Rebenta Pty Ltd v Wise

Rebenta Pty Ltd v Wise - [2007] NSWSC 1332 - NSWSC 2007 case summary — Zoe

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Chronology of undisputed or clearly established events and matters 3 The plaintiff was one of a number of companies controlled by Mrs Millie Phillips, which were sometimes referred to as the Milstern group. Mrs Phillips' son, Mr Robert Phillips, was a director of the plaintiff and up until 5 April 1996 carried out most of the day-to-day management of the business of the plaintiff. 4 The principal financiers to Mrs Phillips' companies were the Commonwealth Bank and the Hong Kong Bank of Australia. In the early 1990s companies in the group owed very substantial sums of money to the Commonwealth Bank and the Hong Kong Bank. Arrangements were entered into between companies in the group and the Banks, providing for the discharge of the indebtednesses by a series of payments to be made progressively and requiring companies in the group to endeavour to realise some of their assets. These assets included the property. 5 Communications from real estate agents in the common tender bundle show that in 1994 the plaintiff was endeavouring to sell the property. On 28 November 1994 an estate agent conveyed to Mr Robert Phillips an offer by a company Leda Holdings Pty Limited ("Leda") to purchase the property. On 14 June 1995 an agent communicated to the plaintiff another offer to purchase the property for a price of $6.8m under a managed contract. A draft contract was prepared for a sale of the property by the plaintiff to Leda but the sale did not proceed. 6 On 19 August 1995 a meeting took place. Those present at the meeting included Mrs Phillips, Robert Phillips, Mr Tibor Balog and Mr Richard Arnold, who was representing Mr Robin Wise (who is no relation to the defendant in these proceedings). At the meeting a redevelopment of the property by a joint venture, the effective parties to which would be Mrs Phillips, Tibor Balog and Robin Wise, was discussed. 7 On 28 August 1995 Robin Wise wrote a letter to the plaintiff. There are two versions of this letter. The two versions are similar, except that certain paragraphs appear in one version and not in the other. In both versions the terms of a proposed redevelopment of the property by Robin Wise were stated. This part of both letters included the following:- ""It is contemplated that the transaction would be effected by way of the granting of a Power of Attorney by Rebenta P/L in favour of our company in respect to the Bronte property allowing us to apply for and gain all appropriate approvals, undertake demolition and building works in accordance with those approvals and enter into and settle contracts for sale of the completed units. It would further recite that all proceeds from sales up to a total of $7,000,000 would flow to you, with all monies thereafter being paid as we so direct."" 8 Some paragraphs included in one version, but not in the other version, of the letter of 28 August 1995 were as follows:- ""Finally, the Power of Attorney would also contain a provision that upon the giving of seven days notice by us any time after 60 days from the granting of the Power of Attorney and prior to 90 days you would have the right to elect to participate in the Joint Venture development of the property as to a one third share either in your own right or by way of a nominated associated entity upon terms and conditions that would be set out in an attached Joint Venture agreement. Your right to on-sell your interest in such a Joint Venture to an unrelated party would however be specifically excluded."" 9 There is an overwhelming inference that the two versions of the letter were prepared, so that the version not including the paragraphs I have quoted, but not the other version, could be shown to the plaintiff's financiers, concealing from the plaintiff's financiers that the plaintiff would have the right to participate in a joint venture for the redevelopment of the property. 10 The task of drafting formal agreements was divided between the defendant as solicitor for the plaintiff and another solicitor Mr George Newhouse, who was acting for Robin Wise. The defendant undertook the task of drafting two agreements which were described as the Project Management Agreement and the Tripartite Deed. Mr Newhouse undertook the drafting of a Joint Venture Deed. 11 Between early September 1995 and mid-November 1995 the defendant prepared at least nine drafts of the Project Management Agreement. The drafts were submitted to Mr Newhouse and, from late September 1995, to Blake Dawson Waldron solicitors, who were acting for the Hong Kong Bank, which required to be satisfied with the terms of the Project Management Agreement. Later in this judgment, in determining some of the issues between the parties, it will be necessary to refer in detail to some of the communications which took place in the course of the drafting of the Project Management Agreement. 12 Meetings of the joint venturers took place at least from 10 November 1995. The minutes of the meeting held on 10 November 1995 recorded that Mrs Phillips, Robert Phillips, Robin Wise, Richard Arnold and Tibor Balog were present. The minutes disclosed the names of the entities which were to be the joint venturers, Simjack Pty Limited (Robin Wise), Progress & Securities Management Pty Ltd (Tibor Balog) and the Charlotte Trust (the plaintiff or Mrs Phillips). 13 The minutes of the meeting of 10 November 1995 also recorded that "Mr Jahn "presented his ideas to the meeting". A Mr Peter Rommel, a consultant town planner, who had previously done work for Mrs Phillips, had on or about 23 October 1995 lodged with Waverley Council a development application for the conversion of the Property into residential units. I infer that it was agreed by the joint venturers that Mr Graham Jahn, an architect, should replace Mr Rommel in the redevelopment of the property. On 22 November 1995 Mr Rommel assigned to Dramwren the development application he had lodged. On 24 November 1995 Mr Jahn submitted an amended development application to Waverley Council, providing for 54 sole occupancy units on the property. 14 On 24 November 1995 the Hong Kong Bank of Australia wrote a letter to Robert Phillips referring to a request made by Mr Phillips that the Bank consider an extension of the time for repayment of the group's indebtedness to the Bank. In the letter the Bank stated:- ""HKBA's requirement is that the loan is fully repaid on or before the maturity date - 30 June 1996. This position will not change unless you are formally advised to the contrary"". 15 The minutes of a meeting of the joint venturers held on 8 December 1995 included the following items: ""1A…Mr Wise to produce a budget to BA (building application) stage in March 1996 early next week … 5 We would aim to have the DA (development approval) at the first Council meeting in February … 7 Wise Group to have management of the project to BA stage …"" 16 On 17 December 1995 the Trust Deed of the Charlotte Trust was executed with Robert Phillips as trustee of the Trust. The beneficiaries under the Trust were members of the "Phillips Group", which included Mrs Phillips, her relatives and corporations in which she held a relevant interest. 17 Four formal agreements were entered into, which were all dated 18 December 1995. These formal agreements were the Project Management Agreement, the Tripartite Deed, the Joint Venture Deed and an Option Deed. 18 The parties to the Project Management Agreement were the plaintiff (described in the Project Management Agreement as "the Owner") and Dramwren (described in the Project Management Agreement as "the Project Manager"). Many of the provisions of the Project Management Agreement are relevant to a determination of issues between the parties in the present proceedings. I will, however, set out, or refer to, only some of the provisions of the Agreement. 19 Clause 1.1 included the following definitions:- ""(c) "Building Consent" means written consent from the Council to the Building Application. (g) "Development Application" means an application or applications to the Council by the Project Manager on behalf of the Owner seeking Development Consent to:- (i) the use of the Land and Building for the purposes of not less than 45 nor more than 56 residential units, a licensed bottle shop and a retail store, and (ii) the strata sub-division of the Land and Building so as to provide separate strata titles for the units, licensed bottle shop and retail store referred to in sub-(i) above. (h) "Development Consent" means written consent from the Council to the Development Application (whether or not subject to terms and conditions)."" 20 Clause 5 of the Project Management Agreement included the following provisions:- ""5.1 The Project Manager will on behalf of the Owner but at the Project Manager's own expense:- ………………………… 5.1.2 submit the Development Application, draft Strata Plan and Building Application to the Council, which Building Application must be lodged with the Council as soon as practicable but not later than six (6) weeks after Council's approval of the Development Application. 5.4 In the event that Council refuses to grant Development Consent or has not granted Development Consent and Building Consent by 28th February 1996 either party may by notice in writing to the other terminate this Agreement and neither party shall have any right or action or claim for damages or specific performance against the other. ………………………… 5.7 In the event that the Project Manager has not obtained the Development Consent approval by 28th February 1996 (and in this regard time shall be of the essence) the Owner shall have the right to terminate this Agreement without any claim against it by the Project Manager for any costs, charges or expenses incurred by the Project Manager whatsoever."" 21 The Project Management Agreement provided for the payment of the proceeds of sales of lots to the plaintiff, until "the settlement sum ($7m)" had been paid and thereafter the Project Manager would be entitled to the proceeds of sale of any lot sold. 22 Clause 20 of the Project Management Agreement provided:- ""In the case of a breach of any of the covenants and conditions contained in this Agreement (except in respect of the payment of moneys or the exercise of options) by one of the parties ("the defaulting party") the other party shall serve upon the defaulting party written notice of such default pursuant to which the defaulting party shall be granted a period of 21 days within which to remedy the default."" 23 Clause 21.1 of the Project Management Agreement provided in part:- ""The Owner will be entitled to forthwith terminate this Agreement and recover damages for breach of this Agreement from the Project Manager:- 21.1.1 as provided for in clauses 5.7…"" 24 Clause 28 of the Project Management Agreement contained provisions relating to the giving of notices to a party to the agreement. Clause 28.4 provided:- ""In the event of any default by any party in the due compliance with any obligation of that party (not being an obligation in relation to which time is expressed to be of the essence) either within a time period stipulated under this Agreement or in the absence of any such time period within a reasonable time, then any other party will be entitled to serve a notice on the defaulting party making time of the essence of this Agreement in relation to the performance of the particular obligation in respect of which there has been default. In those circumstances the parties agree that such notice may require performance of the particular obligation in respect of which there has been default within twenty one days from the date upon which the notice is served and such period of twenty one (21) days will be deemed to be sufficient and reasonable for all purposes both at law and in equity."" 25 Clause 30.1 of the Project Management Agreement provided:- ""The failure by any party at any time or times to require performance by any other party of any provision of this Agreement will not affect the right to enforce the same. The waiver by any party of any breach of any one or more of the provisions contained in this Agreement will not be construed to be a waiver of any succeeding breach of such provision or a waiver of the provision in itself by such party. No waiver by any party of any of that party's rights powers or remedies will be of any effect unless in writing."" 26 The parties to the Tripartite Deed were the Hong Kong Bank of Australia Limited, the plaintiff (described in the Deed as "the Customer") and Dramwren. The Tripartite Deed referred to the Project Management Agreement, which was described in the Tripartite Deed as "the Agreement". 27 Clause 2 of the Tripartite Deed, which contained covenants by the plaintiff and Dramwren, provided in part as follows:- ""2.1 The Customer and Dramwren covenant and agree with Hong Kong Bank as follows:- 2.1.1 The Customer and Dramwren shall duly punctually observe their obligations under the Agreement for the benefit of each other and Hong Kong Bank; ………………………………. 2.1.5 Neither the Customer nor Dramwren shall terminate rescind or vary the Agreement by agreement with each other without the prior written consent of Hong Kong Bank." 28 Clause 2.3 of the Tripartite Deed provided in part as follows:- "2.3 The Customer covenants and agrees with Hong Kong Bank as follows:- ……………………………… 2.3.2 The Customer shall not waive any of its rights against Dramwren under the Agreement or exercise an election under clause 6.5(a) of the Agreement or issue a notice to Dramwren without the previous written consent of Hong Kong Bank."" 29 The parties to the Joint Venture Deed were Simjack Pty Ltd, Progress and Securities Management Pty Ltd and Robert Phillips as the trustee for the Charlotte Trust (these parties being described as "the Joint Venturers") and Dramwren ("the Project Manager"). The Joint Venture Deed referred to the Project Management Agreement and the Tripartite Deed. 30 Clause 2.1 of the Joint Venture Deed provided in part as follows:- ""2.1 This Deed and its operative provisions shall continue until the earlier of the following events (the "Termination Event"): …………………………… 2.1.3 the date that the Project Management Agreement is validly terminated; or 2.1.4 upon written notice from Charlotte served on the Project Manager terminating this joint venture (the "Termination Notice") but only if such notice is served on the Project Manager by the later of (a) 60 days from the date of this Deed; or (b) seven days from the date of hand delivery of written notice by the Project Manager to Charlotte of the Development Consent as defined in the Project Management Agreement."" 31 By cl 4 of the Joint Venture Deed the Joint Venturers appointed the Project Manager to conduct the project of developing and selling the property and the Project Manager accepted the appointment. 32 Under cl 6 of the Joint Venture Deed the net profits and losses of the project were to be divided and borne between the Joint Venturers in equal one-third shares. 33 Clause 14 of the Joint Venture Deed provided:- ""14 Confidentiality 14.1 All of the parties hereto agree and acknowledge that it is in the interests of the joint venture Project that knowledge of their involvement in the Project be limited. 14.2 Each of the parties for themselves, their officers and representatives covenant not to disclose to or for the benefit of any other person or corporation, except to the Joint Venturers' respective professional and financial advisers, and only for the purpose of furthering the Project:- 14.1.1 that they, or any of them, have purchased or otherwise acquired (either in whole or in part) the Property; 14.1.2 that they, or any of them, have or will have an interest in the Property; 14.1.3 the existence of any of the terms of this joint venture including, but not limited to, the financial arrangements or profits of the joint venture except as may be required for taxation purposes without the unanimous consent of all the Joint Venturers being first had and obtained. 14.2 The provisions of clause 14.1 shall not merge on completion or termination of this Deed."" 34 By the Option Deed Dramwren granted to the plaintiff a put option exercisable at any time between 30 August 1996 and 14 October 1996, whereby the plaintiff could require Dramwren to purchase the property at a price calculated in accordance with the provisions of the Option Deed. 35 On 30 December 1995 Tibor Balog sent a memorandum to Robin Wise, Mrs Phillips, Robert Phillips and Richard Arnold, complaining about Mr Jahn. In this memorandum Mr Balog said inter alia:- ""Ever since the design of Bronte was handed over to Graham Jahn, Architect, I have been agonising non-stop at the way this development is progressing. ………………………….. Certainly I am now convinced that we could have obtained much greater benefits within a much shorter time frame - more than was originally presented in the Peter Rommel plans - by improving his plans instead of a complete change. ………………………… It appears that we have a firm of architects with absolutely no practical experience in multi-storey development and therefore no consciousness of cost and/or return nor any practical concerns. They seem completely misguided on what our (Bronte) market demand will be - comparing it to Surrey Hills and other new emerging fashionable but different areas."" 36 On 8 January 1996 Robert Phillips sent a memorandum to the other joint venturers saying that the ongoing dispute between Mr Balog, Mr Wise and Mr Jahn needed urgent resolution. In the memorandum Robert Phillips said:- ""Our main objective is to see the sale of the property at the earliest opportunity and by 30 June 1996 at the latest. For this to take place a DA is required prior to February 28."" 37 On 8 January 1996 Mr Balog sent a further memorandum, saying inter alia:- ""I hate to say it, but the result of Graham Jahn's involvement so far is just short of a disaster, one would have to be blind not to see that. … Let's hand back the BA to Peter Rommel, or if for some unknown reason you resent Peter Rommel, then to others with experience."" 38 In this memorandum Mr Balog pressed Mr Wise "to hand back (that is to Mr Balog) the chief executive control" (of the development). 39 It would appear that this memorandum of 8 January 1996, although sent to Mrs Phillips and Robert Phillips, was not in fact sent to Robin Wise. 40 Mrs Phillips and Robert Phillips replied to Mr Balog's memorandum of 8 January 1996 in a joint letter of 10 January 1996. In this letter Mrs Phillips and Robert Phillips said inter alia:- ""The work we have seen from Jahn to date seems to be of good quality but to go to the BA stage with him we would want to see some more evidence of his appropriateness. We do not believe at this stage that it is correct to say 'the result of Graham Jahn's involvement so far is just short of a disaster, one would have to be blind not to see that'. ………………………….. Our position is very simple. The Management Agreement is with a Robin Wise Company and a Robin Wise Company is the Project Manager according to the Joint Venture Agreement. If the Phillips Group is forced to choose between Balog and Wise, it will therefore have to choose Wise. However, we will do what we can to bring the parties together as we believe the commercial best interests of all parties is served by their co-operation."" 41 The minutes of a meeting of the joint venturers held on 12 January 1996 noted "DA on track for 28 February 1996 deadline" and that "Mr Wise and Mr Balog propose to meet weekly, probably with the architect, to ensure proper communication and input by the joint managers". 42 On 30 January 1996 Mrs Phillips provided to the Commonwealth Bank a report on steps taken by the Milstern group to refinance indebtedness. The report stated in part:- ""The Commonwealth Bank of Australia has made it very clear that it wishes to be paid out on or before 30 June, 1996, being the expiry date of the current arrangements. Hong Kong Bank has indicated that it would prefer to be paid out on that date but if this proves not to be possible, it would consider extending its loans to the group, subject to amortisation payments being met."" 43 In the report of 30 January 1996 options to effect repayments to the Commonwealth Bank and the Hong Kong Bank by 30 June 1996 were discussed. 44 On 31 January 1996 a copy of the report of 30 January 1996 was forwarded to the Hong Kong Bank. 45 The minutes of a meeting of the joint venturers held on 2 February 1996 included the following items:- ""DA was on target and positive responses had been received from Council. Final redrawn plans to be lodged today. Council meeting on 27 February 1996. BA drawings were about 35% complete. ………………………….. Mr Wise to provide highrise credentials of G Jahn. Confirmed that G Jahn to prepare the BA and that his fees to be accepted for both DA and BA. Also agreed to engage him to prepare construction and tender documents at the nominated fee."" 46 A preliminary budget was tabled at the meeting on 2 February 1996. It contained the following particulars:- ""DA lodged 24 Nov 95 DA approved 27 Feb 96 BA lodged 15 Mar 96 BA approved 15 Apr 96"" 47 At a meeting of Waverley Council held on 27 February 1996 the application for the development of the property as prepared by Mr Jahn was conditionally approved by the Council. Notice to Mr Jahn of the granting of development approval was given by the Council in a document dated 11 March 1996. 48 In a letter dated 15 March 1996 to Mrs Phillips the Commonwealth Bank noted a foreshadowed inability of the Milstern group of companies to meet a payment due on 31 March 1996. In its letter the Bank made an offer of compromise. 49 The minutes of a meeting of the joint venturers held on 18 March 1996 recorded that the development approval "had been reviewed, major issues were acceptable" and that the building application was to be lodged at the end of the week. 50 On 29 March 1996 Mrs Phillips replied to the Commonwealth Bank's letter of 15 March 1996. She said that the offer made by the Bank would be accepted, "provided that CBA agrees to the following minor adjustments". 51 The minutes of a meeting of the joint venturers held on 3 April 1996 recorded that lodgement of the application for building approval had been delayed due to the late receipt of reports. 52 On 5 April 1996 Robert Phillips became seriously mentally ill and entered a clinic. He did not subsequently take any part in the conduct of the affairs of the plaintiff. Mrs Phillips took over the day-to-day management of the affairs of the plaintiff. 53 On 9 April 1996 the Commonwealth Bank replied to Mrs Phillips' letter of 29 March 1996. In its letter the Bank said that it did not regard the matters outlined in Mrs Phillips' letter as "minor adjustments" and what the Bank described as Mrs Phillips' "counter-offer" was rejected. The Bank reiterated the offer it had made in its letter of 15 March 1996. This offer was accepted by Mrs Phillips. 54 On 9 April 1996 the plaintiff wrote a letter to Waverley Council consenting to the building application. The letter was in the following terms:- ""We confirm we are the registered proprietors of the above mentioned property. (Bronte Inn - 107 MacPherson St, Bronte) We hereby confirm our consent is granted to Dramwren Pty Limited and its Architects - Jahn & Associates to lodge a Building Application over this properly."" 55 The building application was lodged with the Council on the same day, 9 April 1996. 56 There is in the common tender bundle a letter dated 10 April 1996 from Peter Wise's firm to Mrs Phillips. It will be necessary later in this judgment to refer to some of the evidence about this letter. The letter was in the following terms:- ""I refer to our recent telephone conversation and advise that pursuant to clause 5.4 of the Project Management Agreement either party may terminate the Agreement if Development Consent and Building Consent have not been granted by 28th February, 1996. I understand that Development Consent was granted before 28th February 1996 but that Building Consent has not yet been granted. I point out, however, that although Rebenta is entitled to terminate the Agreement pursuant to clause 5.4, Robin Wise may consider that Rebenta has waived its rights under that clause by its actions since 28th February 1996. Nevertheless, I stress that Rebenta is 100% entitled to terminate the Agreement."" 57 On 12 April 1996 both the Commonwealth Bank and the Hong Kong Bank wrote letters giving notice that Mrs Phillips' companies were in default under their facilities with the Banks and the default would not be waived. 58 On 22 April 1996 the defendant wrote a letter to Mrs Phillips in the following terms: ""I raise the following points in relation to Bronte:- A. Project Management Agreement

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Under clause 7.1(b) you are not obliged to give vacant possession of Property unless pre-sales have been achieved of $4.5million to arm's length buyers. 2. Recitals C (c) and (d) refer to the Project Manager's ("PM") appointment for the purposes of renovation of the building and sale of Strata Lots. 3. Under clause 5.3 the PM is to obtain DA and BA "with due expedition and diligence" 4. Under 5.4 either party may terminate if the DA and BA are not through by 28 February 1996. Noted that this is subject, however, to clauses 20.1 and 28.4 requiring 21 days notice. 5. Under clause 5.6 the PM must obtain the mortgagee's consent to the BA. Has this been done? 6. Under clause 5.11 the PM was not allowed to make certain alterations - this was an essential condition. However, if Rebenta has consented to the lodgement of the Plans, despite any breach of this condition, then it will be taken to have waived its rights unless we can show that we did not appreciate or understand what we were being asked to sign in agreeing to the approval of the plans being lodged with Council. Please advise. (I am aware that there were some changes and these, I believe had been approved by Robert. Query, however, whether he was acting in his capacity as Trustee of the Charlotte Trust or as a director of Rebenta? Unfortunately, I don't think it makes much difference, because he was both. 7. Under clause 6.1 once the PM has been given possession of the property (under clause 8 which should read clause 7) the PM has to commence renovation works with due expedition. Please note item 1 above. 8. Under clause 13.1 the PM warrants that it will use its best endeavours to introduce purchasers for all of the lots with the intent that such purchasers will complete by the due date so that the owner will receive the $7million by the due date, namely, 30 September 1996. Although we cannot yet terminate on this ground, we can at this stage ask the PM to "show cause", ie, how they propose to comply with this clause after telling them that we don't think that they can complete the sales by the due date etc. This clause forms a very important part of the termination strategy. I will send such a letter to Dramwren tomorrow and will send a copy for your approval first. 9. Under clause 21.1.4 if the PM "abandons the building and renovation works" we are entitled to forthwith terminate the Agreement. Unfortunately, at this stage although we can say that the situation is even worse - they never even started let alone abandoned the works - I think the response will be that they are merely slow. From the above it is clear that the overall intention is as outlined in the recitals; it is also clear that the renovation works and sales won't be through by 30 September 1996. However, against this, all the PM is required to do is to come up with $7million - which at this stage is also highly unlikely. If they come up with the funds or can demonstrate to a Court that they will shortly have the funds, under the terms of the Agreement you unfortunately will have no cause for complaint because you will receive what you are entitled to under the Agreement."" 59 On 22 April 1996 Mrs Phillips, after receiving the defendant's letter, sent a fax to the defendant, which included the instruction "Pl(ease) send letter". 60 On 22 April 1996 the defendant, acting on behalf of the plaintiff, sent the following letter to Ocean View:- ""We refer to the Project Management Agreement between Rebenta Pty Limited as Owner and your company as Project Manager dated 18th December 1995. You have failed to obtain Building Consent from Waverley Council by the date stipulated in clause 5.4 of the Agreement, namely 28th February 1996. Accordingly, you are in breach of the Project Management Agreement. Pursuant to clause 28.4 of the Project Management Agreement Rebenta Pty Limited you are hereby given twenty-one (21) days notice, time being of the essence, to remedy the breach by obtaining Building Consent from Waverley Council, failing which our client will exercise its right to terminate the Project Management Agreement."" 61 On 22 April 1996 Metway Bank wrote a letter to Ocean View, giving indicative approval to a loan to finance the redevelopment of the property. 62 On 24 April 1996 Mrs Phillips sent a fax in her own handwriting to the defendant, which was in the following terms:- ""Would you consider & discuss with Jeff 1. When I sent approval for late lodgement of BA I was not aware of contractual arrangement. Would not have sent, had I known. 2. At that time Robert was out of office so could not check - would normally expect him to handle. 3. Problems of non-compliance only came to light when you read the contract. 4. R not himself, so overlooked some things. 5. Robin Wise fooled R by telling him we had to empty Bronte by mid April - R.W. also informed on several occasions the Bank's letter of acceptance available next week. This probably not consequential. Enclose fax Balog. Going to Tasmania back Friday a.m. Saw Dr this a.m."" 63 The person "Jeff" referred to at the beginning of the fax was Mr Jeffrey Hilton of senior counsel. "Robert" and "R" were references to Mr Robert Phillips. 64 On 1 May 1996 the defendant delivered a brief to advise to Mr Hilton. The instructions to Mr Hilton were contained in a document in the following terms:- ""We act for Rebenta Pty Limited, the owner of the Bronte Inn. After many months of negotiations in November 1995 Rebenta entered into a Project Management Agreement with Dramwren Pty Ltd, a company associated with a property developer, Mr Robin Wise. A brief outline of the arrangements is as follows:- 1. Dramwren, the Project Manager, do all things necessary to obtain a DA and BA for the building so that the property can be converted to Strata Title with 55 units plus one retail shop. 2. The Project Manager market the properties and sell off the Strata Units with the intention that settlement occur by 30 September 1996. 3. The contracts for sale would be issued by Rebenta Pty Ltd and Rebenta would receive the first $7,000,000 (the Settlement Sum) which, in turn, is to be paid to Rebenta's bankers, Hong Kong Bank ("HKA"), in reduction of Rebenta's overall debt. 4. The balance of the profit is to go to a joint venture between interests associated with Mr Tibor Balog (Progress & Properties), Robin Wise (Simjack Pty Ltd) and Robert Phillips as trustee for the Charlotte Trust. 5. HKB is only aware of the Project Management Agreement and is not aware of the joint venture arrangements. 6. The project costs are under a joint venture deed, to be borne by the joint venturers and the profits divided equally. Effectively the Project Manager is a trustee for the joint venture. What has happened To date the D.A. has been approved within the time stipulated by the Project Management Agreement ("PMA"), namely by 28.2.96. Under clause 5.4 of the PMA either party may terminate if the D.A. and the B.A. are not through by 28.2.96. The B.A. was only lodged on 24 April 1996 and the Project Manager is in breach. Please, however, note the provisions of clauses 20.1 and 28.4 of the PMA which requires 21 days notice to be given in the event of breach. Such a notice was given by us on 22 April 1996. Although the letter is dated 22 April, service was only effected for the purposes of the PMA on 23 April. Under the PMA the Project Manager is to receive vacant possession of the property to carry out its building programme but under clause 7.1(b) Rebenta is not required to hand over vacant possession unless $4,500,000 worth of pre-sales have taken place. To date no pre-sales have taken place and the marketing programme is way behind schedule. The Project Manager has allegedly been trying to refinance the property by obtaining 100% finance for its building programme and the repayment of the $7,000,000 to HKB. Accordingly, the Project Manager has been looking for approximately $23,000,000. We are extremely sceptical as to whether this level of funding will be obtained. The Project Manager has maintained that Metway Bank (which has other dealings with Robin Wise) will fund up to 80% of valuation. To date we have seen nothing in writing confirming this belief. Our client's arrangements with the HKB provide that the $7,000,000 facility must be repaid by no later than 30 September 1996. With the inactivity it is now clear to us that from sales it is impossible for this to be achieved. Under clause 15.1 of the PMA the Project Manager may elect to pay the outstanding balance of the Settlement Sum owing to the HKB, in which case Rebenta will offer the property as security. The payment must be made by 30 August 1996. Millie Phillips, the principal of our client company believes the following:- 1. The Project Manager has not commenced pre-sales because the sales prices will not be achieved which will force a revaluation by any prospective lender. 2. That the Project Manager is hopeful of refinancing the property by 30 August 1996. 3. That given a movement in property prices in the Bronte area, she has sold the property too cheaply and could do better by approaching another joint venture partner (e.g. Macquarie Bank or private investors) to gain a higher return than is possible under the joint venture arrangements. 4. There has been a lot of conflict between Mr Balog and Mr Wise (no relation to the writer) and largely the joint venture is unworkable in any case. 5. Given that it is unlikely that the property will be refinanced in the manner envisaged by the PMA by 30 August 1996, our client faces difficulty with the HKB and any breach of its arrangements with HKB may have the effect of bringing down the whole group due to cross collateralisation of mortgages. Representation Made to Rebenta Our client entered into the arrangements based on the following representations:- 1. That Balog and Wise had the necessary resources to either arrange funding or put funds in place for the development to proceed. 2. That marketing would begin prior to Christmas 1995 and that the project would be completed by 30 September 1996 at the latest. 3. As a fall-back, they would be able to refinance the property prior to the cut off date for the HKB. At best, all this was wishful thinking. Breaches Our client believes that the B.A. will be pushed through by 14 May 1996 in which case we will have to look for other avenues to terminate the agreement. While there is nothing specific in the agreement requiring the Project Manager to market the property (partly due to the fall-back position of refinancing prior to 30 August 1996) the overall tenor of the agreement certainly is that marketing is to be done and that $7,000,000 will be paid out by the due date of 30 September 1996. Please see clause 13.1. Please also see my letter to Millie Phillips of 22 April 1996 giving summary of the PMA. The Joint Venture Under clause 3 of the Joint Venture Agreement ("JVA") the objects of the Project Manager and the joint venturers are to renovate, strata and develop the property and to sell it. This they have as yet not done. Under clause 2.1.3 of the JVA the joint venture will terminate if the PMA is validly terminated. Tripartite Deed Under a Tripartite Deed with the Project Manager and HKB a second mortgage has been given to the Project Manager. Under clause 2.1.5 our client cannot terminate the PMA without the prior written consent of HKB and under clause 2.1.3 our client is to notify the HKB of any material default by the PMA (we have not as yet notified the Bank of our notice of 22 April 1996 re the B.A.) Mortgage The Mortgage which, at today's date according to our search has not yet been registered nor a caveat lodged, provides under clause 1 that the charge is to secure the performance by the mortgagor (Rebenta) under the PMA. Presumably, if the PMA has been terminated then the mortgage would also have to be discharged. Although not yet registered we still may have a difficulty with the mortgage should a caveat be lodged and the PMA terminated. Your advices Your advices are sought on how best our client can extricate itself from the arrangements. Documents Enclosed:- 1. Project Management Agreement 2. Deed of Joint Venture 3. Mortgage 4. Tripartite Deed 5. Brief advice to Millie Phillips dated 22.4.96 6. Notice to Dramwren Pty Ltd re breach dated 22.4.96"" 65 On 1 May 1996 the defendant and Mrs Phillips attended a conference with Mr Hilton. At the conference Mr Hilton advised that a letter should be sent to Ocean View setting out the matters of concern to the plaintiff regarding the joint venture. 66 On 2 May 1996 the plaintiff prepared for the defendant a statement by her about "the sale of the Bronte Inn to Robin Wise". The statement included a passage in which the plaintiff said:- ""Of course you know my bankers would be astounded to learn that I was involved in the development."" 67 As advised by Mr Hilton, a letter was sent by the defendant to Ocean View on 8 May 1996, outlining complaints by the plaintiff about the joint venture. 68 On 10 May 1996 Waverley Council granted its consent to the application for building approval. 69 On 16 May 1996 Robin Wise replied at length, point by point, to the letter of 8 May 1996. Mr Wise concluded:- ""In summary then it is clear that the interest of the joint venturers and particularly Rebenta have been paramount at all times and that all parties stand to gain substantially from the sustained efforts of my company. Accordingly, I trust this submission adequately satisfies all of your concerns, such that we can again move forward in a harmonious manner to our mutual benefit."" 70 The redevelopment of the property in accordance with Mr Jahn's design proceeded and was ultimately completed. The plaintiff received $7m for the sale of the property. The plaintiff's share of the profit on the project for the redevelopment of the property was $446,119.

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I said: "That's impossible because the plans haven't been completed and there's nothing for Metway to approve. Send the fax anyway."" The defendant's first affidavit 73 The defendant responded to Mrs Phillips' affidavit of 14 November 2002 in an affidavit of 13 August 2003 and in particular at paras 61-85. In his affidavit the defendant denied the conversations alleged in pars 44, 45, 46, 47,50, 51, 52 and 53 of Mrs Phillips' affidavit. 74 In his affidavit the defendant said (par 62) that after the Council had granted Development Consent he had on 28 February 1996 had a conversation with Mrs Phillips in which Mrs Phillips had said, "they got the DA through last night. There is not much I can do about that now, is there?" and the defendant replied "No". 75 With regard to the letter of 10 April 1996 the defendant said in par 71:- ""In response to paragraph 48 of the affidavit of Mrs Phillips sworn on 14 November 2002, I do not recall dictating, authorising, drafting or writing the letter dated 10 April 1996. I had never seen this letter prior to it being served with Mrs Phillips's affidavit. I do not believe that I drafted this letter, given the inconsistent advice in the penultimate and ultimate sentences of the letter. Further, I would never tell a client that it was "100% entitled" to terminate any agreement."" 76 In his affidavit the defendant said that there had not been any conference or meeting with Mr Hilton on 12 April 1996 and that the first conference with Mr Hilton had been on 1 May 1996 and the defendant denied that at that conference the things alleged by Mrs Phillips in par 49 of her affidavit had been said. 77 In his affidavit the defendant gave an account of what he said had happened in the second half of April 1996. In par 72 he said that at some time between Friday 19 April 1996 and Sunday 21 April 1996 he had had a conversation with Mrs Phillips outside the clinic where Robert Phillips was a patient. The conversation was to a large extent about Mr Robert Phillips. In part of the conversation Mrs Phillips said words to the effect "I would love to get out of the development. Is there any way I can get out of the contract?" And the defendant said "I will have a look at it for you and let you know". 78 The defendant said that, although he had been aware that Mrs Phillips was unhappy with the deal, this was the first time he had received instructions to consider how the plaintiff might terminate the Project Management Agreement. 79 After his conversation with Mrs Phillips the defendant reviewed the documents and on 21 April 1996 he had a conversation with Mrs Phillips to the following effect (par 75):- ""I said: "Have they got the BA yet?"

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"I have been looking at the agreements. I have come up with a great idea. There is a provision in the agreement, clause 5.4, which provides that the BA had to be approved by 28 February failing which the agreement can be terminated. However, on any view, you would have to give notice which is required under the agreement for breach. I don't know if we can get away with it. From what Robert had told me, he has agreed at all times to the delay of the BA and there have been all sorts of arguments. So it is unlikely you will be able to get away with it but it is worth a try" She said: "Good". I said: "I will write to you later."" 80 On 22 April 1996 the defendant sent the letter of advice of that date to Mrs Phillips, and he received Mrs Phillips' fax of 22 April 1996. He sent the notice of 22 April 1996 to the directors of Ocean View. 81 The defendant said to Mrs Phillips that he wanted to get Mr Hilton to look at all of the plaintiff's options "to see if there is any way that you can get out of the agreement" and Mrs Phillips agreed to take this advice. 82 Paragraph 80 of the affidavit was in the following terms:- ""After 26 April 1996, and probably when I (was) informing Mrs Phillips of the conference fixed with Mr Hilton for 1 May 1996, I had a conversation with Mrs Phillips to the following effect. She said: "They have lodged the BA. When does the 21 days' notice expire." I said: "It wasn't faxed until after 5.00pm on 22 April so it is deemed to have been served on 23 April. On that basis the 21 days expires on 14 May." She said: "They will get it through by the 14th." I said: "That is why we are going to Jeff to look at all your options."" 83 The defendant received a letter from Mrs Phillips on 24 April 1996 asking the defendant to "consider and discuss with Jeff" certain matters. 84 The defendant appointed a conference with Mr Hilton and a conference which Mrs Phillips attended took place on 1 May 1996. Also present was a junior barrister Mr Orlov. Mr Hilton had told the defendant not to deliver a brief before the conference, as Mr Hilton would not have the time to read it. At the conference Mr Hilton read the brief the defendant had prepared and delivered. Mr Hilton advised sending a letter to the directors of Ocean View.

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Further affidavits 85 In an affidavit of 10 October 2003 Mrs Phillips said that on 28 February 1996 she was in India and that she returned to Australia on or about 4 March 1996. She said that the signature on the letter of 10 April 1996 appeared to be that of Margaret Rowley, a paralegal employed by the defendant. She did not recollect having a conversation with the defendant on 21 April 1996 as alleged by the defendant. She reiterated that the conference with Mr Hilton had been on 12 April 1996. 86 In an affidavit by the defendant of 14 May 2004 he accepted that Mrs Phillips had been away from Australia until 4 March 1996 and that the conversation, which he had said in par 62 of his earlier affidavit had been on 28 February 1996, might have been on or about 4 March 1996. In this affidavit the defendant confirmed that the signature on the letter of 10 April 1996 was that of Margaret Rowley. 87 In an affidavit of 27 February 2007 the defendant gave further evidence about the letter of 10 April 1996. He said that that the first time he had seen the letter was when he had received a copy of it as an exhibit to Mrs Phillips's first affidavit. The defendant added:- ""13. I have always been aware that at one stage of my dealings with Mrs Phillips concerning the Bronte Inn I had a discussion with her in which she asked me to send her a letter which she could use to "scare" Dick Arnold, who was at that time a director of some of Mrs Phillips' companies and the partner of Robin Wise and advisor to Tibor Balog (the other two joint venture parties). 14. In particular, I recall being telephoned by Mrs Phillips on an occasion when I was in my car. For the reasons set out in paragraphs 18 to 22 I now believe that this conversation occurred on or shortly before 10 April 1996. The conversation was in words to the following effect: Mrs Phillips: "Dick keeps promising me "finance approval will be through next week or in 2 weeks' for Robin. He's been saying this for weeks and nothing has happened. I've lost confidence that Robin can come up with the finance he always promised. Can you come up with something that I can show Dick to scare him that I could terminate if I wanted to". Peter Wise: "I will send you something as soon as I can". Mrs Phillips: "Can you send it to me today."" 88 In pars 22 and 23 of this affidavit the defendant said:- ""22. Margaret Rowley was employed by me as a paralegal from 1988 until 1997 and then again from 1999 to 2002. When I employed her in 1988, I believe that she had over 20 years experience at that time. I regarded her as extremely knowledgeable and competent and it was not unusual for her to draft, sign and send letters on behalf of the firm. 23. During the time that Margaret Rowley was employed by me only on rare occasions did I dictate letters to her on a "word for word" basis. Usually, I would explain an issue to her and ask her to write a letter along those lines."" 89 The defendant said in his affidavit that he had perused his files and could not find any other letter which could have been the "scare" letter. It was submitted on behalf of the defendant that I should infer that the letter of 22 April 1996 was the "scare" letter. 90 I will now make some findings of fact. 91 On or about 4 March 1996, after the Council had granted Development Consent and after Mrs Phillips had returned from India, a conversation took place between Mrs Phillips and the defendant. At the hearing it was accepted by Mrs Phillips that in this conversation the defendant could not have said the words attributed by her to him in par 44 of her affidavit of 14 November 2002, because, if he had, she would, consistently with her case in these proceedings, have immediately sought to terminate the Project Management Agreement on the ground that building approval had not been granted by 28 February 1996. 92 I accept that a conversation to the effect of that deposed to by the defendant in par 62 of his first affidavit took place and, indeed, in one of her affidavits Mrs Phillips deposed to a conversation to that effect having taken place. I do not accept that the defendant, by saying "No", was merely confirming that, as a matter of fact, development approval had been granted. I consider that Mrs Phillips was seeking, and that the defendant understood that she was seeking, legal advice about whether there was anything she could do to extricate the plaintiff from the Project Management Agreement, now that Development Consent had been granted. In oral evidence at the hearing the defendant said that one reason why he had given the answer "No" in this conversation was that he considered that the plaintiff would be estopped from terminating the Project Management Agreement. 93 I do not consider that a conversation as alleged by Mrs Phillips in par 45 of her first affidavit took place on or about 21 March 1996. 94 The letter of 10 April 1996 is puzzling. Mrs Phillips in her first affidavit said that she did not remember receiving the letter, even though it was available to her to be exhibited to her affidavit. The defendant in his first affidavit said that he did not recall ever having seen the letter before it was exhibited to Mrs Phillips's first affidavit and he concluded that he had not drafted the letter. In his last affidavit the defendant gave evidence of facts from which an inference was sought to be drawn that the letter had been prepared at Mrs Phillips's request to frighten Richard Arnold and Robin Wise into believing that the plaintiff might terminate the Project Management Agreement. 95 I find that the letter of 10 April 1996 was drafted by Margaret Rowley, the paralegal employed by the defendant. However, Margaret Rowley would not have drafted, signed and sent the letter, without having received instructions at least of a general nature from the defendant. 96 I do not accept that the letter was prepared as a "scare" letter to frighten Richard Arnold or Robin Wise into believing that the plaintiff might terminate the Project Management Agreement. Its efficacy for any such purpose would have been greatly reduced by the part of the final paragraph of the letter in which a possible ground for resisting any purported termination was exposed. In any event, the attempted explanation of the letter seems to me to be farfetched. 97 The reference in the letter to "our recent telephone conversation" and the nature of the advice given in the letter indicate that in some conversation shortly before 10 April 1996 Mrs Phillips had asked the defendant for advice about terminating the Project Management Agreement. 98 It is quite clear from contemporaneous documents that Mrs Phillips was wrong in saying that there was a conference with Mr Hilton on 12 April 1996. The first conference with Mr Hilton was on 1 May 1996. The contemporaneous documents requiring this conclusion include the terms of the brief to Mr Hilton to advise of 1 May 1996 and memoranda of fees from Mr Hilton and Mr Orlov, including fees for a conference on 1 May 1996 but not for any earlier conference. 99 The defendant did not deliver a brief to Mr Hilton before the conference, because Mr Hilton had told the defendant that he would not have time to read any brief which was delivered before the conference was held. The brief prepared by the defendant was delivered to Mr Hilton at the conference and it included copies of the agreements or deeds. Mr Hilton had the opportunity of reading these documents at the conference. 100 Mrs Phillips's error about the date of the conference with Mr Hilton necessarily entails that much of her other evidence in the parts of her affidavit which I have quoted cannot be correct, including her evidence about the advice allegedly given by Mr Hilton to send a 21 day notice and to do it quickly and the alleged conversations between Mrs Phillips and the defendant between 12 April and 19 April 1996. In any event, it is inherently improbable that an experienced and generally competent solicitor like the defendant, who had acted for Mrs Phillips for many years and who was a personal friend of her son, would have disregarded daily reminders from Mrs Phillips to send a notice which counsel had advised should be sent. 101 Mrs Phillips and the defendant assigned different dates to the conversation in which the defendant said he had a "brilliant" or "great" idea, Mrs Phillips saying the conversation occurred about 9 April 1996 and the defendant saying it occurred on 21 April 1996. Mrs Phillips' evidence included saying that the defendant said that he wanted to see Mr Hilton, which would be consistent with her evidence, which I have rejected, that the conference with Mr Hilton took place soon afterwards, on 12 April 1996. Her evidence also included references to her evidence of an alleged previous conversation on 21 March 1996, which I have rejected. I find that this conversation occurred on the day alleged by the defendant and was in the terms alleged by the defendant. 102 I accept that a conversation between Mrs Phillips and the defendant occurred, as alleged in par 80 of the defendant's affidavit.

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Retainer of the defendant by the plaintiff 104 It is, of course, an element of the plaintiff's cause of action for alleged professional negligence that the defendant was retained as a solicitor by the plaintiff. 105 Counsel for the plaintiff submitted that I should find that there was a continuing retainer of the defendant by the plaintiff from August 1995 up to and including 22 April 1996 and, indeed, past 22 April 1996. 106 Counsel for the defendant submitted that I should find that there were two separate retainers from the plaintiff to the defendant, namely:-

A retainer given in late August 1995 to prepare or assist in the preparation of formal documents to give effect to the deal struck between Mrs Phillips, Tibor Balog and Robin Wise.
A retainer to advise the plaintiff, which was not given until 19 April 1996. 107 Counsel for the defendant submitted that there was no other retainer of the defendant by the plaintiff and that there had not been a continuing retainer of the defendant by the plaintiff from August 1995 to April 1996. 108 Counsel for the plaintiff submitted that the giving of a retainer was admitted on the pleadings. Paragraphs 8, 8.1 and 8.2 of the fourth further amended statement of claim (which I will sometimes refer to simply as "the statement of claim") were in the following terms:- ""8. At all material times the defendant acted on behalf of the plaintiff in relation to the agreement and the development of the land. 8.1 At all material times the defendant owed the plaintiff a duty as its solicitor that in so acting he would perform his role with all due care and skill and exercise professional knowledge and skill in the lawful protection and advancement of the plaintiff's interests in relation to the agreement and the development. 8.2 Prior to 8 April 1996 the plaintiff sought the advice of the defendant as to its rights to terminate the agreement including such rights as might accrue consequent on the matters referred to in paragraph 7 above."" 109 In par 7 of the fourth further amended statement of claim it was alleged that Building Consent had not been granted by the Council on or before 28 February 1996. In par 12 of the Defence to the fourth further amended statement of claim the defendant, subject to a qualification which is not material, admitted par 8 of the fourth further amended statement of claim. In par 10 of the Defence the defendant, in answer to par 8.1 of the fourth further amended statement of claim, admitted that he owed the plaintiff a duty of care when he was retained by the plaintiff in respect of the matters the subject of the retainer but otherwise denied par 8.1 of the fourth further amended statement of claim. 110 In par 11 of the Defence the defendant denied par 8.2 of the fourth further amended statement of claim. 111 Having regard to the ambiguity and vagueness of the expression "at all material times", the express denials in pars 10 and 11 of the Defence and to the way in which the proceedings were conducted, both in the taking of evidence and in the making of submissions, I do not consider that I should regard the question of retainer as having been determined by the pleadings. 112 Some of the findings of fact I have already made are relevant to the issue of retainer, for example my rejection of the explanation of the letter of 10 April 1996 given by the defendant in his affidavit of 27 February 2007. 113 In my opinion, between 18 December 1995 (the date when a first retainer to prepare or assist in the preparation of formal documents was completed by performance) and 19 April 1996 there were two retainers of the defendant by Mrs Phillips acting on behalf of the plaintiff. 114 The first of these retainers was in the conversation between Mrs Phillips and the defendant on or about 4 March 1996. I have already stated my view that in this conversation Mrs Phillips was seeking legal advice and the defendant understood that Mrs Phillips was seeking legal advice and that the defendant's answer "No" to the question asked by Mrs Phillips amounted to the giving of legal advice and was not merely a confirmation of the fact that Development Consent had been granted. 115 On the other hand, I accept an alternative submission made by counsel for the defendant that the retainer was a request for limited, and not general, advice, being limited to a request by Mrs Phillips for confirmation that, Development Consent having been granted, any opportunity of terminating the Project Management Agreement on the ground that Development Consent had not been granted by 28 February 1996 had been lost. 116 The second retainer of the defendant by Mrs Phillips on behalf of the plaintiff was in a conversation which I have already found happened shortly before 10 April 1996 and which led to the writing of the letter of 10 April 1996. However, I consider that this retainer, like the retainer on or about 4 March 1996, was a limited retainer, which was performed by the writing of the letter of 10 April 1996. 117 Counsel for the plaintiff sought to fit the letter of 10 April 1996 into a connected series of events, commencing with the previous telephone conversation referred to in the letter and including the alleged conference with Mr Hilton on 12 April 1996, the advice allegedly given by Mr Hilton at that conference and the subsequent alleged failure of the defendant to carry out that advice. However, I have already found that there was no conference with Mr Hilton on 12 April 1996 and that there were no telephone conversations between Mrs Phillips and the defendant between 12 April 1996 and 19 April 1996 as alleged by Mrs Phillips. 118 In my opinion, the telephone conversation before 10 April 1996 and the letter of 10 April 1996 formed a separate, discrete retainer. 119 Apart from these two interventions by Mrs Phillips, the person who would have given any instructions to the defendant to advise in relation to the Project Management Agreement would have been Mr Phillips, who was Mrs Phillips' son, a director of the plaintiff, a qualified solicitor who had practised as a solicitor, the trustee of the Charlotte Trust and the person who had been authorised by Mrs Phillips to deal with the defendant. Mr Phillips gave evidence, which I accept, that between August 1995 and 5 April 1995, when he was admitted to the clinic, he never instructed the defendant to advise in relation to the Project Management Agreement. 120 Mr Phillips gave evidence, which I accept, that he was aware from January 1996 onwards that his mother was unhappy with the other joint venturers and that, before 28 February 1996, she wished to terminate the Project Management Agreement, if Development Consent, that is a resolution by the Council granting Development Consent, was not obtained by 28 February 1996. Mr Phillips would have supported such a termination, because a failure to obtain Development Consent for the project by 28 February 1996 would have meant that the whole project was in serious trouble. 121 I accept the submission made by counsel for the defendant that a retainer to advice generally was given on or about 19 April 1996, and not before. That the retainer was given then fits in with the actions of the parties on 22 April 1996, the first working day after the weekend, and on the following days. 122 I accept a submission made by counsel for the defendant that the differences between the evidence of Mrs Phillips and the evidence of the defendant about events in March and April 1996, and the dates on which those events happened, became of less importance as the hearing progressed, because the plaintiff's case that the defendant had been negligent concentrated more and more on the letter of advice and the notice of 22 April 1996. By 22 April 1996 the defendant had clearly been retained to advise generally in relation to the Project Management Agreement.

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Construction issues 123 A number of issues were argued under the general heading of the "construction" of the Project Management Agreement and particularly cl 5.4 of the Agreement. I will deal with these issues in turn.

Whether the expression "Development Consent" in cl 5.4 of the Project Management Agreement should be interpreted as having the meaning given to the expression "Development Consent" in the definition in cl 1.1(h) of the Project Management Agreement, that is "written consent from the Council to the Development Application" or as having the meaning of Development Consent being granted by a resolution of the Council, without the need for any writing. 124 If the expression "Development Consent" has the former meaning in cl 5.4, then a condition on which the operation of cl 5.4 is premised, insofar as it refers to Development Consent, would have been fulfilled and, leaving aside any other questions, a right to terminate the Project Management Agreement would have arisen. On the other hand, if Development Consent has the latter meaning, then neither of the conditions on which the operation of cl 5.4 is premised, insofar as it refers to "Development Consent", would have been fulfilled and a right to terminate the Project Management Agreement, on the ground of an absence of Development Consent, would not have arisen. 125 Counsel for the defendant submitted that "Development Consent" in cl 5.4 should be interpreted as meaning simply the granting of Development Consent by the Council. Counsel submitted that, in accordance with general principles of statutory construction, I should, in interpreting the Project Management Agreement, take into account background knowledge which would have been available to the parties at the time the Project Management Agreement was entered into on 18 December 1995. This background knowledge would have included knowledge that the application for Development Consent, which had already been lodged with the Council, was unlikely to come before the Council for the granting of consent, before the meeting of the Council to be held near the end of February 1996, that is just before the date 28 February 1996 in cl 5.4. 126 It was submitted by counsel for the defendant that in cl 5.4 the focus was on the granting of Development Consent and that there was the same focus on the obtaining or granting of Development Consent or Building Consent in other provisions of the Project Management Agreement, including cl 5.7. The event on which the operation of cl 5.4 was premised was the Project Manager not obtaining "the Development Consent approval" by 28 February 1996. 127 I do not consider that I should interpret "Development Consent" in cl 5.4 as having a meaning different from that given to the expression in par (h) of the definitions provisions cl 1.1. I note that in cl 5.4 the two words of the expression have initial capital letters, suggesting that the words are to be taken as having a special meaning, being the meaning given in the definitions provision, where the two words of the expression also have initial capital letters. 128 The use elsewhere in the Project Management Agreement of expressions other than "Development Consent" suggests that those other expressions were intended to have different meanings from "Development Consent" as defined in the agreement, rather than that the expression "Development Consent" in cl 5.4 was intended to have the same meaning as those other expressions.
An alternative submission made by counsel for the defendant was that, if "Development Consent" in cl 5.4 is to be interpreted as having the meaning given to that expression in the definition in cl 1.1(h), that is written consent from the Council to the Development Application, then there had been such a written consent by 28 February 1996. 129 This submission raises an issue which is not really an issue of construction but it is convenient to deal with it in this part of my judgment. 130 Counsel for the defendant submitted that a document could constitute a written consent, without being the document formally notifying the applicant for Development Consent that Development Consent had been granted. 131 Counsel for the defendant referred to a number of documents, including a fax from Mr Jahn to Mr Robin Wise of 23 February 1996, informing Mr Wise that the development application had gone before the Council's Building Board, so that the application was on schedule to make the meeting of the Council to be held on 27 February; and a fax from Mr Jahn to Mr Robin Wise of 24 February 1996, communicating the contents of the Council planning report, which was favourable to the application. 132 The document particularly relied on by counsel for the defendant was the minutes of the meeting of the Council on 27 February 1996 recording that a motion that the report recommending approval of the application be adopted, subject to certain stated amendments, was put and carried at the Council meeting on 27 February. A witness Lara Kirchner, whose statement was read, gave evidence that in 1996 she had been employed by Waverley Council and that it had been the usual procedure of the Council for a handwritten minute of any resolution passed by the Council to be made at the Council meeting by a minute taker and for a typed written minute to be made the following day. Counsel for the defendant submitted that the handwritten minute and the typed written minute which would have been made in accordance with the Council's usual procedure, would have come into existence by 28 February 1996 and would have constituted written Development Consent. 133 I do not consider that any of the documents referred to by counsel for the defendant amounted to "written consent" from the Council to the development application. The documents which were brought into existence before Council passed its resolution would not meet this criterion. The handwritten and typed minutes of the passing of the resolution granting Development Consent, which were prepared for the purposes of the Council's own records, would not, in my opinion, amount to written consent "from" the Council to the development application. 134 I consider that there is force in a submission made by counsel for the plaintiff that under ss 92 and 93 of the Environmental Planning and Assessment Act, as they then stood, the notice of the determination of the development application given to the applicant was not a mere formality. Under these sections the date of the determination by Council and the date from which the Development Consent operated had to be endorsed on the notice.
A submission was made by counsel for the defendant that, as a matter of construction of the Project Management Agreement, cl 5.4 should be read out of the Agreement, because of its inconsistency with cl 5.7. 135 In support of this submission counsel for the defendant referred to Westpac v Tanzone (2000) NSWCA 77, in which the Court of Appeal held that a provision which the Court considered had been omitted by mistake from a lease should be regarded as added to the lease, so as to prevent an absurdity. 136 I accept that the presence in the Project Management Agreement of both cl 5.4 and cl 5.7 produces odd consequences. For example, if there had been no grant of Development Consent by 28 February 1996, then it would seem that the plaintiff could have terminated the Project Management Agreement, either under cl 5.4 with the consequence that it would have no claim against the Project Manager, or under cl 5.7 with the consequence that any claim it had against the Project Manager would not be affected. 137 However, it would be a drastic step to read cl 5.4 out of the agreement, as a matter of construing the agreement. 138 I note that under cl 5.4 a conditional right to terminate the Project Management Agreement is conferred on the Project Manager, whereas no such right is conferred by cl 5.7. 139 The case of Tanzone to which counsel for the defendant referred was an extreme case, where the consequences of a literal interpretation of the words actually appearing in the lease would have been truly absurd.
It was submitted by counsel for the defendant that, as a matter of construction, the words "and Building Consent" should be read out of cl 5.4 of the Project Management Agreement. 140 Counsel for the defendant submitted that background facts which would have been known to the parties at the time they entered into the Project Management Agreement would have included that it was common practice, especially in the case of a large proposed development, not to lodge an application for Building Consent until after Development Consent had been granted and then to lodge an application for Building Consent which took into account the conditions on which Development Consent had been granted and that, in the present case, the application for Development Consent which had already been lodged, would not be dealt with by Council until its meeting just before 28 February 1996. 141 Counsel also pointed to cl 5.1.2 of the Project Management Agreement which provided that an obligation of the project manager was to submit a building application, which was to be done as soon as practicable but which allowed a period of up to six weeks after Council's approval of the development application. 142 There is undoubtedly some force in these submissions by counsel for the defendant but I do not consider that I would be warranted in construing cl 5.4 as if the words "and Building Consent" did not appear in the clause.
It was common ground at the hearing that, if cl 5.4 was to be regarded as remaining in the Project Management Agreement, then, if a condition for the operation of cl 5.4 was fulfilled, either party could immediately terminate the Project Management Agreement by giving a notice to the other party and that the fulfilment of a condition for the operation of cl 5.4 would not be a "breach" within cl 20.1 of the Project Management Agreement or a "default" under cl 28.1 of the Agreement, so as to require the giving of a 21 day notice under either of those provisions.

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Rectification 143 The defendant's case on the subject of the rectification of the Project Management Agreement was pleaded in pars 27A to 27J of the Defence to the fourth amended statement of claim, as follows:- ""27A In further and alternate answer to the whole of paragraphs 1 to 23.2, the defendant says that clause 5.4 of the agreement did not reflect the common intention of the parties to the agreement at the time of the agreement to the extent that the clause purported to provide that, if Building Consent was not to be granted by 28 February 1996, either party to the agreement may terminate the agreement. 27B The common intent of the parties to the agreement at the time of the agreement was that there was no requirement that the Building Consent be obtained by 28 February 1996 or at any specified time except as provided by clause 5.1.2 of the agreement (the "common intent"). 27C At all material times, the agreement was liable to be rectified so as to reflect the common intent by deleting the words "and Building Consent" from clause 5.4 of the agreement. 27D By 28 February 1996, Development Consent had been obtained in respect of the project the subject of the agreement and, not later than 6 weeks thereafter, Building Consent was lodged in respect of the project in accordance with clause 5.1.2 of the agreement. 27E If, either on 21 days notice of termination or forthwith, the plaintiff had purported to terminate the agreement by reason of any failure to obtain Building Consent by 28 February 1996 or, alternatively, within 21days of any notice of termination, Oceanview would have contested the validity of the purported termination of the agreement by the plaintiff. 27F The contest by Oceanview as to the validity of the purported termination by the plaintiff would have included an application by Oceanview to the Court for an order rectifying the agreement so as to reflect the common intent by deleting the words "and Building Consent" from clause 5.4 of the agreement and for an order specifically enforcing the agreement as rectified and for further and consequential orders, including costs. 27G The Court would have made orders so rectifying and so enforcing the agreement. 27H Upon rectification of the agreement, even if the plaintiff could have validly terminated prior to that time (which is denied), the plaintiff would no longer have been entitled to validly terminate the agreement with effect as and from the date of the agreement by reason of any alleged failure to obtain Building Consent by 28 February 1996. 27I Any purported termination of the agreement by the plaintiff by reason of the failure by any party to obtain Building Consent by 28 February 1996 would have been found by the Court to have been wrongful and the plaintiff would have been compelled to specifically perform its obligations under the agreement. 27J In the premises, any breach of retainer and duty of care as alleged by the plaintiff against the defendant (which is denied) could not have caused and did not cause any loss or damage to the plaintiff."" 144 These allegations in pars 27A to 27J of the Defence were disputed by the plaintiff. 145 The defendant did not in the Defence made a claim that the Project Management Agreement be rectified. He would have had no standing to make such a claim, because he was not a party to the Project Management Agreement, the parties to which were the plaintiff and Dramwren (or Ocean View). 146 However, the defendant alleged in the Defence that cl 5.4 of the Project Management Agreement, insofar as it conferred a right to terminate the agreement if Building Consent was not granted by 28 February 1996, did not reflect the common intention of the parties to the Project Management Agreement at the time the Project Management Agreement was entered into and that, if the plaintiff had purported to terminate the Agreement on the ground that Building Consent had not been granted by 28 February 1996, Ocean View would have been entitled to apply to have the Agreement rectified by deleting the words "and Building Consent" from cl 5.4, that Ocean View would in fact have brought proceedings for rectification and that those proceedings would have been successful and upon a court making an order for rectification of the Project Management Agreement the purported termination of the agreement by the plaintiff would have been invalidated. 147 If the allegations made by the defendant in the Defence were established, they would be relevant to the issues of whether the defendant had been negligent and whether, if the defendant had been negligent, his negligence had caused the plaintiff any loss or damage. 148 In support of his case on rectification the defendant relied on arguments based on the history of the drafting of the Project Management Agreement, on an argument that there was no rational explanation for the inclusion of the words "and Building Consent" in cl 5.4 and on an argument that cl 5.4, if the words "and Building Consent" were included in it, would be in conflict with cl 5.1.2 of the Project Management Agreement. 149 As I stated earlier in this judgment, the task of drafting the Project Management Agreement was primarily allocated to the defendant and between early September 1995 and mid November 1995 the defendant prepared at least nine drafts of the Project Management Agreement. These drafts were submitted to Mr Newhouse as solicitor for Ocean View, which was controlled by Mr Robin Wise. From a certain point of time drafts were also submitted to Blake Dawson Waldron solicitors acting for the Hong Kong Bank. 150 The summary in the defendant's written submissions of the tortuous history of the drafting of the Project Management Agreement covers many pages of the written submissions. In my opinion, this summary is an accurate summary of the history of the drafting of the Agreement but I do not propose to repeat all of it in this judgment. I will refer only to certain parts of the history of the drafting of the Agreement which are central to the defendant's submissions. 151 On 25 September 1995 the defendant prepared a sixth draft of the Project Management Agreement. This was the first draft of the Project Management Agreement to be sent to the Hong Kong Bank or its solicitors. At this stage the clause in the agreement which ultimately became clause 5 was numbered as clause 6 and the clause which ultimately became cl 5.4 read:- ""6.4 In the event that Council refuses to grant Development Consent or has not granted Development Consent by 31 December 1995 either party may by notice in writing to the other terminate this agreement and neither party shall have any right or action or claim for damages or specific performance against the other."" 152 Blake Dawson Waldron prepared a Memorandum of Comments on the draft, which was dated 11 October 1995. The comments included the following (item 4):- ""4. Add the word "Building Application" to the heading in clause 6. In addition, add a further clause to clause 6 specifically requiring the Project Manager to prepare the building application and to seek and obtain a Building Application Approval from Council. The Building Application should be provided to the Bank for its review and consent, prior to it being lodged with Council."" 153 Up until this point there had not been any provision in any draft of the Project Management Agreement about the obtaining of Building Consent. 154 The Memorandum of Comments was communicated to the defendant and the defendant replied in a letter of 13 October 1995. In this letter the defendant, adopting the same numbering system as Blake Dawson Waldron had in the Memorandum, said inter alia:- ""4. Agreed subject to the Bank's consent not being unreasonably withheld and a five working day turn around time so as not to delay the project."" 155 In the letter of 13 October 1995 the defendant said in reply to another comment made by Blake Dawson Waldron in their Memorandum of 13 October 1995:- ""The parties are agreeable to a right to terminate the Agreement to be available in the event that Development Approval is not obtained prior to 28 February 1996 or that Building Approval is not obtained prior to 30 April 1996."" 156 Blake Dawson Waldron responded to the defendant's reply in a letter of 17 October 1995. In this letter Blake Dawson Waldron said inter alia:- ""6. ………… Development Approval and Building Approval must be obtained by 31 December 1995. The failure to obtain these approvals by that date must give the owner a right to terminate. The Bank will not agree to any extension beyond 31 December 1995."" 157 I accept that this passage in Blake Dawson Waldron's letter of 17 October 1995, although it related to a different clause in the Project Management Agreement, was the "genesis" of a requirement made by Blake Dawson Waldron in their later letter of 31 October 1995, with regard to the clause which became cl 5.4. 158 On 31 October 1995 Blake Dawson Waldron wrote a long letter to the defendant, enclosing copies of the draft Project Management Agreement and draft Tripartite Deed, incorporating amendments made in handwriting which were required by the Hong Kong Bank. 159 In their covering letter Blake Dawson Waldron said inter alia:- "Project Management Agreement" 1. We have added reference to the Building Consent and Application in a number of the provisions of clause 6. 2. We note the provisions for a mortgage to be given to the Project Manager have been deleted. However, the priority provisions in the Tripartite Deed have been retained: see clause 4. Should the priority provisions be deleted? Will the Project Manager lodge a caveat? If so, the Bank will want to review the terms of the caveat prior to signing documents. 160 In the letter of 31 October 1995 Blake Dawson Waldron referred to other parts of the Project Management Agreement. 161 Clauses 6.1, 6.2,.6.3, 6.4 and 6.7 as they appeared in the latest draft prepared by the defendant and before the amendments made by Blake Dawson Waldron, were in the following terms:- ""6.1 The Project Manager will on behalf of the Owner but at the Project Manager's own expense:- 6.1.1 prepare the Development Application, draft Strata Plan and Building Application, and 6.1.2 submit the Development Application, draft Strata Plan and Building Application to the Council. 6.2 Forthwith upon receipt by the Project Manager of Development Consent or any written refusal from the Council in relation to the Development Application the Project Manager will submit a copy thereof to the Owner. 6.3 The Project Manager will use its best endeavours and do all things reasonably necessary to obtain Development Consent with due expedition and diligence. 6.4 In the event that Council refuses to grant Development Consent or has not granted Development Consent by 31st December 1995 either party may by notice in writing to the other terminate this Agreement and neither party shall have any right or action or claim for damages or specific performance against the other. 6.5 In the event of the Council granting the Development Consent but imposing additional conditions over and above the conditions contained in the current Development Consent which would (other than arising from the plans and specifications forming part of the Project Manager's Development Application and the application of the conditions of the Development Consent thereto);- (a) entail the Project Manager having to expend more than $100,000 in meeting such additional requirements of Council (except in the event that the Owner elects within seven days of being notified in writing by the Project Manager of the amount in excess of $100,000 to allow the amount in excess of $100,000 as a deduction from the Settlement Sum by notice in writing to the Project Manager) ; or (b) have the effect of reducing the sale prices which may be reasonably anticipated by the Project Manager for the lots by an aggregate of 10% then for the purposes of this Agreement the Development Consent shall be deemed to be a refusal and either party may by notice in writing to the other rescind this Agreement PROVIDED THAT the owner shall not be entitled to rescind this Agreement pursuant to this clause in the event that the Project Manager elects to proceed with the Development Consent as approved and notifies the Owner in writing of such decision within the seven day period stipulated in sub-clause (a). 6.6 Prior to lodgement of the Building Application with Council the Project Manager shall submit a copy to the Mortgagee for its consent. 6.7 In the event that the Project Manager has not obtained the Development Consent approval by 29th February 1996 (and in this regard time shall be of the essence) the Owner shall have the right to terminate this Agreement without any claim against it by the Project Manager for any costs, charges or expenses incurred by the Project Manager whatsoever."" 162 The amendments made by Blake Dawson Waldron in handwriting, on the instructions of their client the Hong Kong Bank, consisted of adding the words "and Building Consent" after the words "Development Consent" in cl 6.2 and the words "or Building Application" after the words "Development Application" in cl 6.2; the words "and Building Consent" after the words "Development Consent" where they appear (twice) in cl 6.4; and the words "and Building Consent" after the words "Development Consent" in cl 6.7. 163 The making of these amendments by Blake Dawson Waldron was the first occasion that any suggestion had been made by anyone that clauses 6.4 and 6.7 of the Project Management Agreement should have included in them a reference to a need to obtain Building Consent by a particular date. 164 The defendant replied to Blake Dawson Waldron's letter of 31 October 1995 in a letter dated 2 November 1995. I accept a submission made by counsel for the defendant that I should find that this letter was written by the defendant after discussions between him, Robert Phillips, Robin Wise and George Newhouse and that the letter stated the common position of all of those persons. In this letter the defendant said in part:- ""Project Management Agreement 1. The reference to Building Consent etc in clauses 6.2 and 6.3 added by you is acceptable but not in 6.4. The "deal" has never been that the BA would have to be obtained within such a restricted time frame. Paragraph 2 is acceptable. Please note, however, that in paragraph 6.4 the date is to now to become 28th February 1996."" 165 In the first paragraph the defendant, consistently with his objection to the inclusion of the reference to Building Consent in cl 6.4, should also have objected to the inclusion of the reference to Building Consent in cl 6.7. 166 A number of documents were admitted into evidence recording work done by solicitors in Blake Dawson Waldron and communications between Blake Dawson Waldron and the Hong Kong Bank, regarding the defendant's letter of 2 November 1995. 167 A diary note of a discussion between Mr Mason and Mr Stoupas of Blake Dawson Waldron on 7 November 1995 included the following:- ""Bank has given away the reqt the BC be obtained by any date at all. Have to rely on DA and BA being lodged by 31/12/95 and that Project Manager will use its "best endeavours" to obtain that consent. → difficult for HKBA to rely on - they could easily allege that plans/consents etc were held up by Council. → they might also have a problem with clause 6.7 which has 28/2/96 as being the date by which BC must be obtained in it. Haven't mentioned it in their fax. We presumed that they'll look after that. → DWM drafted a new clause 3.4 for the Tripartite Deed."" 168 It is clear the in this diary note "BC" is an abbreviation for Building Consent, "DA" is an abbreviation for Development Application and "BA" is an abbreviation for Building Application. 169 On 7 November 1995 Blake Dawson Waldron wrote a letter to the defendant, which included the following:- ""Project Management Agreement 1. First paragraph: Agreed, subject to the words "on or before 31 December 1995" being inserted into clause 6.1.2 after the word "Council. Second paragraph: Noted and agreed."" 170 On 9 November 1995 the defendant wrote a letter to Blake Dawson Waldron, in which he referred to Blake Dawson Waldron's letter of 7 November 1995 and said:- ""Project Management Agreement 1. We agree to insertion of the 31st December 1995 as regards the development application (which has already been lodged with your client's consent) but not the building application and Strata Plan."" 171 There were further communications concerning whether a date should be fixed for the lodging of the building application. 172 A file note made by Mr Stoupas on 10 November 1995 recorded:- ""T/T Peter Varnay (240pm) He's happy for the PM to lodge the BA & SP with Council asap but not more than six weeks after Council approves the DA."" 173 The file note recorded a conversation with Mr Peter Varnay of the Hong Kong Bank "asap" is an abbreviation for "as soon as possible". 174 On 10 November 1995 Blake Dawson Waldron wrote a letter to the defendant, in which they referred to the defendant's letter of 9 November 1995 and said:- ""Project Management Agreement 1. Agreed, subject the inclusion of an undertaking by the Project Manager to lodge the Building Application and Strata Plan with the Waverley City Council as soon as practicable, but not later than six weeks after the Council's approval of the Development Application."" 175 The defendant responded to the letter from Blake Dawson Waldron of 10 November 1995 in a letter dated the same day. In this letter the defendant said in part:- ""Project Management Agreement 1. Agreed except with regards to Strata Plan. The Strata Plan cannot be finalised until the building is almost completed as each lot must be physically measured by the surveyor before he is able to complete such details as the area of each unit and garage/car space etc. The Strata Plan must be in registrable form before it is lodged for approval with the Council."" 176 This letter was sent on the instructions of Robert Phillips and a copy of the letter was sent to Mr Newhouse. 177 It was submitted by counsel for the defendant that the position which had been reached by this stage on 10 November 1995 was that the Hong Kong Bank and its solicitors Blake Dawson Waldron, who were the only persons who had sought to have the words "and Building Consent" included in the clause which became cl 5.4 of the Project Management Agreement, had agreed that the words should not be included, that no date should be specified in the Project Management Agreement as being the date by which building consent should be obtained, that no date should be specified in the Project Management Agreement as being the date by which an application for building consent should be lodged with the Council and that the only requirement in the Agreement as to when an application for building consent should be lodged or Building Consent should be obtained would be in the clause which became cl 5.1.2 in the Project Management Agreement under which an application for building consent was to be lodged as soon as practicable and not later than six weeks after the Council had approved the development application. 178 However, further things happened after the defendant's letter of 10 November 1995. 179 On 10 November 1995 the conduct of the matter on behalf of the plaintiff was transferred by the defendant to his employee Margaret Rowley. 180 On 10 November 1995 Margaret Rowley sent a letter to Mr Newhouse, which read in part:- ""Herewith up to date amended documents with the latest amendments marked up. Also herewith letter just received from Blake's. We will amend the Agreement as required in their item 1."" 181 It is clear that the letter which had just been received from Blake Dawson Waldron was the letter of 10 November 1995 from Blake Dawson Waldron. The draft Project Management Agreement enclosed with the letter of 10 November 1995 which Ms Rowley sent to Mr Newhouse included the words "and Building Consent" in cl 5.4. 182 Also on 10 November 1995 Margaret Rowley sent a letter to Blake Dawson Waldron, which said in part:- ""Please find enclosed Project Management Agreement and Tripartite Deed, amended as agreed, and marked up for your assistance. Would you please let us know if these documents are now in form satisfactory to the Bank so that we may engross them and have them executed."" 183 The draft Project Management Agreement enclosed, which Margaret Rowley said in her letter had been amended as agreed, included the words "and Building Consent" in cl 5.4. 184 On 13 November 1995 Blake Dawson Waldron wrote a letter to the defendant in which they said in part:- ""We refer to your facsimile dated 10 November 1995 and attached marked up pages of the Project Management Agreement and the Tripartite Deed showing our further amendments to those documents. Subject to the amendments shown in the attached pages being made and the inclusion of minimum prices for the sale of lots in the Third Schedule, the Project Management Agreement is in a form acceptable to the Bank. Please provide us with a final draft of the Project Management Agreement once these amendments have been made."" 185 Only certain pages of the draft Project Management Agreement were enclosed with Blake Dawson Waldron's letter of 13 November 1995. One page which was enclosed included part, but not all, of cl 5.4, including the words "and Building Consent" after the words "Development Consent". The same page included cl 5.1.2, which, as it stood in the typed draft, required the Project Manager to submit the Development Application, the draft Strata Plan and the Building Application to the Council. A further amendment required by Blake Dawson Waldron was handwritten and consisted of adding to cl 5.1.2 the words "which Building Application must be lodged with the Council as soon as practicable but not later than six weeks after Council's approval of the Development Application". 186 On 14 November 1995 Margaret Rowley sent a letter to Robert Phillips in which she said in part:- ""Enclosed please find fax which appears to have come from Blake's yesterday afternoon but which, unfortunately, had been put to the side of the fax and buried under some other papers. Some amendments are just typos, others, I believe, are as agreed and not picked up by me."" 187 With this letter of 14 November 1995 were enclosed a copy of Blake Dawson Waldron's letter of 13 November 1995 and its enclosures. 188 On 14 November 1995 Margaret Rowley wrote to Blake Dawson Waldron saying that the documents (which included the Project Management Agreement) would be amended in accordance with Blake Dawson Waldron's recommendations, that is in accordance with the requirements made by Blake Dawson Waldron in their letter of 13 November 1995. 189 On 15 November 1995 the plaintiff executed the Project Management Agreement. Clause 5.4 of the Agreement as executed included the words "and Building Consent" in cl 5.4. The Project Management Agreement was executed in escrow and was delivered and exchanged on 18 December 1995. 190 Counsel for the defendant submitted that the words "and Building Consent" should not have been included in the drafts forwarded between 10 November and 14 November 1995 and should not have been included in the document which was executed by the plaintiff on 15 November 1995. Counsel submitted that the words "and Building Consent" had been included in cl 5.4 in those drafts and in the document which was executed, by mistake. It was submitted that the mistake had occurred, because the conduct of the matter on behalf of the plaintiff had been transferred by the defendant to his employee Margaret Rowley, who had not participated in the negotiating of the terms of the Agreement, and Margaret Rowley, either negligently or because of a failure in communication between the defendant and her, had sent out drafts of the Project Management Agreement, which were based on the amended drafts enclosed with Blake Dawson Waldron's letter of 31 October 1995 and which did not take into account the events which had occurred between 2 November and 10 November and, in particular, the consensus which had been reached by 10 November 1995 that the words should not be included in cl 5.4. 191 Counsel for the defendant submitted that, after Blake Dawson Waldron had abandoned its requirement that the words "and Building Consent" be included in cl 5.4, there could be no reason why the plaintiff or its solicitors, acting rationally, would have intentionally reintroduced such a requirement. A requirement that building consent be obtained at the same time as Development Consent made no sense, as the Hong Kong Bank and its solicitors had eventually conceded. Particularly in a project of this size, an application for building consent would not be lodged until after development consent had been granted, so that the application for building consent could take into account the conditions subject to which development consent had been granted. At the time the Project Management Agreement was entered into it was known by the parties to the Agreement that development consent could not be granted before the meeting of the Council to be held near the end of February 1996. 192 On 13 November 1995 Blake Dawson Waldron had required as an addition to cl 5.1.2 that the application for building Consent be lodged with the Council as soon as practicable but not later than six weeks after Council's approval of the development application. Such a requirement would be quite inconsistent with a right being conferred on each party to terminate the Project Management Agreement, if building consent was not granted by 28 February 1996. 193 Counsel for the plaintiff submitted that I should find that the words "and Building Consent" had been deliberately included in the drafts of the Project Management Agreement sent on 10 November 1995 to Blake Dawson Waldron and to Mr Newhouse as solicitor for the other party to the Agreement. Counsel pointed out that the words "and Building Consent" were underlined in these drafts. 194 It was suggested by counsel for the plaintiff that the words "and Building Consent" had been included in the drafts, because the defendant had become frustrated with his own lack of progress in his negotiations with the Bank's solicitors and had decided to shift the burden of dealing with the Bank and its solicitors to Robin Wise and his solicitor. 195 Counsel for the plaintiff referred to part of the defendant's affidavit of 13 August 2003 (par 49) in which the defendant had said that the words "and Building Consent" had been "left in" the newly marked up versions of the Project Management Agreement prepared on 10 November 1995. It was submitted by counsel for the plaintiff that the words had not been "left in"; they had not been included in the draft of 22 October or 25 October 1995 on which Blake Dawson Waldron had made their handwritten amendments. 196 It was submitted by counsel for the plaintiff that it was unlikely that the words "and Building Consent" had been included by mistake. The words could have been included by mistake, only if all, or at least most, of the defendant, his employee Margaret Rowley, the solicitors at Blake Dawson Waldron handling the matter for the Bank and Mr Newhouse had failed to notice the alleged mistake. Of these persons the defendant himself had given evidence at the trial but he had not called as witnesses Margaret Rowley, any solicitor from Blake Dawson Waldron or any representative of the Hong Kong Bank and it should be inferred that, if any of these persons had been called to give evidence, their evidence would not have assisted the defendant. 197 It was submitted by counsel for the plaintiff that the subsequent conduct of the defendant and of Robin Wise was inconsistent with either of them believing that the inclusion of the words "and Building Consent" in cl 5.4 was due to a mistake. The defendant had asserted that there was a right under cl 5.4 to terminate the Project Management Agreement, if Building Consent was not obtained by 28 February 1996, in the letter of 10 April 1996 to Mrs Phillips, his conversation with Mrs Phillips about his "great" or "brilliant" idea, his letter of advice to Mrs Phillips of 22 April 1996, the 21 day notice given to Ocean View on 22 April 1996 and his written instructions to Mr Hilton of 1 May 1996. As far as Ocean View and Robin Wise were concerned, after the notice of 22 April 1996 had been served, Ocean View had not contested the validity of the notice on the grounds that it was not a term of the true agreement between the parties that Building Consent should be obtained by 28 February 1996; and after the defendant's letter of 8 May 1996 had been received by Ocean View, Ocean View did not in its detailed response of 16 May 1996 take any point that it was not a term of the Project Management Agreement that building consent be obtained by 28 February 1996. 198 Counsel for the plaintiff relied on some passages in the evidence of Robert Phillips. Robert Phillips had not made an affidavit for either party. He was spoken to by the solicitors for the defendant. However, he declined to make an affidavit. He was understandably reluctant to appear to be giving evidence against his mother. The defendant's solicitors prepared two short statements in indirect speech of the evidence it was anticipated he would give, if he was called. At a late stage in the trial he was called as a witness by counsel for the defendant and he was then orally examined in chief by counsel for the defendant and cross-examined by counsel for the plaintiff. 199 Passages in Robert Phillips' evidence referred to in argument were:-

Evidence at transcript 1023 (lines 33-42)

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This evidence was given in cross-examination. Mr Phillips had given evidence that the words "and Building Consent" should not be in the Project Management Agreement. He said:- ""I remember that we agreed that it was subject to a development approval by 28 February, that the banks asked for building consent by 28 February and after a whole roundabout of argument we said, no, and eventually they agreed and that's what the document should say."" 201 The following questions and answers subsequently occurred:- ""Q. What I suggest to you is that the argument went on for - about whether "and Building Consent" should be in 5.4 and went on for some period of time? A. Yes. Q. And it became quite frustrating? A. Absolutely. Q. And there came a time when you said to Peter Wise: "Well, we'll put it into the draft anyway and leave it up to Robin Wise to thrash it out with the bank"? A. Yes, I don't - no, I think it's the other way around. Peter said to me he did it, rather than I told him to do it."" 5. Evidence at transcript 1079 (line 58) - 1080 (line 15) ""Q. You have given evidence, haven't you Mr Phillips, that there was an occasion in 1995 when Mr Peter Wise said to you that: "We'll send off the project management agreement with the words 'and building consent' included and leave it to Robin Wise's company and solicitor to deal with the matter?" A. I think my recollection is that - I certainly recall that I gave evidence on it, but I think it was the case that Peter Wise told me after he'd done it rather than before. Q. What I would like to suggest to you that this letter in front of you, 10 November, is that occasion? A. Could well be right. I don't know. There were, I don't' know, dozen of drafts. I don't know which drafts are which. I don't have a file. I don't know."" 202 It was submitted by counsel for the plaintiff that this evidence by Robert Phillips supported the submission that the words "and Building Consent" had been deliberately included in the drafts forwarded to Blake Dawson Waldron and Mr Newhouse on 10 November 1995. 203 The defendant, who had given evidence earlier, had not been asked about this matter and, after Mr Phillips had given evidence, was not recalled to give further evidence.

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Decision 204 In my opinion, the contemporaneous documents, without the need for oral evidence to explain them, clearly demonstrate that by 10 November 1995, prior to Margaret Rowley forwarding draft documents on that day to Blake Dawson Waldron and Mr Newhouse, the Hong Kong Bank and its solicitors Blake Dawson Waldron, who had been the only persons who had ever sought to have the words "and Building Consent" included in the clause which became cl 5.4 of the Project Management Agreement, had agreed that the words should not be included. At this point there was not an impasse about the inclusion of the words in cl 5.4. A consensus had been reached that the words were not to be included. 205 I consider that the drafts of the Project Management Agreement enclosed with the letters of 10 November 1995 sent by Margaret Rowley to Blake Dawson Waldron and Mr Newhouse were based on the amended drafts enclosed with Blake Dawson Waldron's letter of 31 October 1995 and did not take into account the later events which had occurred between 2 November and 10 November and that the inclusion of the words "and Building Consent" in cl 5.4 was not deliberate but a mistake. 206 There would be no rational reason for the defendant or his employee deliberately including the words in the drafts. The reason suggested by counsel for the plaintiff, that there was at this stage an impasse between Blake Dawson Waldron and the defendant, which the defendant sought to overcome by shifting the burden of dealing with it to Robin Wise and his solicitor, simply did not exist. 207 It is true that the mistake passed unnoticed by a number of people. However, although Blake Dawson Waldron did not detect any mistake in the draft Agreement sent to them, the further amendment they required to cl 5.1.2 of the Project Management Agreement is at odds with any intention on their part that the Agreement should provide that Building Consent would have to be obtained by 28 February 1996. 208 It is also true that the defendant in a number of later documents asserted that there was a right under cl 5.4 to terminate the Project Management Agreement if Building Consent was not obtained by 28 February 1996. However, I am prepared to accept that the defendant made these assertions on the basis of looking, some months afterwards, at the written terms of the Project Management Agreement as executed, not recollecting that a consensus had been reached that the words in question were not to be included in the Agreement. 209 With regard to the evidence of Robert Phillips, it is necessary to bear in mind the circumstances in which he gave evidence. As I have already noted, he did not make an affidavit and gave wholly oral evidence when he was called as a witness late in the trial by counsel for the defendant. In giving his evidence Mr Phillips was attempting to recall complex events which had happened more than ten years previously. When giving evidence he was shown a number of documents, some of which I infer he had not seen for many years. In these circumstances, it would hardly be expected that Mr Phillips would be able to recall, with accuracy, the events which had happened or the order in which they had happened, in the complicated process of the drafting of the Project Management Agreement between September and November 1995. In giving his evidence Mr Phillips frequently made remarks indicating how imperfect his recollection was. 210 As to the specific passages in Mr Phillips' evidence relied on by counsel for the plaintiff:-

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Mr Phillips' evidence in this passage contains a number of indications of how vague and confused he was, trying to recall "the dozens of drafts". 211 Generally, I conclude that the parts of Mr Phillips' evidence on which counsel for the plaintiff sought to rely cannot be given the effect and the weight sought to be placed on them by counsel for the plaintiff. 212 In my opinion, cl 5.4 of the Project Management Agreement, insofar as it conferred a right to terminate the Agreement if building consent was not granted by 28 February 1996, did not reflect the common intention of the parties to the Project Management Agreement at the time the Project Management Agreement was entered into and, if the plaintiff had purported to terminate the Agreement on the ground that building consent had not been granted by 28 February 1996, Ocean View would have been entitled to apply to have the Agreement rectified by deleting the words "and Building Consent" from cl 5.4. 213 In reaching these conclusions I have been mindful of the principles applying to rectification, including those summarised in Meagher, Gummow and Lehane's Equity Doctrines and Remedies 4th ed at (26-050):- "It has often been said, for example, in Australia Hotel Co Ltd v Moore (1899) 20 NSWLR (Eq) 155; 16 WN (NSW) 132, that in proceedings for rectification the most clear and strong evidence is required and that a court is very chary of acting on the evidence of a single witness. It has been said that the court will require "very strong proof" before ordering a deed to be rectified on the ground of a mistake: Kenny v Sholl (1905) 7 WLAR 197. Holroyd J said in Chamberlain v Thornton (1892) 18 VLR 192 that the proof of mistake in a rectification case must be "convincing" and that "mere suspicion although strong" would not be sufficient." 214 I am of further of the opinion that if the plaintiff had purported to terminate the Project Management Agreement, Mr Robin Wise would have sought legal advice, the availability of the remedy of rectification would have become apparent and Ocean View would in fact have brought proceedings for rectification. Mr Robin Wise and Mr Newhouse gave evidence to this effect and I see no reason to doubt their evidence. In his letter of 16 May 1996 Robin Wise responded vigorously to the complaints made against Ocean View and himself in the documents of 22 April 1996 and 8 May 1996 and expressed his wish that the joint venturers should move forward with the joint venture. In a letter of 20 April 1996 to the defendant Mrs Phillips commented about Robin Wise. Mrs Phillips said "he could be ruthless. Never come across anyone in business as vicious as he". 215 I consider that proceedings by Ocean View for rectification would have been successful and upon a court making an order for rectification of a Project Management Agreement, the purported termination of the agreement by the plaintiff would have been invalidated. As Meagher, Gummow and Lehane state at (26-005) "the effect of any decree of rectification is necessarily retrospective."

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Estoppel 216 In pars 27AA to 27SS of the Defence to the fourth further amended statement of claim the defendant pleaded a defence of estoppel. In these paragraphs of the Defence the defendant also pleaded a defence of waiver or election. 217 As to the defence of estoppel, it was pleaded in par 27PP (a) that "in the premises" (that is, in the circumstances pleaded in pars 27AA to 27OO of the Defence):- ""after entering into the agreements on 18 December 2005, the parties to the agreement conducted themselves on the basis of common understanding that there would be adequate compliance with the terms of the agreement if Council approval to the development application was obtained on or prior to 28 February 1996 so that, had the plaintiff attempted to terminate the agreement and the joint venture arrangements on the ground that no consent in writing to the Development Application had been obtained by 28 February 1996 in circumstances where Development Approval had been granted by the Council on 27 February 1996 the plaintiff would have been guilty of unconscionable and inequitable behaviour and would have been estopped from so contending."" 218 In par 27PP(a) the contention which it was alleged that the plaintiff would be estopped from making was the contention that it could terminate the Project Management Agreement and the joint venture arrangements on the ground that no consent in writing to the development application had been obtained by 28 February 1996. Any such contention would have been based on cl 5.4 of the Project Management Agreement conferring a right on either party to terminate the Project Management Agreement if Development Consent was not granted by 28 February 1996, on the definition of "Development Consent" in cl 1.1(h) of the Agreement as "written consent from the Council to the Development Application" and on the fact that, although the Council had resolved on 27 February 1996 that a consent should be granted to the development application, no written consent had been received from Council until 11 March 1996. 219 It was not pleaded in par 27PP of the Defence or anywhere else in the Defence that the plaintiff was estopped from contending that it could terminate the Project Management Agreement on the ground that Building Consent, whether or not in writing, had not been obtained by 28 February 1996. Notwithstanding that it had not been pleaded and notwithstanding an express disclaimer made in the course of argument, counsel for the defendant made a number of written and oral submissions in support of a contention that the plaintiff was estopped from contending that it could terminate the Project Management Agreement on the ground that Building Consent had not been obtained by 28 February 1996. 220 In his oral submissions in reply at the hearing counsel for the plaintiff insisted that the only estoppel which had been pleaded was "an estoppel against asserting a right to terminate the Project Management Agreement on the ground that no consent in writing (that is no written development consent) had been obtained by 28 February 1996". 221 Having regard to the terms of the pleading in the defendant's Defence and to the position quite properly taken by counsel for the plaintiff, I consider that I should confine the defence of estoppel in the way submitted by counsel for the plaintiff. I have, of course, already held that the words "and Building Consent" were included in the Project Management Agreement as executed by the parties, as a result of a common mistake and that proceedings for rectification of the Project Management Agreement by deleting those words from cl 5.4 would have succeeded. 222 As pleaded in the Defence, the kind of estoppel sought to be relied on by the defendant would be an estoppel by convention based on an alleged common understanding between the parties to the Project Management Agreement. At times in written and oral submissions counsel for the defendant made submissions which would have been more appropriate to an alleged promissory estoppel than to an alleged estoppel by convention. However, counsel for the defendant ultimately informed the Court that the estoppel he was asserting should be classified as an estoppel by convention and not as a promissory estoppel. 223 The facts on which the defendant relied as grounding the estoppel by convention were stated in the Defence and in the defendant's written submissions. I will not state these facts exhaustively but will refer to what appear to me to be the most important facts, a number of which have already been noted by me earlier in this judgment. 224 In early November 1995 it was agreed by the defendant and Blake Dawson Waldron acting on behalf of the Hong Kong Bank that the date by which Development Consent should be obtained should be extended from 31 December 1995 to 28 February 1996. 225 Item 5 of the minutes of the meeting of the joint venturers held on 8 December 1995, which was attended by both Mrs Phillips and Robert Phillips, recorded:- ""5. We would aim to have the DA at the first Council meeting in February."" 226 I find as facts that, at the time the Project Management Agreement was entered into, the parties knew that there would be no meeting of the Council in January 1996 and that the first meeting of the Council in February 1996 would be near the end of the month and that the date 28 February 1996 had been selected as the date which should be inserted in clauses 5.4 and 5.7, because it was a date soon after the anticipated meeting of the Council. These findings are supported by, inter alia, evidence given by Robert Phillips. 227 In the memorandum sent by Robert Phillips to Robin Wise, with copies to Tibor Balog and Richard Arnold, on 8 January 1996 Mr Phillips said:- ""Our main objective is to see the sale of the property at the earliest opportunity and by 30 June 1996 at the latest. For this to take place a DA is required prior to February 28th."" 228 The minutes of the meeting of the joint venturers held on 12 January 1996, which was attended by Mrs Phillips and Robert Phillips, recorded:- ""DA on track for 28 February 1996 deadline."" 229 The minutes of the meeting of the joint venturers held on 2 February 1996, which was attended by Mrs Phillips and Robert Phillips, recorded:- ""DA was on target and positive responses had been received from Council. Final redrawn plans to be lodged today. Council meeting on 27 February 1996."" 230 Consent was granted to the development application at the Council meeting held on 27 February 1996. Although Mrs Phillips was then overseas in India, I find that Robert Phillips became aware that Development Consent, which had been confidently anticipated, had been granted, if not on the night of 27 February 1996 then on 28 February 1996. No indication was given on 28 February 1996 by Robert Phillips or the defendant to the other party to the Project Management Agreement that the plaintiff would terminate the Project Management Agreement, if written consent was not obtained on 28 February 1996. If any such indication had been given, arrangements could have been made to expedite the issue of a written development consent on 28 February. 231 In her conversation with the defendant about 4 March 1996 Mrs Phillips said to the defendant words to the effect that the development application had got through Council and "there is not much I can do about that now, is there?". 232 The minutes of the meeting of the joint venturers held on 18 March 1996 recorded that the development application "had been reviewed, major issues were acceptable". 233 I do not regard it as significant that the plaintiff was not itself a party to the joint venture. The plaintiff and the Charlotte Trust, which was a party to the joint venture, formed part of what was described in the evidence as the "one pocket" of Mrs Phillips. The plaintiff was controlled by Mrs Phillips. The Charlotte Trust was a device to conceal Mrs Phillips' participation in the joint venture. 234 The defendant also relied on evidence given by Mr Newhouse and Robin Wise. 235 In his affidavit of 25 February 2005 Mr Newhouse said inter alia:- ""3. I did not have any discussions with either Mr Robin Wise, my client, or Mr Peter Wise, solicitor for Rebenta Pty Limited ("Rebenta") about the definition of "development consent" in the PMA or the development consent having to be in writing. To the best of my knowledge and belief, the matter was simply never raised by anyone. 4. Notwithstanding the definition of "development consent" in the PMA, from my instructions from Mr Robin Wise, it was my belief that the agreement between the parties was that the development consent had to be approved by Council by 28 February 1996 but did not have to be in writing as at that date. During the negotiation of the PMA and up to the time that the DA was approved by the Council on 27 February 1996, Mr Robin Wise, Mr Peter Wise, Mr Robert Phillips and I had meetings in which we discussed the date by which the DA approval had to be obtained. The discussions always referred to the Council approving the DA by the certain date rather than receipt of written approval from the Council by that date. 5. At all times, Mr Robin Wise (and) myself … were working on the basis that the critical event was approval of the development application by the Council at its meeting on 27 February 1996. I have been a councillor on Waverley Municipal Council continuously since 1995. In my experience, it is not the practice of the Council to issue the notice of determination of development application at the meeting when the development application is determined. Furthermore, in my opinion, an experienced developer would have known that the notice of determination of a development application is not issued on the same day as the date of determination of the development application and follows as a matter of course usually within 14 days of the date of determination. 6. From my discussions with Mr Robin Wise, I was aware of the importance of the Council approving the development application at its meeting on 27 February 1996. …………………. I recall Mr Robin Wise expressing his concerns about the importance of Council approving the development application at its meeting on 27 February 1996. …………………. In or around February 1996, Mr Robin Wise said to me words to the effect of: "I am most concerned that if Council does not approve the development application at its meeting on 27 February 1996, then Rebenta will terminate the PMA." I said words to the following effect: "Yes, if the Council does not approve the development application by 28 February 1996, then Rebenta would be entitled to terminate the PMA." 7. If my client Robin Wise or I had any doubts about whether written consent to the development application was required by 28 February 1996 and if Mr Robin Wise had asked me how to expedite obtaining the written consent from Council by 28 February 1996 given my experience as a Councillor of Waverley Council, I could have advised him to approach the Director of Planning, Waverley Council on or before 27 February 1996 to generate the written approval by 28 February 1996. The Council can act urgently when critical time limits are involved. In my experience, it would have been possible for the written approval to be generated the next day following the Council meeting on 27 February 1996. 8. Had Rebenta purported to terminate the PMA on the basis that written development consent was not obtained by Ocean View Apartments Pty Ltd ("Ocean View") by 28 February 1996 in circumstances where the Council had approved the development application at its meeting on 27 February 1996, I would have considered the matter in detail and sought counsel's advice on behalf of my client. Mr Robin Wise had told me on a number of occasions that he was keen to do this development as there would be substantial profit in it."" 236 In his affidavit of 16 February 2005 Robin Wise said in part:- ""21. At the time that I was working towards obtaining the DA approval from Council, I was not aware that there was a requirement in the PMA that Ocean View had to obtain written consent from the Council in relation to the DA by 28 February 1996. 29. If there was any question or doubt in my mind as to Rebenta terminating the PMA if written consent in relation to the DA was not obtained from the Council by 28 February 1996, I would have attended Council Chambers to obtain a letter from Council the next day. I would have sought the assistance of Ocean View's solicitor, Mr George Newhouse, who was also a Councillor of the Council to expedite obtaining the written consent from Council. 30. From November 1995 up to 27 February 1996, Ocean View spent a considerable amount of money, approximately $634,000, on the project."" 237 A number of submissions were made by counsel for the plaintiff in support of the general contention that the defence of estoppel by convention should be rejected, including the following:-

The common understanding alleged was an understanding as to a future event, namely what would amount to an adequate compliance with the Project Management Agreement, and an understanding as to a future event could not ground an estoppel by convention.
There was no evidence of the alleged common understanding. In particular, there was no evidence that the parties to the Project Management Agreement had turned their minds to the relevant provisions of the Project Management Agreement and reached an agreement or understanding that, notwithstanding the terms of those provisions, the granting by the Council of Development Consent by 28 February 1996 would be an adequate compliance, without the need for there to be a written consent from Council by 28 February 1996.
The parties to the Project Management Agreement were the plaintiff and Ocean View. The plaintiff was not a party to the Joint Venture Deed and Mrs Phillips was not a party to either the Project Management Agreement or the Joint Venture Deed.
Mrs Phillips was the guiding mind of the plaintiff. It had not been put to her in cross-examination by counsel for the defendant that she had joined in the alleged common understanding. Mrs Phillips had given evidence from which it should be found or inferred that, so far from agreeing in early 1996 that the plaintiff would relinquish rights it had under the Project Management Agreement, she had wanted to get out of the Project Management Agreement and would have used whatever means were available to do so.
An estoppel fails or ceases, if notice is given by the party subject to the alleged estoppel that he or she intends to rely on strict legal rights and prior to 28 February 1996 such notice had been given, informally but effectively, by Mrs Phillips on behalf of the plaintiff.
Counsel for the plaintiff relied on evidence given by Robert Phillips of a conversation Robert Phillips said he had had with Mrs Phillips in February 1996.
If the plaintiff had purported to terminate the Project Management Agreement on the ground that there was no written consent from Council by 28 February 1996, the plaintiff would simply have been relying on its contractual rights under the Project Management Agreement and there would have been no need for the plaintiff to give notice that it intended to exercise its contractual rights. 238 I was referred by both counsel to the well known passage in the judgment of the High Court in Con-Stan Industries of Australia Pty Limited v Norwich Winterthur Insurance (Aust) Ltd (1985-1986) 160 CLR 226 at 244-245, where the Court said:- "Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying…there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship…estoppel by convention requires the assumed state of affairs to be an assumed state of fact." 239 Notwithstanding that a unanimous High Court in Con-Stan said that the assumed state of affairs must be an assumed state of fact, it is now accepted, partly as a result of observations made in later High Court cases, that estoppel by convention can be grounded on an assumption of law. See Meagher, Gummow and Lahane's Equity Doctrines and Remedies (4th ed) at (17-020) and the cases there cited. In Ryledar v Euphoric [2007] NSWCA 65 Tobias JA, with whom the other members of the Court agreed, said at [194]:- "… estoppel by convention is a form of estoppel founded upon an assumed stated of affairs by the parties whether as to a matter of fact or a matter of legal effect, which both will be estopped from denying." 240 In Ryledar Tobias JA referred, clearly with approval, to parts of the judgment of Lord Denning MR in Amalgamated Investment & Property Co Ltd v Texas Commercial International Bank Ltd (in Liq) [1982] QB 84, the speech of Lord Steyn in The Indian Grace (No 2) [1998] AC 878 and the judgment of Brereton J in Moratic Pty Ltd v Gordon [2007] NSWSC 5. At paras 197-201 of his judgment Tobias JA said:- ""197 In Amalgamated Investment & Property Co Ltd v Texas Commercial International Bank Ltd (in liq) [1982] QB 84, Lord Denning MR observed (at 121): To use the phrase of Latham CJ and Dixon J in [ Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641] ] … the parties by their course of dealing adopted a 'conventional basis' for the governance of the relations between them … They are bound by the 'conventional basis' in which they conducted their affairs. The reason is because it would be altogether unjust to allow either party to insist on the strict interpretation of the original terms of the contract - when it would be inequitable to do so having regard to dealings which have taken place between the parties. His Lordship also observed that: [t]here is no need to enquire whether their particular interpretation is correct or not - or whether they were mistaken or not - or whether they had in mind the original terms or not. Suffice it that they have, by their course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it. 198 The principles were restated by Lord Steyn in delivering the principal speech in The Indian Grace (No 2) [1998] AC 878 at 913 where his Lordship said: … an estoppel by convention may arise where parties to a transaction act on an assumed state of facts or law, the assumption being either shared … or made by one and acquiesced in by the other. The effect of an estoppel by convention is to preclude a party from denying the assumed facts or law if it would be unjust to allow him to go back on the assumption. 199 Recently the principles were restated by Brereton J in Moratic Pty Ltd v Gordon [2007] NSWSC 5, where his Honour observed (at [30]) that the doctrine of conventional estoppel precluded either party to a contract from denying an assumption which has formed the conventional basis of the relationship between them. Accordingly, it is necessary to determine whether the parties have in fact adopted such an assumption as the conventional basis of their relationship. 200 His Honour then stated the matters necessary to establish conventional estoppel (at [32]) as being that: (a) the plaintiff has adopted an assumption as to the terms of its legal relationship with the defendant; (b) the defendant has adopted the same assumption; (c) both parties have conducted their relationship on the basis of that mutual assumption; (d) each party knew or intended that the other act on that basis; and (e) departure from the assumption will occasion detriment to the plaintiff. 201 In noting the differences between promissory estoppel and conventional estoppel his Honour then observed with respect to the latter (at [33]) that it: is focussed on the consensual basis of the parties' relationship: it operates when both parties have adopted the same assumption as the basis of their relationship, often without appreciating that any departure from the strict legal position is involved so as to hold both parties to their common understanding."" 241 In my opinion, the conditions stated by Brereton J in Moratic as being necessary to establish an estoppel by convention are satisfied in the present case. On the basis of the evidence I have referred to earlier, I would find that each party to the Project Management Agreement adopted an assumption that the granting of Development Consent by a resolution of the Council by 28 February 1996 would be a sufficient compliance with the condition in cl 5.4 of the Project Management Agreement, that the parties to the Project Management Agreement conducted their relationship on the basis of that mutual assumption, that each party knew that the other was acting on that basis and that a departure from that assumption by the plaintiff would have occasioned detriment to the defendant. 242 I will now return to the submissions made by counsel for the plaintiff which I have already summarised.

[70]

Robert Phillips gave evidence in chief, which he substantially repeated in cross-examination, of a conversation he said he had had with Mrs Phillips about two weeks before 28 February 1996. 246 Robert Phillips gave evidence that in January and February 1996 he had had conversations with his mother in which Mrs Phillips had said that she was unhappy with the joint venture and wanted to get out of it. Mr Phillips gave further evidence that he had gone through the Project Management Agreement and had noticed the definition of "Development Consent" with the requirement that there be writing. Mr Phillips said that he had explained the definition to his mother and told her it was unlikely that a written Development Consent would be received by 28 February 1996. Mrs Phillips said "great, let's terminate". Mr Phillips said "well, wait a minute. What about the bank?" What about the Hong Kong Bank?…and I said to her: ""I'm not going to be the one who brings the banks to kick the doors in. If you want to do it you can do something but I'm not going to do this."" 247 When this evidence of Robert Phillips was put to Mrs Phillips, when she was recalled to give further evidence, Mrs Phillips denied that the alleged conversation had occurred. 248 Although Mr Phillips gave detailed evidence of the alleged conversation in his evidence in chief and substantially repeated the evidence in cross-examination, I am not persuaded that the alleged conversation occurred. It appears to me to be inconsistent with other evidence indicating that Mr Phillips was unaware in January and February 1996 of the requirement that the Development Consent should be in writing. As I have already noted, the alleged conversation was denied by Mrs Phillips. 249 Even if the alleged conversation between Mrs Phillips and Robert Phillips occurred, it would not change the position that the plaintiff had up to the time of the conversation adopted the assumption that the granting of Development Consent by Council by 28 February 1996 would be sufficient compliance with cl 5.4 of the Project Management Agreement and after the conversation the plaintiff did not communicate to the other party to the Project Management Agreement any withdrawal from that assumption.

[72]

Election 251 As I have already noted, in pars 27AA to 27SS of the Defence to the fourth further amended statement of claim the defendant pleaded both a defence based on estoppel and a defence based on waiver or election. In par 27PP(b) of the Defence it was pleaded that "in the premises" (that is in the circumstances pleaded in pars 27AA to 27OO of the Defence):- ""(b) by April 1996, the plaintiff had waived any alleged rights to terminate the agreement upon the basis that the Development Consent had not been obtained in writing by 28 February 1996 and had also waived any alleged rights to terminate the agreement upon the basis that the building application had not been approved by 28 February 1996 or, alternatively, had acted so as to elect to affirm the agreement so that the plaintiff would have had no lawful basis to purport to terminate the agreement."" 252 It was common ground at the hearing that, in the present context, there was no distinction between waiver and election and that the defence raised by the Defence could be regarded as a defence based on the doctrine of election, that is by April 1996 the plaintiff had lost any right to terminate the Project Management Agreement by reason of having elected to affirm the Agreement. Counsel for the plaintiff disputed that the plaintiff should be held to have affirmed the Project Management Agreement. 253 I will approach the determination of the issue whether the plaintiff should be held to have affirmed the Project Management Agreement, on the basis that, as a matter of construction of the Project Management Agreement, the expression "Development Consent" in cl 5.4 has the meaning in cl 1.1(h), that is "written consent from the Council to the Development Application"; that the words "and Building Consent" were properly included in cl 5.4 and would not have been deleted in proceedings for rectification of the Project Management Agreement; and that the plaintiff was not estopped by an estoppel by convention from contending that it had a right to terminate the Project Management Agreement on the ground that development consent had not been granted by 28 February 1996 because there was no written consent from the Council by 28 February 1996. On the basis on which I am approaching the determination of the issue, it would be the case both that Development Consent had not been granted by 28 February 1996 and Building Consent had not been granted by 28 February 1996 and a right to terminate the Project Management Agreement on either of these grounds would have arisen on 29 February 1996. 254 No step was taken by the plaintiff to terminate the Project Management Agreement before 22 April 1996. On 22 April 1996 the defendant acting on behalf of the plaintiff sent to Ocean View the notice of 22 April 1996, which was not a notice of termination but a notice alleging that Ocean View had breached cl 5.4 of the Project Management Agreement and giving Ocean View 21 days notice to remedy the breach, failing which the plaintiff would exercise a right to terminate the Project Management Agreement. 255 The doctrine of election was discussed by the High Court in Sargent v ASL Developments Ltd (1974) 131 CLR 634. The doctrine applies where a person has two inconsistent rights, such that neither may be exercised without the extinction of the other (see per Stephen J at 641). 256 At p 642 Stephen J said:- ""For the doctrine to operate there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights which he possesses."" 257 As to the requirement of knowledge Stephen J said at p 642:- ""An elector must at least know of the facts which give rise to those legal rights, as between which an election must be made … the extent of knowledge of relevant facts necessary for the doctrine of election to apply has been described as "full knowledge of the material facts."" 258 However, at least generally, it is not necessary that an elector have knowledge of the existence of the alternative, inconsistent rights (see Mason J at 658). 259 As to the requirement of words or conduct amounting to an election, Stephen J said at p 646:- ""The words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other … However, less unequivocal conduct, only providing some evidence of an election, may suffice if coupled with actual knowledge of the right of election … There need be no expressed intention to elect … For an election there need be no actual subjective intention to elect."" 260 At p 656 Mason J said:- ""An election takes place when the conduct of the party is such that it would be justifiable only if an election had been made one way or the other … So, words or conduct which do not constitute the exercise of a right conferred by or under a contract and merely involve a recognition of the contract may not amount to an election to affirm the contract."" 261 It was submitted by counsel for the plaintiff that a defence based on election had not been properly pleaded in the Defence. It was submitted that the defendant had not in the Defence alleged that the plaintiff had knowledge of specified facts giving rise to inconsistent rights to terminate or affirm the Project Management Agreement and had not alleged that the plaintiff had by specified words or conduct elected to affirm the Agreement and not to terminate it. 262 There is some force in this submission by counsel for the plaintiff. Perhaps because the same paragraphs of the Defence were made the premises for both an allegation of an estoppel binding the plaintiff and an allegation that the plaintiff had waived any right to terminate or had elected to affirm the Project Management Agreement, the defence based on election was not as clearly pleaded as it might have been. Nevertheless, I consider that it was sufficiently clearly alleged in the Defence that building consent had not been obtained by 28 February 1996 and that the plaintiff became aware of that fact immediately after 28 February 1996. I also consider that it was alleged that, although Development Consent had been granted by the Council by 28 February 1996, there had been no written consent from Council by 28 February 1996 and that the plaintiff became aware of that fact no later than shortly after 11 March 1996 (see par 27LL of the Defence) and that the plaintiff elected to affirm the Project Management Agreement by writing its letter of 9 April 1996 to the Council (see par 2700 of the Defence). An allegation that the plaintiff had acted so that it should be held to have elected to affirm the Project Management Agreement is specifically made in cl 27PP(b) of the Defence. 263 The first of the two requirements for an election to have occurred is that the plaintiff should have had full knowledge of the material facts giving rise to the inconsistent rights to terminate or to affirm the Project Management Agreement. The material facts, apart from the terms of the Project Management Agreement, were simply that there had been no written Development Consent by 28 February 1996 and no Building Consent (whether or not written) by 28 February 1996. 264 It is clear that the plaintiff knew immediately after 28 February 1996 that no Building Consent had been granted by that date. It is less clear when knowledge that there had been no written Development Consent by 28 February 1996 should be attributed to the plaintiff. 265 The plaintiff was, of course, a corporation and knowledge of a fact could be attributed to it, only if knowledge of the fact had been acquired by some person whose knowledge could be regarded as knowledge by or on behalf of the corporation. 266 It was not suggested by counsel that knowledge acquired by the defendant as the solicitor for the plaintiff could be regarded as knowledge by the plaintiff. Counsel for the plaintiff submitted that knowledge should be attributed to the plaintiff, only if it had been acquired by Mrs Phillips. Counsel for the defendant submitted that knowledge acquired by Robert Phillips would have been sufficient to fix the plaintiff with knowledge. 267 In my opinion, knowledge acquired by Robert Phillips would have been sufficient. Mr Phillips was a director of the plaintiff and, with the consent and authority of Mrs Phillips who was the only other director, he had the day-to-day conduct of the plaintiff's business so far as the Bronte Inn was concerned. 268 I find that Robert Phillips came to know at some time in March 1996 that there had been no written Development Consent by 28 February 1996 and that his knowledge should be attributed to the plaintiff. 269 Although I have made this finding about Robert Phillips' knowledge, I do not consider that I should accept evidence by the defendant in par 63 of his affidavit of 13 August 2003, which was repeated and indeed elaborated on in a later affidavit by the defendant, that shortly after 28 February 1996 he had a conversation with Robert Phillips in which the defendant said that written development approval had not been received but, if the plaintiff attempted to enforce its rights under cl 5.4, it would be estopped from doing so. That the defendant was cognisant, shortly after 28 February 1996, of the definition of "Development Consent" in the Project Management Agreement with its requirement of writing, is difficult to reconcile with much other evidence. In his evidence Robert Phillips said that he did not recall any such conversation, clearly indicating by his answers that, so far as he could recall, there had not been any such conversation. Robert Phillips added that what he was alleged by the defendant to have said in this conversation, including that he had proposed that his mother not be told about the matter, did not sound like anything he would have said. 270 I accept that it was not until some time in April that Mrs Phillips became aware that there might be, or might have been, a right to terminate the Project Management Agreement under cl 5.4. However, as previously stated, the relevant knowledge on the part of an elector is knowledge of the material facts giving rise to the inconsistent rights and not knowledge of the existence of those inconsistent rights. 271 The second of the two requirements for an election to have occurred is that there should have been words or conduct on the part of the elector amounting to an election. 272 Conduct relied on by counsel for the defendant as amounting to an election by the plaintiff was the sending by the plaintiff to the Council of the letter of 9 April 1996, the terms of which I will now repeat:- ""RE: SUBMISSION OF DEVELOPMENT APPLICATION BRONTE INN - 107 MACPHERSON ST, BRONTE We confirm we are the registered proprietors of the above mentioned property. We hereby confirm our consent is granted to Dramwren Pty Limited and its Architects - Jahn & Associates to lodge a Building Application over this property."" 273 The letter confirms the giving of consent by the plaintiff to Dramwren (or Ocean View) lodging a building application over the property and, in my opinion, should be taken as recognising the existence of the Project Management Agreement between the plaintiff and Dramwren. 274 However, although the case is close to the borderline, I consider that the letter fell short of being an unequivocal affirmation of the Project Management Agreement. As submitted by counsel for the plaintiff, it did not constitute the exercise by the plaintiff of a right under the Project Management Agreement, nor was it a demand by the plaintiff that Ocean View perform an obligation under the Project Management Agreement. While the letter recognised the existence of the Project Management Agreement, the sending of the letter was not conduct that could only be justified if an election was being made to affirm the Agreement. 275 The plaintiff was clearly given notice by the letter of 10 April 1996 that it might have a right to terminate the Project Management Agreement. However, nothing occurred between 10 April 1996 and 22 April 1996 which could have amounted to an election to affirm the Project Management Agreement. 276 I have determined the issue whether the plaintiff should be held to have lost the right to terminate the Project Management Agreement by reason of having elected to affirm the Agreement, without needing to consider submissions by counsel for the plaintiff based on cl 30.1 of the Project Management Agreement. 277 On the assumptions I have made, I reject the defence based on the doctrine of election that by April 1996 the plaintiff had acted so as to affirm the Project Management Agreement.

[73]

Negligence 278 Paragraph 23 of the fourth further amended statement of claim contained a long list of particulars of alleged negligence by the defendant (sub-par (a) to (j)). 279 In the final oral submissions of the parties it was common ground that the critical particulars were those in sub-pars (g) and (h) (see transcript at pp 1166 and 1324). 280 Of the other particulars in par 23, sub-par (a) was closely related to par (g); sub-par (b) was expressed too generally to be a particular of negligence; sub-paras (c), (d) and (e), which related to the briefing of Mr Hilton by the defendant were not established on the evidence; sub-par (f) was based on an allegation of fact in par 16 of the statement of claim, which I have found was not established; and sub-pars (i) and (j), at least insofar as they were based on cl 2.1.5 of the Tripartite Deed, were based on an interpretation of the clause, which it was accepted was erroneous. 281 Sub-paragraph (g) of par 23 was in the following terms: ""incorrectly advised the plaintiff that the right of either party to terminate under clause 5.4 was subject to compliance with clauses 20.1 and 28.4 and required 21 days notice, when no such notice was required for the purpose of termination under clause 5.4."" 282 Sub-paragraph (a) of par 23, which, as I have said, was closely related to, and indeed the obverse of sub-par (a), was in the following terms: ""The defendant failed to advise that the agreement provided that the defendant was entitled to terminate the agreement forthwith in the event that Oceanview failed to obtain Development Consent and Building Consent by 28 February 1996."" 283 The submissions of the plaintiff focused on par 4 of the letter of advice from the defendant to Mrs Phillips of 22 April 1996, and especially the second sentence in the paragraph, in which the defendant said that the right to terminate under cl 5.4 of the Project Management Agreement was subject to cls 20.1 and 28.4, requiring 21 days notice. 284 It is clear that the advice alleged in sub-par (g) of par 23 was given by the defendant to the plaintiff in the letter of 22 April 1996. It is also clear, and was not really contested by counsel for the defendant, that, as a matter of construction of cl 5.4, the advice was incorrect. As a matter of construction of cl 5.4, the conditions on which a right to terminate the Project Management Agreement arose would be the refusal or non-granting of Development Consent by 28 February 1996 or the non-granting of Building Consent by 28 February 1996. If any of those conditions was fulfilled, either party could terminate the Project Management Agreement forthwith by a notice in writing to the other. 285 The fulfilment of any of the conditions in cl 5.4 would not involve any breach or default by Ocean View as the Project Manager. While under cl 5.3 of the Project Management Agreement the Project Manager was to use its best endeavours and do all things reasonably necessary to obtain development consent and building consent with due expedition and diligence, the Project Manager was not under any obligation actually to obtain development consent or building consent. 286 On the other hand, cl 20.1 of the Project Management Agreement providing for the service of a 21 day notice would apply only in the case of a breach of a term of the Project Management Agreement and cl 28.4, also providing for the service of a 21 day notice, would apply only in the event of a default by a party under the Agreement. 287 In my opinion, not merely was the advice given in the second sentence of par 4 of the letter of 22 April 1996 incorrect, the giving of the advice was negligent. 288 Sub-paragraph (h) of par 23 of the fourth further amended statement of claim was the following terms:- ""Issued the notice dated 22 April 1996 referred to in paragraph 18 without explaining to the plaintiff that its legal effect was to make an election to affirm the agreement and thereby caused the right to terminate under clause 5.4 to be lost."" 289 The notice referred to in par 18 of the fourth further amended statement of claim was the notice of 22 April 1996 sent by the defendant, acting on behalf of the plaintiff, to Ocean View. It is convenient to repeat the terms of this notice. ""We refer to the Project Management Agreement between Rebenta Pty Limited as Owner and your company as Project Manager dated 18th December 1995. You have failed to obtain Building Consent from Waverley Council by the date stipulated in clause 5.4 of the Agreement, namely 28th February 1996. Accordingly, you are in breach of the Project Management Agreement. Pursuant to clause 28.4 of the Project Management Agreement Rebenta Pty Limited you are hereby given twenty-one (21) days notice, time being of the essence, to remedy the breach by obtaining Building Consent from Waverley Council, failing which our client will exercise its rights to terminate the Project Management Agreement."" 290 The notice alleged that Ocean View had failed to obtain Building Consent by 28 February 1996 and was therefore in breach of the Project Management Agreement and gave Ocean View 21 days to remedy the breach by obtaining Building Consent, failing which the plaintiff would exercise its right to terminate the Project Management Agreement. The giving of a notice in such terms was based on the erroneous view that, because building consent had not been obtained by 28 February 1996, Ocean View had committed a breach of the Project Management Agreement. 291 It was submitted by counsel for the defendant that giving such a notice, to the effect that the plaintiff would terminate the Project Management Agreement, if Building Consent was not obtained within 21 days, did not amount to an election to affirm the Project Management Agreement. I consider that I should reject this submission. By invoking cl 28.4 of the Project Management Agreement and giving a notice purportedly in accordance with cl 28.4, which did not of itself terminate the Project Management Agreement, instead of terminating the Project Management Agreement forthwith, the plaintiff should be held to have elected to affirm the Project Management Agreement and to have lost any right to terminate forthwith under cl 5.4. 292 Before giving the notice of 22 April 1996 the defendant, not having adverted to any right to terminate forthwith under cl 5.4, did not explain to the plaintiff, that the effect of giving the notices would be to make an election to affirm the Project Management Agreement and thereby lose any right to terminate under cl 5.4. 293 I find that the defendant acted as is alleged in sub-par (h) of par 23 and that his conduct was negligent. 294 During the hearing the fourth further amended statement of claim was further amended by the addition of par 24 in which further particulars of negligence were pleaded. Paragraph 24 consisted of a number of allegations (sub-pars (a) to (k) and then a number of particulars of alleged negligence (sub-pars (1) to (10)). 295 The particulars of alleged negligence in par 24 were not in fact relied on in counsel for the plaintiff's final written or oral submissions (except to the extent that some repeated, or overlapped with, alleged particulars of negligence in par 23). 296 A number of the allegations in sub-pars (a) to (k) were based on parts of paras 44-54 of Mrs Phillips' affidavit of 14 November 2002, which, earlier in this judgment, I rejected as being inaccurate. 297 Insofar as it is alleged in par 24 that the defendant was negligent in not advising the plaintiff that it was entitled to terminate the Project Management Agreement on the ground that development consent in writing had not been obtained by 28 February 1996, I have held that the plaintiff was bound by an estoppel by convention from contending that it had a right to terminate the Project Management Agreement on the ground that there had been no written development consent by 28 February 1996. 298 Insofar as it is alleged in par 24 that the defendant was negligent in not advising the plaintiff that it was entitled to terminate the Project Management Agreement on the ground that building consent had not been obtained by 28 February 1996, I have held that the words "and Building Consent" were included in cl 5.4 of the Project Management Agreement by mistake and would have been ordered to be deleted in proceedings for the rectification of the Project Management Agreement by Ocean View. Alternatively, if it was permissible to have regard to an estoppel by convention in relation to the requirement for Building Consent, then, even more clearly than in the case of written development consent, the parties conducted their relationship on the basis of a mutual assumption, each party knowing and intending the other to act on that mutual assumption, that an application for Building Consent would not be made until after Development Consent had been granted and that Building Consent would not be granted until some time after 28 February 1996 and any departure from that assumption would have occasioned detriment to Ocean View. 299 Insofar as it is alleged in par 24 that the defendant was negligent in not advising the plaintiff to avoid engaging in any conduct which might give rise to an estoppel binding the plaintiff, I find that from the time of the execution of the Project Management Agreement the plaintiff and Ocean View conducted their relationship on the basis that what mattered, so far as Development Consent was concerned, was that the development application "got through" Council at the meeting of the Council which would be held at the end of February and that there was no specified date by which Building Consent should be applied for or granted. In these circumstances it was not negligent of the defendant not to advise the plaintiff to avoid engaging in conduct which might give rise to an estoppel. I do not accept evidence given by Mrs Phillips that, even before the Project Management Agreement was entered into, she wanted to get out of the agreement but the defendant advised her that she could not, because she was estopped from doing so.

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Causation 300 I have found that the defendant was negligent in advising the plaintiff that the right to terminate under cl 5.4 of the Project Management Agreement was subject to compliance with cls 20.1 and 28.4 of the Agreement and required the giving of a 21 day notice (statement of claim par 23(g)) and in issuing to Ocean View the notice of 22 April 1996, without explaining to the plaintiff that its legal effect was to make an election to affirm the Project Management Agreement and to cause any right which might have existed to terminate the Agreement under cl 5.4 to be lost. 301 However, no loss or damage would have been suffered by the plaintiff as a result of either the negligent advice or the negligent act, unless the plaintiff had a right under cl 5.4 of the Project Management Agreement to terminate the Agreement forthwith and, on the findings I have made, the plaintiff did not have such a right, either on the ground that there had been no Development Consent in writing by 28 February 1996 or on the ground that there had been no Building Consent by 28 February 1996. However, in case it is held on an appeal that I was wrong in holding that the plaintiff had no right to terminate the Project Management Agreement forthwith, I will give some consideration to the issue of causation, that is whether the defendant's negligence caused the plaintiff any loss or damage. 302 Counsel for the defendant submitted, and counsel for the plaintiff accepted, that, in relation to the particular of negligence in par 23(g) of the statement of claim, it was necessary for the plaintiff to establish, as part of proving that the defendant's negligent advice had caused loss or damage to the plaintiff, that the plaintiff, if it had been advised that it had a right to terminate the Project Management Agreement, would have exercised that right. 303 Counsel for the defendant made a similar submission in relation to the particular of negligence in par 23(h) of the statement of claim. This submission was disputed by counsel for the plaintiff. It was submitted by counsel for the plaintiff that the plaintiff's cause of action was complete on the defendant performing his negligent act of issuing the notice, whereupon the plaintiff lost the opportunity of terminating the Project Management Agreement forthwith, and that it was not necessary for the plaintiff to establish that it would have terminated the Project Management Agreement forthwith, had it been advised that it had that right. However, it would still be necessary for the plaintiff to prove that the defendant's negligent act caused the plaintiff loss or damage and, if the plaintiff would not have terminated the Project Management Agreement forthwith, even if it had been advised that it had that right, the defendant's negligent act would not have been productive of any loss or damage to the plaintiff. Accordingly, in relation to the particular of negligence in par 23(h) of the statement of claim, as well as in relation to the particular of negligence in par 23(g) of the statement of claim, it would be necessary, in order for the plaintiff to obtain an award of damages, for the plaintiff to prove that it would have terminated the Project Management Agreement, if it had been advised that it had that right. 304 In her affidavit and oral evidence Mrs Phillips insisted that, if she had been advised by the defendant that the plaintiff had a right to terminate the Project Management Agreement forthwith, she would have instructed the defendant to terminate the Agreement. For example, in par 56 of her affidavit of 14 November 2002 Mrs Phillips said:- ""If I had been provided with advice from the defendant that on a proper interpretation of the agreement I could have terminated it by notice in writing without giving 21 days to rectify the situation at any time after 28 February 1996, I would have instructed the defendant to do so."" 305 An example in Mrs Phillips' oral evidence is at p 640 of the transcript where she said in cross-examination:- ""I think I said three times already that, had my lawyer said "you can terminate", I would have told him to terminate."" 306 Mrs Phillips gave evidence that from early 1996 she became increasingly concerned about proceeding with the joint venture. She was concerned about "in-fighting" between the other two joint venturers, about whether a development in accordance with Mr Jahn's plans was appropriate and about whether she had sold the Property for too low a price. Mrs Phillips said in her evidence that she had formed the view that the plaintiff would be better off to terminate the Project Management Agreement and go ahead with a development of its own. 307 Mrs Phillips' evidence was supported by some evidence from her son Robert Phillips. Robert Phillips gave evidence that as early as January or February 1996 his mother had become unhappy with the joint venture project and had decided that she was selling the Property too cheaply and by March 1996 she was saying that she wanted to "get out of the deal", make all the profit for herself and recover the full value of the property. 308 Mrs Phillips' evidence also derives some support from some evidence by Robin Wise and his solicitor Mr Newhouse that in February 1996 Mr Robin Wise was apprehensive that, if Development Consent was not obtained by 28 February 1996, the plaintiff would attempt to terminate the Project Management Agreement. 309 A number of events which happened in March and April 1996 are relevant to determining the causation issue. 310 I have found that in the conversation between Mrs Phillips and the defendant which occurred on or about 4 March 1996 Mrs Phillips was seeking legal advice about whether there was anything she could do to extricate the plaintiff from the Project Management Agreement, now that Development Consent had been granted. 311 I have found that the letter of 10 April 1996 was not a "scare" letter intended to frighten Richard Arnold or Robin Wise and that in some conversation shortly before 10 April 1996 Mrs Phillips had asked the defendant for advice about terminating the Project Management Agreement. 312 Although Mrs Phillips said in her first affidavit that she did not remember receiving the letter of 10 April 1996, the letter was exhibited to her affidavit and I consider I should proceed on the basis that she did receive the letter and read it, shortly after it was sent. 313 The letter of 10 April 1996 gave correct advice that pursuant to cl 5.4 of the Project Management Agreement either party could terminate the Agreement, if Development Consent and Building Consent had not been granted by 28 February 1996, (impliedly without any need to give a 21 day notice) and stated that the writer's understanding was that Building Consent had not yet been granted. The letter then gave the apparently inconsistent advice that the plaintiff was entitled to terminate the agreement, indeed "100% entitled", but that Robin Wise might consider that the plaintiff had waived its rights by its actions since 28 February 1996. 314 If, as I have found, Mrs Phillips received the letter on or shortly after 10 April 1996, some days then passed without Mrs Phillips instructing the defendant to terminate the agreement. I have rejected Mrs Phillips' evidence that she had almost daily conversations with the defendant between about 12 April and about 19 April 1996. 315 I have found that the conversation between Mrs Phillips and the defendant in which the defendant said that he had a "brilliant" or "great" idea occurred on 21 April 1996, when the defendant said it occurred, and not on or about 9 April 1996, when Mrs Phillips said it occurred. However, there can be no doubt that the idea which had occurred to the defendant was an idea about how the plaintiff might be able to terminate the Project Management Agreement. 316 In par 4 of the letter of 22 April 1996 from the defendant to Mrs Phillips the defendant advised Mrs Phillips of the plaintiff's right to terminate the Project Management Agreement under cl 5.4. In other paragraphs of the letter the defendant explored other possible avenues for terminating the Project Management Agreement, for example under cls 5.11, 13.1 or 21.1.4. 317 The defendant, acting on instructions from Mrs Phillips, sent to Ocean View the notice of 22 April 1996. I do not accept submissions by counsel for the defendant that the notice was sent for some collateral purpose, for example of applying pressure to Ocean View to expedite the obtaining of finance. I consider that the notice was sent for the purpose which is apparent on the face of the notice, that is of laying a foundation, in accordance with the advice the defendant had given, for the terminating of the Project Management Agreement. 318 In the instructions to Mr Hilton of 1 May 1996 the defendant said inter alia that Mrs Phillips believed that she had sold the property too cheaply and "that the building application will be pushed through by 14 May 1996, in which case we will have to look for other avenues to terminate the agreement". The advice which counsel was asked to give was "how best our client can extricate itself from the arrangements". 319 Counsel for the defendant submitted that the plaintiff's case that, if it had been advised that it had a right to terminate the Project Management Agreement forthwith, it would have exercised that right, was based on an assumption that the advice would have been unqualified and that Mrs Phillips had not given evidence about what the plaintiff would have done, if the advice it had received had been qualified, as the advice given in the letter of 10 April 1996 had been qualified. It was further submitted that any advice given by reasonably careful solicitor, that the plaintiff had a right to terminate the Project Management Agreement forthwith under cl 5.4, would have been qualified, for example by references to the possible operation of legal principles such as estoppel and election. 320 Counsel for the defendant also submitted that in about April 1996 there were a number of "constraints" or reasons, legal and practical, why Mrs Phillips, notwithstanding her evidence in these proceedings and some of the things she said in 1996, would have refrained from instructing the defendant to terminate the Project Management Agreement forthwith. I will consider first what were submitted to be legal constraints on the plaintiff terminating the Project Management Agreement. 321 A number of provisions of the Tripartite Deed between the plaintiff, Ocean View and the Hong Kong Bank were referred to as imposing constraints on any termination of the Project Management Agreement by the plaintiff, including cls 2.1.3, 2.1.5 and 2.3.2. 322 Of these provisions, cl 2.1.3 and cl 2.1.5 would not have applied to any termination of the Project Management Agreement by the plaintiff pursuant to cl 5.4. Clause 2.1.3 would not have applied, because it required the plaintiff and Dramwren to notify the Bank of any default under the Project Management Agreement and none of the conditions for the operation of cl 5.4 involved any default by the Project Manager. Clause 2.1.5 prohibited the plaintiff and Dramwren from terminating the Project Management Agreement without the prior written consent of the Bank but only if the termination was by agreement between the plaintiff and Dramwren. 323 By cl 2.3.2 of the Tripartite Deed the plaintiff covenanted with the Bank that it "shall not waive any of its rights against Dramwren under the (Project Management) Agreement or exercise an election under cl 6.5(a) of the Agreement or issue a notice to Dramwren without the previous written consent of (the) Hong Kong Bank". 324 I would not consider the power to terminate the Project Management Agreement under cl 5.4 as a "right" falling within the first part of cl 2.3.2 of the Tripartite Deed, which the plaintiff was obliged not to "waive". I accept the submission made by counsel for the plaintiff that the clause of the Project Management Agreement referred to in the second part of cl 2.3.2 of the Tripartite Deed was cl 5.5(a) of the Project Management Agreement (the clauses in the Project Management Agreement having been renumbered at a late stage in the drafting of the Agreement) and cl 5.5(a) of the Project Management Agreement would have had no application to a termination of the Project Management Agreement pursuant to cl 5.4. 325 In the remaining part of cl 2.3.2 of the Tripartite Deed the plaintiff covenanted with the Bank that it would not issue a notice to Dramwren without the previous written consent of the Bank. 326 It was submitted by counsel for the plaintiff that "a notice" under this part of cl 2.3.2 was limited to a notice under cl 5.5 of the Project Management Agreement, which provided that, in certain circumstances, either party to the Project Management Agreement could by notice to the other "rescind" the Project Management Agreement. I do not consider that this submission should be accepted. The final part of cl 2.3.2 is expressed in general terms, as is the first part of cl 2.3.2, and I would not regard the final part of cl 2.3.2 as being limited by the second part. 327 It was submitted, alternatively, by counsel for the plaintiff that, if cl 2.3.2 of the Tripartite Deed on its proper interpretation would have required the plaintiff to seek the consent of the Hong Kong Bank before giving a notice of termination to the Project Manager, the Hong Kong Bank would have granted its consent. It was contended that, if the plaintiff had sought the Bank's consent to a termination of the Project Management Agreement, the Bank would have considered the plaintiff's application on its commercial merits, without being deflected by any displeasure the Bank might have felt, upon it being disclosed to the Bank that Mrs Phillips had been concealing her interest in the joint venture from the Bank. 328 In my opinion, if the plaintiff had given a notice under cl 5.4 of the Project Management Agreement, without obtaining the previous written consent of the Hong Kong Bank, there would have been a breach of the plaintiff's covenant in the final part of cl 2.3.2 of the Tripartite Deed but the notice of termination would, nevertheless, have been effective as between the plaintiff and Ocean View. 329 It was submitted by counsel for the defendant that a purported termination of the Project Management Agreement by the plaintiff pursuant to cl 5.4 might have involved breaches of fiduciary duties owed by the Trustee of the Charlotte Trust to the other joint venturers (the Charlotte Trust and the plaintiff being two parts of the "one pocket" of Mrs Phillips). Reference was made by counsel to cl 8 of the Joint Venture Deed, which required the joint venturers "in all their dealings in respect of the Project (to) act bona fide and in the best interest of the joint venturers". It was acknowledged by counsel for the defendant that the submission was weakened by the concluding words of cl 8 of the Joint Venture Deed, which provided:- ""The parties acknowledge that Charlotte may from time to time have a conflict of interest due to its association with Rebenta Pty Ltd, the owner of Bronte Inn, and where such conflict arises Charlotte will be deemed not to be in breach of its obligations under this Deed."" 330 I will turn now to what were submitted would have been practical constraints on the plaintiff terminating the Project Management Agreement. 331 It was submitted that, although in her evidence in these proceedings Mrs Phillips had scorned the deal she had entered into with the other joint venturers, in April 1996 the deal would have appeared much more attractive to her. Under the joint venture deal the plaintiff would receive $7 M for the Bronte Inn and a third share of any profit from the redevelopment of the property. The price of $7 M was higher than any other offer which had been received during the period of a couple of years in which the plaintiff had been endeavouring to dispose of the property. Mrs Phillips appreciated that a valuation of the property made by Landsbury's valuing the property at more than $7 M was a "blue sky" valuation. Although delays had been experienced in the carrying out of the joint venture, Mrs Phillips knew as at 22 April 1996, as evidenced by her fax of that date to the defendant that Richard Arnold was confident that Metway would provide funding for the carrying out of the joint venture. 332 Mrs Phillips was disappointed at the small amount of the profit ultimately achieved by the joint venture. However, the amount of the profit ultimately achieved was greatly reduced by the costs of the construction of the development unexpectedly exceeding the estimates which had been made. As at April 1996 Mrs Phillips would have anticipated that the profit of the joint venture and the plaintiff's share of that profit would be much larger than was ultimately achieved. 333 It was submitted by counsel for the defendant that the relationship between Mrs Phillips' group of companies and its banks was such in April 1996 that Mrs Phillips would have been deterred from deciding to terminate the Project Management Agreement. 334 It is clear that in April 1996 the affairs of Mrs Phillips' group of companies including the plaintiff were being closely monitored by both the Commonwealth Bank and the Hong Kong Bank. Under the arrangements in place with both Banks the full amount of the indebtedness to the banks was to be repaid by 30 June 1996. It was likely that the Hong Kong Bank would extend the date for repayment of the indebtedness to it to 30 September 1996 but, it was submitted by counsel for the defendant, it was unlikely that the Hong Kong Bank would grant any further extension and, if the Project Management Agreement and the Joint Venture Deed were terminated, there would have been no prospect of the Banks being repaid by 30 June 1996 or even by 30 September 1996. 335 Counsel for the defendant pointed to correspondence in April 1996 between Mrs Phillips on behalf of her group of companies and the Hong Kong Bank and the Commonwealth Bank of Australia. On 10 April 1996 Mrs Phillips wrote a letter to the Commonwealth Bank, with a copy to the Hong Kong Bank, advising that her companies would be unable to make a payment due the following day and requesting "a waiver of this event of default". Both Banks replied on 12 April 1996 declining the request for a waiver and confirming that, as the payment due on 11 April 1996 had not been paid, Mrs Phillips' companies were in default under their arrangements with the Banks. 336 There was much evidence that Mrs Phillips had deliberately concealed from both of the Banks the existence of the joint venture and the participation in the joint venture of an entity associated with her. This evidence included the two versions of the letter of 28 August 1995, the statement by the defendant in his instructions to Mr Hilton of 1 May 1996 that the Hong Kong Bank was not aware of the joint venture and the passage in Mrs Phillips' statement of 2 May 1996 in which she said to the defendant "of course, you know my bankers would be astounded to learn that I was involved in the development". 337 It was submitted by counsel for the defendant that, if the plaintiff had terminated the Project Management Agreement and thereby the Joint Venture Deed, the fact that there had been a joint venture to which Mrs Phillips had effectively been a party, would be likely to have become known to the Banks and particularly the Hong Kong Bank. Even without evidence from any representative of the Hong Kong Bank, it should be inferred that the Bank would have been displeased at the deception which had been practiced on it and would have been less likely to grant any further indulgence to Mrs Phillips or her companies. 338 Counsel for the plaintiff submitted that Mrs Phillips would have reasoned that the Hong Kong Bank would not have allowed any irritation it might have felt at Mrs Phillips' lack of frankness to deflect it from considering its relationship with Mrs Phillips and her companies on a purely commercial basis. Mrs Phillips had been a customer of the Hong Kong Bank for a number of years and the Bank appreciated her financial acumen. The Hong Kong Bank in fact remained a banker to her group of companies for some years after 1996. 339 Counsel for the defendant also sought to rely on evidence from:-

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Mr Gower, a chartered accountant, who on the basis of certain assumptions and the disclosed financial position of Mrs Phillips' group of companies as at 30 June 1996, formed the opinion that the group did not have the internal financial capability to redevelop the Bronte Inn.
Mr Simpson, a former chief manager of the corporate banking division of Westpac Banking Corporation, who said that in the period between 28 February 1996 and 30 June 1996 a reasonable, prudent lender would not have provided the plaintiff with the amount of finance required to redevelop the Bronte Inn at a construction cost which Mr Simpson was asked to assume would have been $5,825,202. 340 It was submitted by counsel for the defendant that Mrs Phillips would have been deterred from terminating the Project Management Agreement and thereby the Joint Venture Deed, by a consciousness on her part of an inability of the plaintiff to finance a redevelopment, if it were to attempt to redevelop the Bronte Inn by itself. 341 There was much argument at the hearing about the validity of the assumptions made by Mr Gower and Mr Simpson in reaching their conclusions. 342 A further submission made by counsel for the defendant was that it would have occurred to Mrs Phillips that it was unlikely that Robin Wise would acquiesce, without a murmur, in a purported termination by the plaintiff of the Project Management Agreement. On the contrary, it was likely that Robin Wise would challenge any purported termination and Mrs Phillips would find herself with a fight on her hands, at a time when she would have been under pressure to honour arrangements she had made with her banks. Counsel submitted that this factor also would have deterred Mrs Phillips from deciding to terminate the Project Management Agreement. 343 As I have sought to indicate, there were many arguments back and forth about whether, if there had been a ground for terminating the Project Management Agreement pursuant to cl 5.4 and the plaintiff had been advised that it had a right to terminate the Project Management Agreement on that ground, the plaintiff would have exercised that right. Although the issue relates to a past hypothetical fact, the onus would be on the plaintiff to establish on the balance of probabilities what it would have done (Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 353 per Mason CJ, Dawson, Toohey and Gaudron JJ). 344 I have concluded that, notwithstanding the numerous constraints referred to by counsel for the defendant, Mrs Phillips, if she had been advised that the plaintiff had a right to terminate the Project Management Agreement forthwith, would have decided that that right should be exercised. There is strong contemporaneous evidence that Mrs Phillips in April 1996 believed that under the joint venture arrangements she was selling the Bronte Inn too cheaply and that she could make more profit redeveloping the Bronte Inn by herself and that she wanted to get out of the Project Management Agreement and the Joint Venture Deed, if at all possible. 345 I accept that Mrs Phillips would have had considerable confidence in her ability to overcome any problems that might have arisen from her terminating the Project Management Agreement. She said in evidence "I would have worked my way through it". She said that she "would have looked around for finance". She would have gone to the Hong Kong Bank and "I had every confidence that the Hong Kong Bank would stay till the end". She said that she would not have needed to borrow $7 million "on day one". Financial accommodation could have been sought and provided progressively, as the development proceeded. 346 I have found that, if the plaintiff had been advised that it had a right to terminate the Project Management Agreement, it would have exercised that right, notwithstanding the existence of a number of constraints, including that it was likely that Robin Wise would challenge any purported termination of the Project Management Agreement by the plaintiff. 347 In my opinion, it is highly improbable that Robin Wise would have meekly acquiesced in a purported termination of the Project Management Agreement by the plaintiff. Robin Wise's company Ocean View had spent several hundred thousand dollars in pursuing the development by the joint venture. Earlier in this judgment I referred to the letter Robin Wise wrote on 16 May 1996 and to Mrs Phillips' assessment of Mr Wise as being ruthless in his business dealings. 348 In my opinion, it is virtually certain that, if the plaintiff had purported to terminate the Project Management Agreement, Robin Wise would have sought legal advice. If he had sought legal advice, it is likely that the grounds on which I have held that the plaintiff did not have any right to terminate the Project Management Agreement would have been revealed. Legal proceedings would then have been taken to challenge the purported termination of the Project Management Agreement by the plaintiff. 349 I have found that there were grounds on which such proceedings would have succeeded. Even if I am wrong in my conclusions that such grounds would have succeeded, they were fairly arguable grounds of such a nature that they would not have been liable to being summarily disposed of. 350 As I have already indicated, there were a number of weaknesses in Mrs Philips' position. Furthermore, these weaknesses were known to Mr Robin Wise. Mr Robin Wise knew that Mrs Phillips had entered into the joint venture because she had been unable to finance the development herself and he knew that the banks were "breathing down her neck". Mr Robin Wise knew that Mrs Phillips had concealed her interest in the joint venture from her banks. 351 In all of these circumstances, Mr Robin Wise had only to stand fast for a short period to force Mrs Phillips into negotiating with him. The likely result of such negotiations would have been a resumption of the status quo, that is a resumption of the joint venture arrangements, on the original terms or close to the original terms.

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Damages 352 On the findings I have made that the plaintiff did not have any right to terminate the Project Management Agreement forthwith under cl 5.4, the question of damages does not really arise. However, in case it is held on an appeal that I was wrong in holding that the plaintiff had no right to terminate the Project Management Agreement forthwith, I will give some consideration to the issue of damages. 353 In the statement of claim the plaintiff claimed that the damage it had suffered as a result of the defendant's negligence was that it had been obliged to transfer the Property to Ocean View for the sum of $7 M, when the true value of the property was substantially more, and that it had been deprived of the opportunity to development the property itself and make a profit from such a development. 354 In a document described as "Plaintiff's Schedule of Loss and Damage", which was prepared for a hearing which was to have taken place in June 2006, the plaintiff claimed a loss of land value, that is the difference between what was alleged to have been the true value of the land and the amount of $7 M which it was to receive under the joint venture arrangements, and a loss of the profit which it alleged it would have made from a development by it of the property in accordance with the plans of Peter Rommel which had been lodged with the Waverley Council, as explained and expanded upon in affidavits by Mr Rommel, which profit was quantified in accordance with a schedule to an affidavit by a valuer Mr Stephen Wiseman, together with interest, which, it was submitted, should run from a commencement date no later than 31 August 1997. 355 In the plaintiff's claim for damages as ultimately propounded the separate claim for loss of land value was abandoned. The plaintiff claimed damages the loss of the opportunity to develop the property in accordance with the plans and affidavits of Mr Rommel. The plaintiff claimed interest on the principal amount of the damages and submitted that interest should be calculated from 22 April 1996, when the opportunity to terminate the Project Management Agreement and develop the property in accordance with Mr Rommel's plans and affidavits had been lost. It was accepted by counsel for the plaintiff that, although the plaintiff had not been a party to the joint venture, the plaintiff and the Charlotte Trust formed part of the "one pocket" of Mrs Phillips and a credit should be allowed for the amount of the share of the actual profit which had been received, namely $446,119. 356 As the plaintiff's claim for damages was a claim for the loss of an opportunity or a chance, it was accepted by both counsel that the principles for determining damages stated by the High Court in Sellars v Adelaide Petroleum NL were applicable. Many parts of both the joint judgment of Mason CJ, Dawson J, Toohey J and Gaudron J and of the separate judgment of Brennan J in Sellars are relevant. The conclusions reached by the judges who delivered the joint judgment were summarised at p 355 as follows:- ""On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable."" 357 It was submitted by counsel for the plaintiff that in referring to "the degree of probabilities or possibilities" I should adopt a broad approach. I accept that a broad approach should be adopted but it is still necessary to make some critical examination of the alleged probabilities or possibilities. 358 In any calculation or estimate of the profit which would have been made from a development of the property by the plaintiff, important variables would be the costs of constructing the development and the gross realisations from the sale of units or apartments in the development. Each of the plaintiff and the defendant engaged an expert quantity surveyor (Mr Fisher for the plaintiff and Mr Meredith for the defendant) to estimate the costs of construction of a development in accordance with Mr Rommel's plans or Mr Rommel's affidavits and an expert valuer (Mr Wiseman for the plaintiff and Mr Wotton for the defendant) to estimate the amount of gross realisations from the sale of units or apartments in the development. 359 Each of the two pairs of experts held a joint conference and succeeded in producing a joint report in which the differences between them were substantially narrowed. The joint report of the expert quantity surveyors is to be found in exhibit B tab 18 and the joint report of the expert valuers is to be found in exhibit C. 360 In appendix A to the joint report of the quantity surveyors the opinions of each surveyor as to the costs of the project were tabulated. Each surveyor assumed a development in accordance with Mr Rommel's drawings and statement of environmental effects, with work to commence either in June 1996 or in October/November 1996 or a development in accordance with Mr Rommel's drawings as expanded in his affidavits, with work to commence either in June 1996 or in October/November 1996. There were, accordingly, eight columns or scenarios in appendix A, namely:- A. Mr Fisher's estimate of the costs of the development in accordance with Mr Rommel's drawings, with work to commence in June 1996. B. Mr Merediths' estimate of the costs of the development in accordance with Mr Rommel's drawings, with work to commence in June 1996. C. Mr Fisher's estimate of the costs of the development in accordance with Mr Rommel's drawings, with work to commence in October 1996. D. Mr Meredith's estimate of the costs of the development in accordance with Mr Rommel's drawings, with work to commence in October 1996. E. Mr Fisher's estimate of the costs of the development in accordance with Mr Rommel's affidavits, with work to commence in June 1996. F. Mr Meredith's estimate of the costs of the development in accordance with Mr Rommel's affidavits, with work to commence in June 1996. G. Mr Fisher's estimate of the costs of the development in accordance with Mr Rommel's affidavits, with work to commence in October/November 1996. H. Mr Meredith's estimate of the costs of the development in accordance with Mr Rommel's affidavits, with work to commence in October/November 1996. 361 The estimates varied between a minimum figure of $5,933,000 (Mr Fisher's estimate of the costs of a development in accordance with Mr Rommel's affidavits with work commencing in June 1996) and $7,836,000 (Mr Meredith's estimate of the costs of construction of a development in accordance with Mr Rommel's plans with work commencing in October/November 1996). 362 The only important matter in which the valuers disagreed in their joint report was in their estimates of the amount of the gross realisations from the sale of units in the development. As a result of the joint conference Mr Wiseman reduced his estimate of the amount of gross realisations from $22,070,000 to $19,495,000. Mr Wotton estimated gross realisations at $18,487,000. 363 The valuers were in agreement that the appropriate method for valuing the property was the hypothetical development method of valuation. This method was explained in extracts from textbooks which were annexed to Mr Wotton's affidavit of 27 March 2007 (annexures B and C). At p 124 of "The law affecting valuation of land in Australia" by Alan Hyam the author states:- ""The hypothetical development method of valuation is one method of determining the value of a site where there is an absence of comparable sales evidence and the site is vacant or not developed to its highest and best use. It was succinctly described by Sugerman J in AG Robertson Ltd v Valuer-General (1952) 18 LGR (NSW) 261 at 262 where his Honour said that the method 'erects a hypothetical building upon the subject land, capitalises the anticipated net return therefrom, and subtracts the estimated building cost from the capitalisation, the balance being treated as the' value of the site."" 364 At p 125 the author quotes part of the judgment of Cripps J of the Land an Environment Court in Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1983) 50 LGRA 322 at 326 where his Honour said:- ""The hypothetical development method is normally suspect because it depends on a number of assumptions and a number of estimates, for example cost of building, estimated gross rentals obtainable, probable outgoings and, most significantly, the rate percentum of return which could be expected and the profit and risk factor expressed in percentage terms. It has been said that because many estimates and assumptions must be made the hypothetical development method ought not be used where some use can be made of a comparable sale."" 365 In their joint report the valuers said that the profit and risk allowance used by each valuer in applying the hypothetical development method of valuation was 25 per cent. 366 In a table in the joint report of the valuers an amount for gross realisations of $19,495,000 (being the figure contended for by Mr Wiseman but not accepted by Mr Wotton) is assumed, a profit and risk factor of 25 per cent is assumed and then the value of the land is calculated according to the hypothetical development method, using each of the eight estimates of costs in the joint quantity surveyor's report, producing a range of values for the land from a low of $5,305,000 to a high of $6,990,000. 367 Counsel for the plaintiff submitted that I should adopt the residual land value in column E of the table $6,990,000 (based on Mr Fisher's estimate of the costs of constructing a development in accordance with Mr Rommel's affidavits, with work to commence in June 1996) or the residual land value in column G of the table $6890,000 (based on Mr Fisher's estimate of the costs of constructing a development in accordance with Mr Rommel's affidavits, with work to commence in October/November 1996), each being a value close to $7 M, and find that the profit which would have been made from a development would have been the amount assumed for the profit and risk factor being $3,901,320. 368 A number of criticisms were made by counsel for the defendant of this method of determining what damages should be awarded for any loss of an opportunity to terminate the Project Management Agreement and develop the property in accordance with Mr Rommel's affidavits. I will put to one side criticisms of the details of the evidence relied on by counsel for the plaintiff as being evidence of the costs of construction and the amount of gross realisations. 369 It was pointed out by counsel for the defendant that Mr Wiseman and Mr Wotton were both real estate valuers, not accountants, and what each had been purporting to do was to value the land by applying the hypothetical development method of valuing land and not to determine the profit which might be made from a development of the land. 370 In applying the hypothetical development method of valuing the land each of the valuers adopted an assumed profit and risk factor of 25 per cent. It was not legitimate to attempt to quantify the amount of the profit which might have been made from any actual development of the land by reference to the amount of the profit and risk factor assumed for the purpose of valuing the land according to the hypothetical development method. The artificiality or formal nature of the assumption as to the amount of the profit and risk factor was shown by its remaining the same figure $3,901,320 in all of the eight scenarios for construction costs considered by the valuers, whereas differing construction costs would surely produce different profit outcomes. 371 Although a separate claim for loss of value of the land had been abandoned by the plaintiff, the plaintiff's claim for loss of profit still involved "double dipping", that is a claim for double or at least overlapping compensation, because the hypothetical development method of valuing land brings into account the development potential of the land. It was submitted that there was a circularity in the plaintiff's claim for loss of profit, in that, a profit and risk factor having been assumed to determine the value of the land, the value of the land so derived was then sought to be used to determine the amount of the profit which would be made from a development of the land. 372 On all of the eight scenarios the value of the land was less than $7 M, which was the amount the plaintiff was promised for the land under the joint venture arrangements and the amount which the plaintiff ultimately received. Particularly when some discounts were made to the estimates of Mr Fisher and Mr Wiseman, which it was submitted should be made, the value of the land was substantially less than $7 M. It was accepted by counsel for the plaintiff that, if the value of the land was found to be less than $7 M, then the amount by which the value of the land was less than $7 M would have to be deducted from the plaintiff's claim for loss of profit. 373 As counsel for the plaintiff recognised, what was to be assessed was the value of a lost opportunity to terminate the Project Management Agreement and develop the land. The lost opportunity was by no means a certainty and therefore the damages claimed by the plaintiff would have to be discounted. 374 It was submitted by counsel for the plaintiff that a calculation of the kind performed by Mr Wiseman and Mr Wotton could be adapted either to determining the value of land by the hypothetical development method or to determining the amount of the profit which would be made from a development of the land. If adapted to the former purpose, an assumption as to the profit and risk factor would be a step in the calculation and a value for the land would be the result of the calculation. If adapted to the latter purpose, the value of the land would be a step in the calculation and the amount of the profit from a development of the land would be the result of the calculation. In the present case, if in a calculation of the latter kind the value of the land approximated to $7 M, then the amount of the profit and risk factor would approximate to the amount of the profit which would have been made from an actual development of the land. There was no need for an accountant to perform the calculation; anyone could do the arithmetic. 375 Counsel for the plaintiff pointed to the amount of the actual profit which had been made from a development in accordance with Mr Jahn's plans, which, it was submitted, had been an overcapitalised development. Counsel for the plaintiff also stressed that in any development carried out by the plaintiff alone, Mrs Phillips would have been a dynamic force, with her experience in real estate development, her drive, her resilience and her financial capacity. 376 In my opinion, there is considerable force in the submissions made by counsel for the defendant. Mr Wiseman and Mr Wotton were merely real estate valuers endeavouring to value the land. In valuing the land each assumed a profit and risk factor of 25 per cent. The plaintiff's claim for loss of a profit derived by using a land value which had itself been derived by the hypothetical development method of valuation did involve a claim for double or at least overlapping compensation and did involve circular reasoning. I find that the value of the land was substantially less than $7 M and the amount of that deficiency would have to be deducted in determining the amount of any loss of profit. Even if a calculation of a kind performed by the valuers could be adapted to determining the amount of the profit which would be made from a development of the land, it would be a crude way of proceeding. 377 I have stated a conclusion that the value of the land was substantially less than $7 M. I do not propose to examine the details of the differences between the valuers and the differences between the quantity surveyors. However, I consider that Mr Wotton's estimate of the amount of gross realisations is likely to be a better estimate than Mr Wiseman's final figure. Mr Wiseman's initial assessment of the amount of gross realisations was based on a development in accordance with Mr Jahn's plans. Mr Wiseman was unable to explain satisfactorily how he arrived at his initial estimate of the amount of gross realisations from a development in accordance with Mr Rommel's plans or affidavits and I consider it likely that a submission made by counsel for the defendant is correct that Mr Wiseman simply made a rough discount from his estimate for a development in accordance with Mr Jahn's plans. The big reduction Mr Wiseman made from a figure of $22,070,000 to a figure of $19,495,000 weakens the credibility of his first figure and also his reduced figure. In the dispute between Mr Wiseman and Mr Wotton about whether the inferior quality external wall cladding and internal finishes of a development in accordance with Mr Rommel's affidavits would adversely affect the prices of the apartments and the time required to sell them, I would prefer Mr Wotton's views. 378 As regards the quantity surveyors, much of the difference between Mr Fisher and Mr Meredith is in Mr Meredith's so called "add ons". I consider that at least a substantial part of the "add ons", although not expressly referred to in Mr Rommel's plans and affidavits, would have been needed to achieve the construction of a development.

At a glance

Court

Decision date

Before

Source

Judgment (78 paragraphs)

Parties

Cases Cited (5)