possible on the property.

428 In making decisions as to the resale of sale of the property, Portbury was required to act reasonably. Acting reasonably did not mean that it could not take into account its own interests. Having been placed in a parlous situation with the Bank, it was entitled to take into account undertakings given to the Bank, the need to preserve its own relationship with the Bank, and to avoid breach of a debt reduction plan previously agreed with Bank. Even if a more extended process for disposing of the property might have been preferred by the defendants, Portbury was not obliged to act on the defendants' wishes, provided it acted reasonably. It was entitled to take into account its own financial position, and the risk that the Bank would foreclose and conduct mortgagee auctions of its properties to achieve clearance of the debt owed to the Bank.

429 Even if a decision had been made to seek expressions of interest on an ongoing basis rather than proceeding to auction, I am satisfied that this process would not have achieved any better result. Holding and servicing costs would have continued to accrue. Purchasers dependent on bank funding were not available, as banks and lending institutions had withdrawn from lending to englobo land purchasers and land bankers. The only possible purchasers were well endowed individuals, such as Mr Facey, who had their own sources of cash flow and were not beholden to banks. Most likely, no subsequent expression of interest would have been received, except for expressions of interest offering a minimal deposit or seeking extended terms of settlement. Such offers would have been of no assistance to Portbury having regard to its financial situation, and of no interest to the Bank. I accept the evidence of Mr Facey that the englobo land market at Pakenham was much the same from mid-2011 to mid-2013, and is only now starting "to improve a bit".

430 The defendants have not shown that a process other than auction would have led to a better result, or what exactly that result would have been. Given the failure of the tender process and the lack of interest in englobo properties, any alternative to auction was speculative in nature, and more likely than not detrimental. The outcome of such a course of action cannot be predicted with any certainty. What can be said is that it was reasonable for Portbury to adopt the course that it did, having regard to the overall circumstances and the financial situation that it was in on 30 June 2011.

431 Knight Frank was instructed to conduct the auction on 8 June 2011, with the first advertisement appearing on 11 June 2011. The auction was held on 29 June 2011. The auction was preceded by the tender campaign, following instructions given on 18 March 2011, with the tender closing on 12 May 2011. Mr O'Callaghan considered that, normally, an auction marketing period would provide for a minimum onmarket period of four to five weeks. However, he was of the view that, in spite of the shorter than normal marketing period, the sale by auction brought the sale process to a head, and a conclusion. The wide-ranging marketing campaign and the response attested to its success in informing the market. He was of the opinion that the nature and content of the marketing materials was very good and succinctly conveyed what the property comprised. However, the response was similar to that of the tender process with very little, if any, buyer interest.

432 Mr O'Callaghan considered it wise to have promoted the sale as a "Realisation Auction". Given the flood of development stock for sale in 2011, which was too much for the market to absorb, differentiating the sale of the property by informing potential purchasers that the auction was a genuine last resort process had the benefit of heightening expectation that the property was to be sold. Whilst the marketing period was shorter than the usual industry norm of five weeks, Mr O'Callaghan doubted, given the prevailing market and lack of buyer interest shown throughout the tender and auction periods, that it would have materially affected the outcome if the campaign period was extended by another week to ten days. The pivotal issue was not the way the property was marketed for auction or the length of the marketing period, but the state of the market for englobo land, particularly with the flood of development sites and englobo land into the market, the aggressive stance taken to problematic property by banks, the soft market and the lack of buyer interest.

433 Mr O'Callaghan said that he did not necessarily conclude that the 20-day marketing period for the property impacted negatively on the auction process. The tender campaign was still fresh in the minds of the people who had considered either the property or the Enterprise Road properties. This meant that, when the change occurred from tender to auction, the work that had done put Knight Frank weeks in advance of a cold start. Most of the response to the marketing campaign for the auction came from the agent's initiatives and not from press advertising.

434 Mr Smirk said that it was not unusual in his experience to auction this type of property, referring to an auction of a similar property on Princes Highway, Pakenham. The property was the most attractive of the lots due to its planning status. The auction terms were 60 days, and this was noted in the information memorandum. If more time to settle was requested, Knight Frank would have talked to the prospective purchaser and liaised with Portbury. No-one asked for more time. Four weeks was the normal auction marketing period. Four or five weeks was considered very much the norm. Mr Smirk had done plenty of four-week auctions.

435 Mr Morris said that the auction was advertised as a "realisation auction" to emphasise that Portbury wanted to realise a sale on the day of the auction. Under ideal circumstances, four weeks was usually the timeframe for a stand-alone auction.

436 Whilst the auction period was less than four weeks, I am not persuaded that the shorter period had any material effect. I accept the evidence of Mr O'Callaghan and Mr Smirk as to the auction process. While the auction campaign was shorter than the average, it followed on the heels of a tender campaign. The property was not being introduced to the englobo developer market for the first time. The property was already well known in the marketplace through the tender process. No prospective purchaser complained of a shortness of time, or sought more time to prepare for the auction, or to make a bid. While the auction terms were 60 days, no potential purchaser sought longer terms or expressed any concern about the terms. There was nothing stopping a potential purchaser from making an offer outside the framework of the auction. The reality is that there was no potential purchaser who wished to do this because in 2011 the englobo market was flooded with development properties, and banks had withdrawn from lending. Purchasers of englobo land were scarce, and virtually impossible to find. The term of the sale contract itself was twelve months, and was extended only because Ottedin and Goldcare could not find acceptable finance or complete. The extended terms suggested by Mr Castran would have equated or exceeded the entire length of the sale contract between Portbury and Ottedin. I am not satisfied that the advertising of the auction lacked national presence. All of the internet-based advertising of the tender and auction had national presence. No witness suggested that the failure to undertake press advertising on an interstate basis had any material significance.

437 I accept the evidence of Mr O'Callaghan that the use of the expression 'realisation auction' was beneficial in promoting interest in the auction. I accept that this was deliberately done by Knight Frank on the basis of a professional assessment that interest would be encouraged in the auction process.

438 I am not satisfied that there were any significant deficiencies in the auction process. To the extent that the auction period was too short, or alternative auction terms could have been offered, or further national or more advertising conducted, they were not material to the outcome of the auction. There is nothing to suggest that these aspects were material, or that Mr Castran's preferred marketing campaign would have done any better. Knight Frank undertook a professional and diligent tender and auction campaign with excellent marketing brochures and materials. Mr Castran gave Knight Frank "very high marks" for their graphic presentation, which he thought was excellent. I am not satisfied that a different approach would have done any better.

439 As I have said, the fundamental problem did not lie in the tender or auction process. It lay elsewhere, in the withdrawal of lending to the englobo sector by banks, and the resulting absence of potential purchasers - other than those very rare potential purchasers like Mr Facey who had their own independent sources of income - and the financial capacity to pick and choose properties that they wished to buy at a discount from the englobo properties flooding onto the market in 2011. In final address, Mr Bick QC referred to evidence from two of the three independent valuers that:

[T]his sort of land in the 2011 environment probably couldn't be bought be anybody requiring bank finance, and probably could only be bought by someone who was well-heeled and didn't need bank finance.

440 Given that, as the trial progressed, the evidence increasingly showed the pivotal significance of the global financial crisis in the failure to sell, the defendants turned their attention to particular prospective purchasers and suggested that they had not been followed up by Knight Frank.

441 Mr Taing gave evidence in the Khmer language, with the assistance of an interpreter. In his affidavit, he referred to himself as the owner of 365 Cardinia Road, Pakenham. Mr Ottewell said that he had been talking to Mr Taing about the purchase of the property since December 2010, while Mr Portbury and Ms Kelly referred to conversations with Mr Ottewell back to late-2009, during which Mr Taing's possible interest in the property was raised by Mr Ottewell. Further conversations between Mr Ottewell and Mr Taing took place in about March 2011. In June 2011, Mr Taing was contacted by Mr Ottewell, who advised that the property was going to auction. Mr Ottewell asked Mr Taing if he would like to attend the auction, but Mr Taing was busy and could not attend.

442 Mr Taing did not have the financial capacity to purchase the property alone, without extended terms. He agreed that he and his partner Paul Cheong, acting through a company called Taing and Cheong Investments Pty Ltd, were yet to settle on the land at 365 Cardinia Road, Pakenham. They have had difficulty borrowing from a bank, and the land is still owned by the vendors, Bernard and Kathleen Koolstra. Mr Taing denied that $16 million was too much to pay for 365 Cardinia Road, Pakenham, but stated that his bank would not lend him the money. He also sought to sell other land at Dandenong and Point Cook to assist in paying for his purchase, but found that he could not achieve sales.

443 Ms McDonald provided insight as to Mr Taing's financial position. In 2011, Mr Taing had a liquidity problem, and she and two friends, Mr & Mrs Hall came in as investors in Biltex to purchase the property from Parklea. Ms McDonald described Mr Taing's liquidity problem as involving a lot of money coming in, but a lot of mortgages going out. The result was that Mr Taing ultimately had only a 25% interest in Biltex. According to Ms McDonald he was "temporarily a bit short" in 2011, but subsequently did come up with $350,000. She said that the balance of deposit monies of $1.05 million had been contributed by the other shareholders in Biltex.

444 I am satisfied that Mr Taing was aware of the auction, and had been aware that the property was on the market since at least December 2010. He did not have the financial capacity to purchase the property in his own right in June 2011, other than on extended terms, and ultimately had some difficulty later that year in raising a one-quarter share of the deposit of $350,000.

445 Mr Gillon was approached by Mr Rod Neville of Knight Frank in April 2011, during the tender campaign, and submitted a non-conforming proposal by email on 12 May 2011. His joint venture partner - Abacus Property Group - would not commit to a proposal, as it considered it had better opportunities elsewhere, and was getting more cautious generally in the prevailing financial climate. Mr Gillon said that he often attended auctions "to see what is going on in the marketplace. Not always would we be bidding in the marketplace at the time." Whilst Mr Gillon was personally unaware of the auction, Knight Frank sent auction brochures to Mr Adam Brick and Mr Craig Selik of the Gillon Group. One of these brochures went to a post office box at Brighton, which still received mail for the Gillon Group, although not the current mail box in use at Brighton. Mr Gillon did not review the internet to see what was coming up, or see the auction boards. His personal assistant received internet alerts on his behalf.

446 Mr Facey, Mr Nicki Baldi ('Mr Baldi'), Mr Fraser Brown ('Mr Brown') and the Harmon family were referred to by Mr Rann as the "four likely suspects" who had the capacity to buy the property on their own terms. Mr Castran agreed that each had transacted significant properties, or developed properties in the area. They were "players in the market". On behalf of the defendants, it was ultimately submitted that they should have been approached in connection with the auction. Mr Kirby objected with considerable justification to this submission, as no Portbury witness had been cross-examined as to whether these suggested possible purchasers had been contacted or approached. Neither Mr Smirk nor Mr Morris had been crossexamined as to any of the three suggested possible purchasers. It would be unfair to reach any conclusion adverse to Portbury's case in the absence of any crossexamination of Mr Smirk and Mr Morris as to this matter, and in the absence of any evidence from any of the three suggested possible purchasers as to whether they were approached by Knight Frank or were likely to have been interested in the property in mid-2011.

447 Moreover, review of the Knight Frank mail-out and e-brochure databases for the tender campaign shows Mr Baldi and Mr Brown to be listed on each. Mr Baldi is shown to have been telephoned by Mr Rod Neville on 20 April 2011 during the tender campaign, and a message left. Mr Baldi and Mr Paul Harmon both appear on the Knight Frank e-brochure and mail-out databases lists in connection with the auction sale of the property, together with many other investors and developers.

448 I am satisfied that Knight Frank did send e-brochures and mail-out brochures to Mr Baldi, Mr Brown and Mr Harmon of the Harmon Group. I am not satisfied that there was any failure by Knight Frank to approach any of these persons. All appear on Knight Frank's databases in connection with the tender and the auction. In the absence of cross-examination of Mr Smirk, Mr Morris and Mr Portbury concerning these persons, no adverse inference can be drawn against Portbury.

449 Mr Morris referred in his affidavit to discussions which he had with Mr Avni Selimi, a local landowner, whose interest lay in the likely valuation of the property in order to make a comparable valuation of his own property, but who nonetheless attended the auction. He also had a call from a person on the evening of the auction who described himself as a local landowner nearby who was concerned about the sale price. He wanted to put forward an offer to purchase the property, but needed more time, and could not possibly settle in the time required by the Bank. It appears that nothing further was heard from this landowner. Approaches were also made to the Epworth Hospital and the Hawthorn Football Club, which had expressed interest in new facilities. These discussions did not give rise to any firm proposal.

450 I am satisfied that the Knight Frank e-brochure and mail-out databases were very comprehensive, and that all likely potential purchasers were provided with the electronic or hard copy brochure or both. I am satisfied that potential purchasers who expressed interest were followed up by Knight Frank personnel. I am not satisfied that Knight Frank's conduct of the auction process was deficient or unreasonable in any manner, or that there were any steps that might have been taken by Knight Frank personnel that might have materially affected the course of the auction.

451 Mr Smirk gave evidence that - on the morning of the auction - he recommended a reserve of $2.5 million, which was accepted by Ms Kelly. Mr Portbury was in Shepparton, and did not attend the auction. He could not recall whether specific instructions were given on the amount of the reserve. Ms Kelly had a somewhat different recollection. She recalled asking Mr Smirk on the morning of the auction for his recommendation for a reserve price, and that his recommendation was $3 million. She could not recall mentioning the recommended reserve price to Mr Portbury, but considered that she would have done so because it was his decision as to whether to agree to the reserve price. Mr Smirk had instructions to revert to Ms Kelly during the auction if anything were needed. He spoke with Mr Portbury by phone from the site during the auction.

452 Mr Smirk and Ms Kelly had different recollections about the amount of the reserve price fixed on the morning of the auction. I prefer the account of Mr Smirk, and find on the balance of probabilities that the reserve price fixed on the morning of the auction was $2.5 million. I accept their evidence as to the fact that the reserve price was determined on the morning of the auction, and that Ms Kelly communicated the Knight Frank recommendation to Mr Portbury. I also accept Ms Kelly's evidence that Mr Smirk spoke to Mr Portbury by phone during the auction.

453 The determination of the reserve price by the vendor on the morning of the auction following advice from the selling agent was an appropriate course for Portbury and Knight Frank to follow. There was nothing unreasonable about Portbury's conduct in this respect. There is nothing material that turns on the way in which the reserve price was determined. It did not affect Mr Facey's pre-determined bidding position. He was prepared to go to $2.1 million, which was the ultimate sale price of the property.

454 The defendants contend that the auction should have been cancelled, and the property not sold at auction for the low price of $2.1 million. They say that Portbury did not act reasonably in proceeding with the auction, and selling the property to Parklea for $2.1 million.

455 Mr Portbury's reasons for selling the property for $2.1 million included:

(a) no offer for the property at all was received during the tender process;

(b) the highest and only genuine offer made on or after at the auction was made by Mr Facey on behalf of Parklea;

(c) $2.1 million was the highest figure that could be achieved;

(d) in order to attract continuing support by the Bank, Portbury was committed to auction the property by 30 June 2011;

(e) Portbury had to reduce its debt to the Bank by $2-3 million before 30 June 2011;

(f) if Portbury did not reduce debt, the Bank would exercise its power to conduct a mortgagee sale of the property;

(g) if the Bank sold the property by mortgagee sale, it would do no better;

(h) Portbury had given the sale of the property its best shot, with Ottedin having had two opportunities to buy the property;

(i) Portbury had supported Ottedin in the way it sold the property;

(j) Portbury had met its obligations to Ottedin by utilising the process that was put in place and in relation to the price received in the market;

(k) Portbury supported Ottedin to the tune of $1 million in out-of-pocket expenses over the course of the two years prior to the sale at auction; and

(l) there was no hard decision by Portbury as to whether a loss on resale could be recovered from Mr Kosta and Mr Ottewell.

(a) if Portbury did not reach its debt-reduction target, the Bank had advised at the meeting on 6 June 2011 that the Bank would commence mortgagee auctions;

(b) neither she nor Mr Portbury believed that the Bank would achieve a better result with mortgagee auctions;

(c) Portbury could use the settlement monies to reduce debt; and

(d) Mr Ottewell had been seeking alternative investors for the last eighteen months.

457 It is unclear what significance the sale of the Warragul property for $2.3 million plus GST had on the decision to sell the property to Parklea. There is scant evidence. My impression is that, whilst the sale of the Warragul property got the Portbury Group over one hurdle by achieving a sale in the range $2-3 million by 30 June 2011, Mr Portbury, Ms Kelly and the Bank officers nonetheless considered that there was still a long way to go before the threat of mortgagee sales under Plan C was removed.

458 I do not consider that Portbury acted unreasonably in making the decisions it did. Portbury had been seeking to sell the property through Knight Frank since 18 March 2011. Throughout the whole of the tender and auction campaigns, Parklea had been the only genuine potential purchaser for the property. Prior to Knight Frank's appointment by Portbury, they had been given a general sale authority by Mr Kosta on 22 December 2010 for a period of twelve days without result. Under Plan A with the Bank, Portbury was committed to auction the property by 30 June 2011. Despite the sale of the Warragul property, Portbury had a considerable way to go to sell assets and reduce debt. If Portbury did not reduce its bank debt, the Bank under Plan C would undertake mortgagee asset sales for Portbury. If this took place, the defendants would not be better off - the Bank would do no better than Portbury had done.

459 Mr Portbury and Ms Kelly both considered that they had done the right thing by the defendants. Portbury had given the property sale its best shot, and Ottedin had been given two extensions to settle the purchase. According to Mr Portbury, Portbury had incurred out of pocket costs including interest and servicing costs of $1 million in extending time for Ottedin and Goldcare to complete, and in the resale process. Mr Portbury said that he had no expectation that the losses sustained by Portbury would actually be recoverable from the defendants.

460 Even if the auction had been cancelled, or the property passed in at auction, there can be no expectation that Portbury or the Bank would have done any better. Clearly, a further period would have elapsed, whilst holding costs continued to amass. Portbury needed a cash sale, or a sale with a short settlement period, to reduce bank debt. There is no evidence that suggests that there were any potential purchasers in the offing, other than Mr Facey, who could meet these needs. There was no proposal in or around June 2011 from anyone of substance, other than Mr Facey. It would be unreasonable to expect Portbury to accept an extended terms sale contract such as that ultimately accepted by Parklea when it sold to Biltex.

461 If the property had been passed in at auction, there were no options left that offered any closure to the sale of the property. A process whereby expressions of interest were requested might continue over an extended period with little result. There was no market interest in the property, and the withdrawal of lending by banks in relation to purchases of englobo property might (and did) continue for some time. There was no guarantee that Mr Facey or Parklea would maintain interest in the property. I am not satisfied that the defendants would ultimately have done any better had the auction been cancelled, or the property passed in at auction. The result might have been the loss of the only genuine bidder for the property in a very difficult market.

462 I am not persuaded that Portbury's decision to conduct the auction, and to accept the best and only offer available after the auction, was unreasonable although the offer was considered low. I am not persuaded that the defendants were likely to have received a materially better outcome had the property been passed in with the hope that at a later time it might be sold for a higher price. Such a decision would have been uncertain and speculative, and would impose too high a burden on a vendor endeavouring to minimise the losses that it had incurred by reason of the purchaser's breach.

Portbury acted in good faith on the resale of the property

463 I am satisfied that, at all times, Mr Portbury and Ms Kelly acted in good faith and did everything they could to achieve the maximum price that they could get for the property, whilst taking into account Portbury's need to meet its obligations to the Bank. Quite apart from meeting Portbury's obligations to the defendants, it was in Portbury's own interests to achieve the maximum sale price. The more that could be obtained on the sale of the property, the more would ultimately go towards Portbury's debt reduction with the Bank, resulting in reduced debt servicing costs and interest. Portbury acted in good faith on the resale of the property at all times.

464 Mr Bick QC made submissions and cross-examined Mr Portbury concerning unrelated proceedings in which Portbury had obtained a judgment in March 2011.[130] The judgment was in the amount of $249,731 plus interest, following default by the purchaser of land at Avenel. The substance of the cross-examination was that Mr Portbury was familiar with the fact that losses on the resale of land following a default by the purchaser were recoverable from the defaulting purchaser by the vendor. Mr Bick QC further contended that, as a consequence, Mr Portbury was indifferent to the purchase price actually achieved on the resale of the property, because he was aware that any deficiency in the purchase price would be recoverable from the defendants. In reality, as Mr Kirby elicited in re-examination, the Mackali proceeding took almost two years to come to trial and the judgment proved worthless. Mr Mackali went into bankruptcy, leaving Portbury without recompense, and having to bear its own costs of the proceedings. Whilst, in the letter of 2 August 2011 to Mr Kelvin Brown, Mr Portbury referred to the earlier proceeding and to advice from Portbury's legal counsel that "it is not a matter of if we win our legal action, it is simply a matter of how much in damages we are awarded", the letter also stated that "there are no guarantees in legal action".

465 I accept that, at all times, Mr Portbury and Ms Kelly sought to obtain the best price that they could get on the sale of the property. They were uninfluenced by the Mackali proceeding in their endeavours to resell the property at the best price obtainable over the period from March to June 2011. Portbury had pressing reasons to do so. It needed to resell the property to reduce its debt to the Bank. It was not in its interests to see the property sold at an undervalue, or to place reliance on prolonged and costly litigation. I reject Mr Bick QC's submissions that Portbury was improperly influenced, took advantage of the defendants or acted in some way in disregard of either its own or the defendants' interests in any way due to its experience in the Mackali proceeding, or due to a desire to seek recovery by proceeding in the court against the defendants.

466 Mr Kirby tellingly pointed out Portbury had a second important reason to maximise the sale price of the property: the value of the Enterprise Road properties would be adversely affected by a low sale price. A like point had been strongly made by at least one neighbour who had attended the auction.

467 Another claim that was put by the defendants against Mr Portbury was that he had misled the Bank, particularly by telling the Bank that the auction of the property would be held by the end of May 2011. Mr Bick QC put to Mr Kelvin Brown of the Bank that the Bank had "been caught with [its] pants down by the non-auctioning of Lecky Road on 31 May". Mr Kelvin Brown dismissed the proposition, stating that he did not regard himself as having been caught with his pants down due to the extension of the auction. However, he said that there was an ongoing requirement that Mr Portbury needed to sell assets and that further assets "needed to be sold to get to where the bank was pitching its comfort level".

468 The relationship between Ms Kelly for Portbury and Mr Kelvin Brown for the Bank was always strong and close, and on the best of terms. Portbury took heed of the requirements of the Bank, and reported on the Portbury Group's financial position and business affairs routinely and comprehensively. There was never any complaint or concern by Mr Kelvin Brown, or any other officer of the Bank, that Mr Portbury misled or misrepresented the position of Portbury or the Portbury Group to the Bank. I do not accept that Mr Portbury or Ms Kelly or the Portbury Group misled or misrepresented the proposed auction date of the property to the Bank, or misled the Bank in any material way.

469 Portbury suffered a loss on resale of $4.4 million less the deposit paid of $1,325,000 being a net loss of $3,075,000. It also incurred agent's commission on the resale of $17,325. It incurred marketing and advertising expenses of $11,057.97 and $14,531.52 on the tender closing on 13 May 2011 and auction sale of the property on 30 June 2011 respectively. The varied sale contract was rescinded by the first rescission notice on 1 February 2011. It is entitled to interest of $26,584 being interest on the unpaid settlement amount under general condition 26 of the varied sale contract from 18 January 2011 until 1 February 2011.

470 Portbury's losses following the failure of Ottedin and Goldcare to complete amount in all to $3,144,498.49. According to Mr Facey who has very good reason to know, it is only in 2013 that englobo land values in the Pakenham area are staring to recover. The benefit of hindsight confirms the wisdom of Portbury's decision to take the $2.1 million available from Parklea. The 18 months that it has taken for englobo land values in the Pakenham area to commence to recover is a longer period than the twelve months settlement terms originally agreed between Portbury and Ottedin in the sale contract and longer than the one year period referred to in general condition 28.4(c) as the duration of the right of resale.

471 The defendants are wrongdoers who have acted in breach of contract. They have not shown that Portbury failed to mitigate its loss or did not act in a reasonable manner in minimising loss or in connection with the resale of the property. They have not shown that their position was materially or adversely affected by reason of Portbury's actions in the resale or that had Portbury done things differently they would have been materially better off. They have not shown that any amount of the loss on resale is attributable to Portbury's failure to minimise the loss or unreasonable actions during the resale process. They have failed to discharge the onus of proof on any of these matters.

472 As a result, Portbury is entitled to judgment against the defendants for the losses that it has sustained amounting in all to $3,144,498.49. The counterclaim will be dismissed. The proceeding will be stood over for the making of final orders including orders as to costs after interest under the Penalty Interest Rates Act 1983 (Vic) has been calculated.

APPENDIX: A BRIEF HISTORY OF THE SALE OF LAND ACT RELATING TO THE PROTECTION OF DEPOSIT MONIES

1 When the Sale of Land Act 1962 (Vic) ('the Act') was enacted there was no definition of the term "deposit" contained within the Act. Section 2(1) of the Act contained the following definition of a "terms contract":[131]

"Terms contract" means an executory contract for the sale and purchase of any land under which the purchaser is -

(a) obliged to make two or more payments to the vendor after the execution of the contract and before he is entitled to a conveyance or transfer of the land; or

(b) entitled to possession or occupation of the land before he becomes entitled to a conveyance or transfer of the land.

2 In September 1978, a Committee of Inquiry into Conveyancing ('the Committee') was appointed to examine all aspects of conveyancing in Victoria, and to make recommendations with respect to any changes that should be made to the law.[132] The Committee's Interim Report addressed, among other issues, the question of the application of deposit moneys pending the completion of a contract for the sale of land.

3 The Committee noted that, in Victoria, agents do not hold deposits as a stakeholder, but deduct their commission and account to the vendor or their solicitor for the balance. However, there had been cases in which the vendor had failed to complete the contract or repay the deposit money to the purchaser because it had already been spent. The Committee considered that this was a situation in need of legislative correction.[133]

4 In its discussion of this issue, the Committee referred to the legislative position in both South Australia and New South Wales, where deposit money was held by an agent as a stakeholder until settlement. The relevant South Australian provision was s 63 of the Land and Business Agents Act 1973 (as it then was), which then provided:[134]

(1) An agent shall pay all moneys received by him in his capacity as an agent into an account maintained in the name of the agent at a bank (which account shall be, and be designated, a trust account) not later than the day next ensuing after the day on which the moneys are received upon which the bank at which the trust account is maintained is open for business.

(2) Any moneys collected or received by an agent as rent, interest, principal, deposit, instalments, or other moneys whatsoever payable under any lease, mortgage, or contract for the sale of any land or business, shall be deemed to be moneys received by an agent in his capacity as an agent.

(3) ...

(4) An agent shall not withdraw moneys paid by him into a trust account except for the purpose of completing the transaction in the course of which the moneys were received, or as otherwise authorized by this Act.

5 Section 63 is now embodied in s 13 of the Land Agents Act 1994 (SA), which, although adopting different wording, is similar in substance to the original provision.

6 The comparable provision in New South Wales was s 36 of the Auctioneers and Agents Act 1941 (as it then was):[135]

(1) All moneys received for or on behalf of any person by any licensee shall be held by the licensee or, where the licensee is employed by a corporation, by the corporation, exclusively for such person, to be paid to such person, or to be disbursed as he directs, and until so paid or disbursed the moneys shall be paid into a bank in New South Wales to a trust account, whether general or separate, and retained therein.

In any case where the license is held by a corporation the trust account shall be in the name of the corporation and in any other case the trust account shall be in the name of the licensee or of the firm of licensees of which the licensee is a member. The words "Trust Account" shall appear in the name of the trust account and in the description of the trust account in the books and records of the licensee and also on all cheques drawn on the trust account.

(2) The moneys shall not be available for the payment of the debts of the licensee to any other creditor of the licensee, or be liable to be attached or taken in execution under the order or process of any court at the instance of any such other creditor.

7 Section 36 is now embodied in s 86 of the Property, Stock and Business Agents Act 2002 (NSW), with a similar substance but substantially differing in form.

8 The Committee ultimately recommended, inter alia, that the position in Victoria be changed through amendment to the Act to the effect that:[136]

a deposit is held intact until settlement unless all the parties to the transaction agree otherwise and that when a deposit is paid to an agent he should hold it as stakeholder pending completion and should not be entitled to deduct his commission before settlement.

9 The Sale of Land (Deposits) Bill 1980 (Vic) was intended to make provision in relation to the holding of deposit moneys in transactions for the sale of land and other purposes.[137] It commenced on 1 August 1980.

10 The Bill was intended to implement the recommendations of the Committee by providing that:[138]

any deposit paid upon the purchase of land to an estate agent or solicitor acting for the vendor should be held by the agent or solicitor as a stakeholder pending the completion of the transaction or, in the case of a terms contract, upon the purchaser becoming entitled to possession of the land sold or to the receipt of rent and profits.

11 The provisions of the Bill were intended to protect innocent purchasers who pay a deposit in good faith, where the sale is not completed through no fault of their own.[139]

12 A number of house amendments were made to the Bill. They did not affect the principles of the Bill.[140] Two of the amendments were clauses 24(1) and 27(5). The purpose of these amendments was to make it clear that a terms contract was only completed once the purchaser became entitled to possession or receipt of rent and profits in relation to the property.[141]

13 In the Legislative Assembly a significant amendment was made to the definition of the term 'deposit moneys', which was defined to include:[142]

any moneys which are part of the purchase price received by the vendor before the purchaser becomes entitled to a transfer or conveyance of the land which is the subject of the transaction, or in the case of a terms contract any moneys received by the vendor before the purchaser becomes entitled to possession or to the receipt of rent and profits pursuant to the contract.

14 This amendment was described as intended to extend the definition of a deposit beyond that of the common law. Mr Cain emphasised that the purpose of the Bill was to protect purchasers and that this expansion of the concept of a deposit was intended to extend such protection to all moneys paid by the purchaser prior to the completion of the contract.[143]

15 Section 33 of the Consumer Credit (Victoria) and Other Acts Amendment Act 2008 (Vic) inserted a new s 29A into the Act relating to terms contracts. The new s 29A(1) reproduced in identical form the definition of 'terms contract' that had, until then, been contained in section 2(1) of the Act. Section 29A(2) inserted a definition of the term "deposit" as it applied to sub-s (1). This essentially reproduced the wording of the definition of 'deposit moneys' in s 23, defining the term to mean:[144]

a payment made to the vendor or to a person on behalf of the vendor before the purchaser becomes entitled to possession or to the receipt of rents and profits under the contract.

Conclusion as to the Sale of Land Act

16 When the definition of the term "deposit moneys" was first inserted into the Act in 1980, the primary purpose of the amendment was to provide for the protection of the purchaser in the event of the vendor being unable to complete the contract. This protection was extended further by amendment to cover all payments made by the purchaser prior to the completion of the contract.

17 Amendments made to the Bill during its passage through Parliament were intended to clarify the distinction between terms contracts and other contracts for the sale of land. The new ss 24(1) and 27(5) were amended to emphasise that, in relation to terms contracts, deposit moneys could not be released by the stakeholder until the purchaser had become entitled to possession or receipt of rents and profits under the contract.

18 Recent changes have seen the consolidation of the provisions relating to terms contracts in a new Division. The definition of 'deposit' in relation to terms contracts is clearly set out.

[1] Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd (2011) 35 VR 1 (Dixon J).

[3] General condition 21 provided that: "The purchaser is responsible for any notice, order, demand or levy imposing liability on the property that is issued or made on or after the day of sale that does not relate to periodic outgoings..."

[4] General condition 25 provides that -

"A party who breaches this contract must pay to the other party on demand:

(a) compensation for any reasonably foreseeable loss to the other party resulting from the breach; and

(b) any interest due under this contract as a result of the breach."

General condition 26 provides for interest "at a rate of 2% per annum plus the rate for the time being fixed by section 2 of the Penalty Interest Rates Act 1983 to be payable on any money owing under the contract during the period of default, without affecting any other rights of the offended party."

[5] Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd (2011) 35 VR 1.

[12] Ibid 22 [75] (citations omitted).

[14] La Macchia v Minister for Primary Industries and Energy (1992) 110 ALR 201, 204 (Burchett J); Shaw v Yarranova Pty Ltd [2006] VSC 45 [67]-[68] (Bell J); Hamilton Island Enterprises Pty Ltd v Commissioner of Taxation [1982] 1 NSWLR 113, 119 (Rogers J); Mickovski v Financial Ombudsman Service Pty Ltd [2011] VSC 257 [9] (Pagone J); Tomasevic v Travaglini [2007] VSC 337; (2007) 17 VR 100, 105 [21]-[24] (Bell J); Engebretson v Bartlett [2007] VSC 163; (2007) 16 VR 417, 429 [63] (Bell J).

[15] Lord Hailsham, Halsbury's Laws of England (Butterworths, 4th revised ed, 1992) vol 42, 169 [244].

[16] See Aussie Invest Corporation Pty Ltd v Pulcesia Pty Ltd [2005] VSC 362; (2005) 13 VR 168, 207-8 [313]-[320] (Dodds-Streeton J).

[17] Nund v McWaters [1982] VicRp 60; [1982] VR 575, 580 (Brooking J, with whom Starke and Murphy JJ agreed).

[18] Greydae Pty Ltd v Malilane Pty Ltd [2003] VSCA 27; (2003) V ConvR 54-680, [24]; Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41, 53-4; Mehmet v Benson [1965] HCA 18; (1965) 113 CLR 295, 305; Thornton v Bassett [1975] VicRp 41; [1975] VR 407, 422.

[19] Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41, 53-4 (Kitto J, with whom Taylor and Menzies JJ agreed); Thornton v Bassett [1975] VicRp 41; [1975] VR 407, 422 (Pape J); Greydae Pty Ltd v Malilane Pty Ltd [2003] VSCA 27; [2003] V ConvR 54-680, [24] (Winneke P, Charles and Eames JJA); and Nund v McWaters [1982] VicRp 60; [1982] VR 575, 580 (Brooking J, with whom Starke and Murphy JJ agreed).

[20] Nund v McWaters [1982] VicRp 60; [1982] VR 575, 579 (Brooking J, with whom Starke and Murphy JJ agreed).

[21] See [53]-[54] above.

[22] [2005] NSWSC 818; (2005) 12 BPR 23,287.

[24] [2008] VSC 593 [23].

[25] Ottedin claimed in its caveat lodged on 7 March 2011 an equitable interest by way of lien. In the earlier proceedings, Dixon J at [38] described the grounds of the claim as being "to secure repayment of the deposit paid by the caveator under a contract of sale of the land between the registered proprietor as vendor and the caveator as purchaser dated 19 December 2008 which was terminated by the caveator on or about 17 January 2011 together with interest on the deposit from the date of termination of the contract and together with the caveator's costs of enforcing the lien".

[26] See Victorian Economic Development Corporation v Clovervale Pty Ltd [1992] VicRp 40; [1992] 1 VR 596, 603-4 (Tadgell J).

[27] [1981] HCA 45; (1981) 147 CLR 589, 602 (Gibbs CJ, Mason and Aickin JJ).

[30] Solak v Registrar of Titles [2011] VSCA 279; (2011) 33 VR 40, 54-5 [67]-[71] (Warren CJ, with whom Neave JA and Hargrave AJA agreed); Redowood Pty Ltd v Link Market Services Pty Ltd [2007] NSWCA 286 [45]-[50] (Hodgson JA, with whom Mason P and Bryson AJA agreed); D.A. Christie v Baker [1996] VicRp 89; [1996] 2 VR 582, 603.

[31] [2011] VSCA 279; (2011) 33 VR 40, 55 [71].

[32] See Rippon v Chilcotin [2001] NSWCA 142; (2001) 53 NSWLR 198, 201-2 [15] (Handley JA).

[33] Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, 531 (Dixon J).

[34] See [69] above.

[35] Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, 531 (Dixon J); Ramsay v Pigram [1968] HCA 34; (1968) 118 CLR 271, 279 (Barwick CJ); Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (in liq) [1993] FCA 342; (1993) 43 FCR 510, 525-6 (Northrop and Lee JJ).

[36] Clambake Pty Ltd v Tipperary Projects Pty Ltd (No 5) [2009] WASC 141 [62] (Heenan J); Gracechurch Holdings Pty Ltd v Breeze (1992) 7 WAR 518, 522 (Ipp J).

[37] Mr Kirby relied on Jeans v Bruce [2004] NSWSC 539 [319]-[374]; Perpetual Nominees Ltd v Aus Constructions Pty Ltd [2005] NSWSC 1199 [64]-[66]; House of Spring Gardens v Waite [1991] 1 QB 241, 252-4; Thomas v Balanced Securities Ltd [2011] QCA 258; [2012] 2 Qd R 482 [38]-[49].

[38] Barwick CJ in Ramsay v Pigram [1968] HCA 34; (1968) 118 CLR 271, 279 characterises the privies as "three classes of privies of blood, of title and of interest".

[39] Lord Hailsham, Halsbury's Laws of England (Butterworths, 4th revised ed, 1992) vol 16, 874-5 [990].

[40] Ibid 876-7 [991]; Liverpool and North Wales Steamship Co Ltd v Mersey Trading Co Ltd [1909] 1 Ch 209, 217 (Farwell LJ).

[42] [1968] HCA 34; (1968) 118 CLR 271, 279.

[43] On 15 December 2010, Portbury agreed to extend the settlement of the varied sale contract from 18 to 20 December 2010.

[44] On 12 January 2011, Portbury agreed with Ottedin and Goldcare to extend the settlement of the varied sale contract to 17 January 2011.

[45] Transcript of Proceedings, Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd (Supreme Court of Victoria, S CI 2011 01830, Dixon J, 13 May 2011) 27.

[46] [2003] VSCA 1; (2003) 6 VR 466, 474 [18].

[47] [2009] VSC 133 [33]-[37].

[48] [2004] VSC 126; (2004) 55 ATR 491, 495-6 [15].

[50] [1968] HCA 34; (1968) 118 CLR 271, 279.

[51] See [70] above.

[52] (1997) 42 NSWLR 5, 8.

[53] [2004] NSWSC 539 [319]-[374] (Einstein J).

[54] [1991] 1 QB 241, 252-4.

[55] [2011] QCA 258; [2012] 2 Qd R 482 [38]-[49].

[56] Rippon v Chilcotin [2001] NSWCA 142; (2001) 53 NSWLR 198; D.A. Christie Pty Ltd v Baker [1996] VicRp 89; [1996] 2 VR 582, 603 (Hayne JA).

[57] Bain v Cooper [1841] EngR 835; (1841) 8 M & W 751, 754 (Parke B); Ex parte Young; Re Kitchin (1881) 17 Ch D 668, 671-2 (James LJ with Baggallay LJ concurring), 673 (Lush LJ); Pritchard v Hancock [1843] EngR 760; (1843) 6 Man & G 151; Lord Hailsham, Halsbury's Laws of England (Butterworths, 4th revised ed, 1992) vol 16, 878-9 [995].

[58] [1910] HCA 69; (1910) 11 CLR 432, 439-40 (citation omitted).

[59] 448 (Barton J), 456 (O'Connor J), 460 (Isaacs J).

[60] (1992) 7 WAR 518, 519-20.

[61] [2009] FCA 333; (2009) 175 FCR 532, 539-41 [25]-[30].

[62] See also Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (in liq) [1993] FCA 342; (1993) 43 FCR 510, 528 (Northrop and Lee JJ).

[63] [2009] WASC 141 [62]-[68].

[64] [2004] NSWSC 545 [23]-[29].

[65] [2002] FCA 1061; [2002] 124 FCR 518, 560 [74].

[66] [2000] QB 110.

[67] (2004) 25 Australian Bar Review 130, 148.

[68] [2011] QCA 258; [2012] 2 Qd R 482, 494-5 [40] (White JA, with whom Margaret Wilson AJA and Martin J agreed).

[69] (1997) 42 NSWLR 5, 8.

[70] [2013] NSWSC 1264.

[71] [2010] NSWCA 33; (2010) 75 NSWLR 245, 267 [131]-[132].

[72] [2013] NSWSC 1264 [107].

[73] [2010] NSWCA 33; (2010) 75 NSWLR 245, 257 [64].

[74] [2002] FCA 1061; (2002) 124 FCR 518, 560 [74].

[75] [2000] QB 110.

[76] Stewart Maiden, 'Recent steps in the evolution of res judicata, cause of action estoppel and the Anshun doctrine in Australia' (2004) 25 Australian Bar Review 130, 148.

[77] [2013] NSWSC 1264 [118]-[120].

[78] [2011] QCA 258; [2012] 2 Qd R 482, 494-5 [40].

[79] [1993] FCA 342; (1993) 43 FCR 510, 526.

[80] [1968] HCA 34; (1968) 118 CLR 271.

[81] (1992) 8 WAR 111.

[82] (1898) 14 WN (NSW) 131.

[83] [1993] FCA 342; (1993) 43 FCR 510, 542.

[84] Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc [1988] FCA 373; (1988) 19 FCR 469, 472.

[85] [2000] NSWCA 313; (2000) 10 BPR 18,235, 18,271 [187] (Giles JA, with whom Handley and Stein JJA agreed) (citations omitted).

[86] [1969] VicRp 112; [1969] VR 912.

[88] Beal v D.B. Stott Pty Ltd [1971] WAR 69 (Virtue SPJ); Finance Brokers (WA) Pty Ltd v Pizzino [1981] WAR 263, 268 (affirmed on appeal in Pizzino v Finance Brokers (WA) Pty Ltd (1982) 43 ALR 16).

[89] [1983] 1 Qd.R. 215, 220.

[90] (1985) 3 NSWLR 391, 396-7.

[91] [2013] NSWSC 680, [27].

[93] [1994] 1 Qd.R. 460, 464-7 (Thomas J, with whom Demack and Mackenzie JJ agreed).

[94] [2001] TASSC 29; (2001) 10 TasR 26, 44-5 [41].

[96] [2003] TASSC 79, 14 [56].

[97] [2007] NSWSC 103; (2007) 61 ACSR 321, 329-30 [44].

[98] [2009] NSWSC 1159, 6-7 [28], [35].

[99] [1982] HCA 24; (1982) 149 CLR 337, 347.

[100] [2009] NSWSC 1159 [32], [35]-[36].

[101] [2000] NSWCA 313; (2000) 10 BPR 18,235, 18,271 [187] (Giles JA, with whom Handley and Stein JJA agreed).

[102] Harvey McGregor, McGregor on Damages (Thomson Reuters (Legal) Ltd, 18th ed, 2009) 494; Abrahams v Performing Rights Society Ltd [1995] EWCA Civ 35; [1995] I.C.R. 1028.

[104] [1982] HCA 24; (1982) 149 CLR 337, 347.

[106] (1985) 3 NSWLR 391, 396-7.

[107] [2001] TASSC 29; (2001) 10 TasR 26, 44 [40].

[108] [2010] NSWCA 229 [61]-[63] (Young JA, with whom Hodgson Macfarlan JA agreed).

[109] P & V Industries Pty Ltd v Porto [2007] VSC 64 [25]-[30].

[110] Ringrow Pty Ltd v BP Aust Pty Ltd [2005] HCA 71; (2005) 224 CLR 656; CFA Group Mars Trading [2001] NSWSC 112.

[111] [1998] HCA 38; (1998) 192 CLR 603, 654 [134] (Hayne J).

[112] [2005] VSCA 228 [4] (Warren CJ, who agreed with the reasons of Buchanan JA).

[113] See, eg, Tanwar Enterprises v Cauchi [2003] HCA 57; (2003) 217 CLR 315.

[114] [1958] HCA 9; (1958) 100 CLR 510, 515 (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ).

[115] [2005] VSCA 228 [3].

[116] J. Boag & Son Brewing Ltd v Bridon Investments Pty Ltd [2001] TASSC 29; (2001) 10 Tas R 26; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321, 329-30 [44] (White J); Falcone v Mentyn [2003] TASSC 79, 14 [56] (Blow J).

[117] J. Boag & Son Brewing Ltd v Briden Investments Pty Ltd [2001] TASSC 29; (2001) 10 Tas R 26, 44 [41].

[118] BP (Westernport) Pty Ltd v Shire of Hastings (1994) 180 CLR 266, 292-3; Codelfa Constructions Pty Ltd v State Rail Authority [1982] HCA 24; (1982) 149 CLR 337, 347.

[119] [1981] HCA 62; (1981) 147 CLR 654, 675; see also Williams v Frayne [1937] HCA 16; (1937) 58 CLR 710, 738-9 (Dixon J).

[120] [2001] HCA 52; (2001) 206 CLR 459, 469, 480, 493, 497, 501, 508, 509.

[121] This valuation was one page in length, and was given by Mr Rann. See [372]-[378] below.

[122] See s 47A of the Estate Agents Act 1980 (Vic).

[123] See [403] below.

[124] SBS was the Bank's Strategic Business Services area, which was involved in workout-type situations with its clients.

[125] A valuation was also undertaken by Mr Peter Wayne Goodchild, a valuer, but he was not called to give evidence by the defendants.

[126] Mr Torr provided a valuation of $5,415,000 on the basis of a deposit of 10%, and balance payable in two years. In his evidence, he said the valuation should broadly be reduced by 10-15% to achieve the cash equivalent. In final address, Mr Bick QC also relied on a table of calculations of the shortfall under the varied sale contract, involving the consideration of three different scenarios.

[127] See [211] - [215] above.

[128] Plan B involved the introduction of investment partners to buy shares in Portbury's land portfolios, and was unlikely to be beneficial or feasible in the prevailing investment climate for englobo properties.

[129] Banco de Portugal v Waterlow & Sons Ltd [1932] UKHL 1; [1932] AC 452, 506; Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; (2000) 10 BPR 18,235, 18,271 [187]; King v Yurisich [2006] FCAFC 136; (2006) 153 FCR 78, 103 [93]; Construction, Forestry, Mining and Energy Union v Australian Building and Construction Commissioner [2012] FCAFC 44 [69]; Wingecarribee Shire Council v Lehman Brothers Australia [2012] FCA 1028; (2012) 301 ALR 1, 163 [605]; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5, 9.

[130] Portbury Development Co Pty Ltd v Mackali [2011] VSC 69 (Kaye J).

[131] Section 2(1) of the Act, version 001.

[132] Committee of Inquiry into Conveyancing, Legislative Assembly, Interim Report (1980) 3.

[134] Land and Business Agents Act 1973 (SA) s 63(1)-(4).

[135] Auctioneers and Agents Act 1941 (NSW) s 36(1)-(2), as in force on 1 January 1980.

[136] Committee of Inquiry into Conveyancing, Legislative Assembly, Interim Report (1980) 18-9.

[137] Victoria, Parliamentary Debates, Legislative Council, 2 April 1980, 7759 (the Hon. Haddon Storey, Attorney-General).

[142] Victoria, Parliamentary Debates, Legislative Assembly, 1 May 1980, 9592 (Mr Cain).

[144] Sale of Land Act 1962 (Vic) s 29A(2) (definition of 'deposit').