[1991] HCA 5
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640
[2014] HCA 7
Hadley v Baxendale (1854) 9 Exch 341
Johnson v Perez (1988) 166 CLR 351
[1988] HCA 64
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181
[2001] HCA 70
Ng v Filmlock Pty Ltd (2014) 88 NSWLR 146
Source
Original judgment source is linked above.
Catchwords
[1991] HCA 5
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640[2014] HCA 7
Hadley v Baxendale (1854) 9 Exch 341
Johnson v Perez (1988) 166 CLR 351[1988] HCA 64
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181[2001] HCA 70
Ng v Filmlock Pty Ltd (2014) 88 NSWLR 146[2014] NSWCA 389
Robinson v Harman (1848) 1 Exch 850
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332[1994] HCA 4
Spencer v The Commonwealth (1907) 5 CLR 418
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165[2004] HCA 52
Wenham v Ella (1972) 127 CLR 454[1972] HCA 43
Woodroffe v Box (1954) 92 CLR 245
Judgment (16 paragraphs)
[1]
Summary
These proceedings are an action in contract for damages said to have been caused by the alleged breach of a lessee's first right to purchase (also known as a right of first refusal) under a lease. Without intending any disrespect, I will refer to some of people in this judgment by their given names.
The plaintiff (Migrant's Son) leased a commercial property in Thirroul from the defendant brothers, Ali and Kenan (Ken) Yagmur, to operate a restaurant. Ali (a real estate agent) and Ken (a medical doctor) operated a partnership in which they owned a number of commercial properties, including the land leased to Migrant's Son (the Land). Ali and Ken were the registered proprietors of the Land as tenants in common in equal shares.
The lease was entered into on 17 March 2014 for a period of five years with three options to renew, each for a further five years (the Lease). The Lease contained this clause (cl 30.1) (emphases added):
"30.1 First Right to Purchase
If at any time during the period of the Lease the Landlord shall be desirous of selling the Premises, the Landlord shall:
a) give to the Tenant notice of its said intention prior to its placing of the Premises on the open market or inviting offers privately or publicly for the purchase of same ("Sale Notice");
b) in the event of a proposed sale by private treaty, offer to sell the Premises to the Tenant at the same price and on the same terms and conditions as it is prepared to sell to anyone else ("Offer Notice") which offer must be accepted in writing by way of a formal exchange of contracts or as reasonably required by the Landlord, within 2 Business Days of Notification of the offer to the Tenant; and
c) in the event of sale by public auction ("Auction Notice"), place a reserve upon the Premises at least equal to any amount which the Tenant has advised it is prepared to pay for a purchase on the same terms as the Landlord is prepared to sell to anyone else."
On 1 July 2017, Ali and Ken transferred their respective half interests in the Land to Snah Pty Ltd (Snah). The transfer records consideration of $615,000 (the Transfer Price). Snah is a company that ultimately was beneficially owned and controlled by Ali. It was common ground that Ali and Ken did not give Migrant's Son any of the notices referred to in cl 30.1.
On 17 March 2019, Migrant's Son entered into a new five year lease of the Land with Snah pursuant to the exercise of Migrant's Son's first option under the Lease. Having secured that new lease, Migrant's Son commenced these proceedings by statement of claim filed 2 April 2020. The new lease, which terminates on 16 March 2024, contains two options to renew, each for a further five years. If both are exercised, Migrant's Son could occupy the Land until 16 March 2034.
Migrant's Son's case was that it did not become aware of the transfer to Snah until 2018, when Migrant's Son gave notice that it was exercising its option under the Lease. It submitted that Ali and Ken had breached cl 30.1 and that it was entitled to damages on two bases.
The first was described as "loss on capital gain" calculated as $760,085, being the difference between the Transfer Price (and purchase costs of $24,915) and the market value of the Land, said to be $1,400,000 by reference to a valuation of the Land as at 19 June 2020.
The second alleged head of damage was described as "loss on rental savings" calculated as $399,339.40. This was the net present value of the difference between Migrant's Son's hypothetical borrowing cost (assuming it would have bought the Land for the Transfer Price with borrowed funds in that amount) and the rent that was payable under the Lease (the period of alleged damage being calculated up to March 2034 on the assumption that Migrant's Son would have exercised the further two options).
Ali and Ken raised two defences:
1. They, as "Landlord" under the Lease, were never "desirous of selling the Premises" within the meaning of the chapeau to cl 30.1. What had occurred was the dissolution of their partnership, with Ken transferring his half share in the Land to his brother Ali by transferring it to Ali's nominee, Snah. As part of the reorganisation of his affairs, Ali had also transferred his half share in that Land to Snah, a company he ultimately controlled.
2. Migrant's Son was estopped by convention from bringing its claim. The estoppel allegedly arose from a conversation between Ali and a then director of Migrant's Son, Mr Daniel Dafkovski, before the Land was transferred to Snah, in which Ali explained that what was occurring was not a sale but a dissolution of the partnership that would mean the Land would continue to be owned by Ali through a company controlled by him. Daniel allegedly said that Migrant's Son would have no problem with this provided it could still lease the Land.
For the reasons which follow, the Court has concluded that Migrant's Son's claim fails. Those reasons may be summarised as:
1. The obligations in cl 30.1 were triggered if the "Landlord shall be desirous of selling the Premises". Irrespective of the meaning of "selling":
1. As a matter of fact, the "Landlord" as defined in the Lease was never "desirous" of doing anything. In transferring their respective interests in the Land, Ali and Ken were not acting together as the "Landlord", but were each acting in their own right as the owner of a half interest in the Land; and
2. As a matter of fact, they were not desirous of selling the "Premises" as defined in the Lease. What they were dealing with was each of their own respective half interests in the Land that was subject to the Lease.
1. "Selling" in the chapeau of cl 30.1 must be construed by reference to the context provided by cll 30.1(a), (b) and (c). That context makes clear that, on its proper construction, "selling" means a sale to a party unrelated to the "Landlord" as defined in the Lease where both the "Landlord" and the purchaser are acting independently in their own interests (in short, what is colloquially referred to as an arm's length sale). Even if either or both of the conclusions in [10(1)] are wrong, as a matter of fact the transfer desired (and effected) by Ali and Ken of their respective interests in the Land was not "selling". Therefore, cl 30.1 was never engaged.
2. Even if there was a breach of cl 30.1 and assuming in Migrant's Son's favour that it was able to establish all the necessary counterfactuals, it has suffered no loss. Damages are to be calculated at the date of breach, which was 1 July 2017 (being the date Ali and Ken, by transferring their respective interests in the Land, put it out of their power to perform cl 30.1). The loss to be compensated is Migrant's Son's loss of the opportunity to accept an Offer Notice which would be at a price that Ali and Ken as "Landlord" would be prepared to sell the Land to anyone else at the date of breach.
There was very limited evidence about what this price might have been. The Court is satisfied that the Transfer Price represented the value of a half share in the Land as at 1 July 2017. In the absence of any other evidence, the Court infers that the price at which the "Landlord" acting as such would be prepared to sell to anyone would be the market price at that date. Migrant's Son contended that, if it was necessary to be determined, the market price of the Land as at 1 July 2017 was twice the Transfer Price. The counterfactual analysis therefore must assume that Migrant's Son accepted the Offer Notice and bought the Premises for that price of $1,230,000, so there would be no "loss on capital gain". In relation to the difference between rental and borrowing costs, the unchallenged evidence of Migrant's Son's expert accountant was that, assuming Migrant's Son borrowed twice the Transfer Price, there would be no loss because borrowing costs would have exceeded the rental payable under the Lease (including any subsequent renewals).
1. The Court's conclusions mean that it is not necessary to consider Ali and Ken's defence based on an alleged conventional estoppel.
Migrant's Son was represented by Mr M Galvin of Counsel. Mr D C Eardley of Counsel appeared for Ali and Ken.
[2]
The facts
What follows are the Court's chronological findings of fact on uncontroversial matters or matters that could not be seriously disputed. I have included references to disputed conversations and the Court's finding in relation to those conversations with a cross-reference to where the reasons for that finding are set out. Additional findings of fact are set out in the Court's consideration of each of the witnesses commencing at [51].
Ali is a real estate agent and Ken is a doctor. They are brothers. For many years they were in partnership purchasing investment properties together, ultimately holding in excess of two dozen properties. Ali was the day to day manager of their portfolio, but Ken was consulted about major decisions. Ali was the managing agent for the Land on behalf of himself and Ken.
By transfer dated 26 August 1996, Ali and Ken purchased the Land, then being used as a post office, from the Australian Postal Corporation for $220,000. They purchased the Land as tenants in common in equal shares. Ali regarded the Land as his first big break in business.
Alexander (Alex) Stojanovski is a director and shareholder of Migrant's Son and the controlling mind of the company. His brother in law, Daniel, was and remains the other shareholder. Daniel was a director of Migrant's Son until 8 July 2020.
Migrant's Son entered into the Lease on 17 March 2014. The term of the Lease was five years with three additional option periods of five years each. The Lease contained cl 30.1, set out in [3].
After signing the Lease, Migrant's Son performed an initial fit-out which it alleges cost $240,000.
Migrant's Son alleges that between mid-2015 and early 2017, Alex and Ali had two conversations to the effect:
"Alex: Ali, just calling to check in. Are you interested in selling the property to us?
Ali: I'm always interested in selling at the right price.
Alex: What would that price be?
Ali: Make me an offer.
Alex: You know what price you want. Let me know."
For the reasons set out in [53(1)] the Court is not satisfied the conversations set out in the preceding paragraph occurred.
In May 2017, Ali and Ken decided to dissolve their partnership and divide their jointly-owned properties between them. They agreed that Ali would retain the Land, not least because of Ali's attachment to it as his first successful foray in business.
Ali and Ken allege that in late May or early June 2017, Ali contacted Daniel to the effect:
"Ali: Hi Daniel, hope all is well just a quick note that you will see the new invoices go from Yagmur to a new company. My brother and I are dissolving our partnership and rearranging our affairs, but I will be keeping the property. I will not be selling the property as I have had it for years and for me this is where it all started from. There will be no effect to you and Alex.
Daniel: What's happening?
Ali: I am just transferring the property to be held in trust for me but its ok as I am still the owner and still have full control. There is not going to be any change to the lease when the option is exercised other than the new name.
Daniel: Ok. Do we have to do anything[?]
Ali: Nothing, everything will be the same.
Daniel: Ok, I'll let Alex know. I'm fine with what you are doing. We won't have any issues with the change as long as we can still lease the premises."
For the reasons set out in [53(2)], the Court finds that the conversation in the preceding paragraph occurred.
Around 9 June 2017, Ali asked Hans van de Haar to hold the Land on trust for him. Hans agreed to set up a new company of which he or his son, Darrin van de Haar, would be the director.
Ali described Hans as a business associate and friend. Ali gave evidence in cross-examination that he and Hans had previously had many business dealings and that (Transcript, 14 September 2021, p 133(25-9)):
"Hans and I had an agreement many, many years ago, that if I ever need for him to do something for me and I would do the same for him. It was just something, an agreement that we had."
On 16 June 2017, Snah Pty Ltd (Snah) was registered. Darrin was its sole shareholder and director.
On 1 July 2017, Ali and Ken transferred the Land to Snah. The transfer states that receipt of $615,000.00 consideration is acknowledged. It is stamped with $10.00 stamp duty.
That same day, Ali and Darrin signed a document entitled "Deed" (the Deed). The Deed provided:
"1. Darrin appoints Ali his attorney for the purpose of transferring all of Darrin's shares of Ettenyl Pty Ltd and Snah Pty Ltd to Ali himself or his nominee and to record in the records of Ettenyl Pty Ltd and Snah Pty Ltd that he Darrin resigns as Director and Secretary of Ettenyl Pty Ltd and Snah Pty Ltd the appointment [sic] of Ali or his nominee as sole Director and Secretary of Ettenyl Pty Ltd and Snah Ply Ltd
2. In the event of the death of Ali, Damn appoints Ali's personal legal representative his Attorney for the purpose of transferring all of Darrin's shares of Ettenyl Pty Ltd and Snah Pty Ltd to Ali's personal legal representative himself or his nominee and to record in the records of Ettenyl Pty Ltd and Snah Pty Ltd that he Darrin resigns as Directors and Secretary of Ettenyl Pty Ltd and Snah Pty Ltd the appointment [sic] of Ali's personal legal representative or his nominee as sole Director and Secretary of Ettenyl Pty Ltd and Snah Pty Ltd.
3. Darrin will on the execution of this Deed hand to Ali a transfer of all of all his shares of Ett[e]nyl Pty Ltd and Snah Pty Ltd to Ali or his Nominee and his resignation as Director and Secretary of Ettenyl Pty Ltd and Snah Pty Ltd authorises Ali to record in the records of Ettenyl Pty Ltd and Snah Pty Ltd.
4. All money owed by Ali or any company the shares of which are owned by Ali to Darrin or his father Hans van de Haar or any company the shares of which are owned by members of Hans van de Haar's family will be paid before the transfers, resignations and appointments come into effect."
On 12 April 2018, Peter Bujaroski became the sole director and secretary of Snah. Hanlyn Pty Ltd (Hanlyn) became Snah's sole shareholder. Mr Bujaroski was Hanlyn's sole shareholder, director and secretary.
Ali's evidence in cross-examination was that Mr Bujaroski was holding the shares on trust for Ali until Ali had set up a new company (Transcript, 14 September 2021, p 138(42)-139(13)). This evidence was supported by a document entitled "Transfer", signed by Hans and Mr Bujaroski and dated 21 September 2012, which read:
"I, Hans van de Haar, in consideration of $1.00 transfer all of my shares of Hanlyn Pty Ltd to Peter Bujaroski and I, Peter Bujaroski, declare that I hold these shares as Trustee for Ali Yagmur"
Migrant's Son alleges that around June 2018, Alex called Ali and they had a discussion to the effect:
"Alex: Ali, we are looking to rebrand the restaurant.
Ali: Ok.
Alex: We are going to close it for about month, redo the fit-out and rebrand it.
Ali: Sounds good.
Alex: I'm seeking one month rent free to redo the fit-out.
Ali: I would do it, but I'm no longer the landlord. I'll put it to the new landlord.
Alex: When did you sell the property? Didn't we have a right to purchase it?
Ali: I sold it in a portfolio of properties worth about $10 million to lower my debt levels with the bank."
For the reasons set out in [53(1)], the Court does not accept that the conversation set out in the preceding paragraph took place. In any event, nothing turns on this finding because Migrant's Son did not attribute any legal significance to the conversation.
On 22 June 2018, Migrant's Son's solicitors, RMB Lawyers, sent a letter to Ali notifying him that Migrant's Son was exercising the option to renew the Lease for the first option period. The letter also included:
"We have been instructed by our clients that the registered proprietor of the property changed during the initial lease period and that the lease was not validly assigned when this ownership change occurred. Can you please confirm:
1. change of ownership of the property has occurred;
2. that preparation for the execution of a valid assignment of the lease will occur immediately; and
3. that subject to our clients not requesting alterations to the lease our clients will not incur any costs for the preparation of the lease assignment."
Around July 2018, Migrant's Son closed the restaurant for a one month re-fit.
On 9 August 2018, Ali sent an email to RMB Lawyers, acknowledging that Migrant's Son had given notice that it was exercising the option for the first option period.
On 16 August 2018, Ali's solicitors, Stewart & Associates, emailed RMB Lawyers a draft new lease for the first option period. The draft lease recorded Snah as the lessor.
On 9 October 2018, RMB Lawyers wrote to Stewart & Associates requesting amendments to the draft lease to ensure that a first right to purchase term remained in the Lease.
On 16 October 2018, Stewart & Associates sent RMB Lawyers a revised draft lease which included a first right to purchase term.
On 6 March 2019, RMB Lawyers sent copies of the new lease executed by Migrant's Son to Stewart & Associates.
On 26 April 2019, Stewart & Associates sent a copy of the fully executed new lease to RMB Lawyers.
On 30 April 2019, Alex sent an email to Ali which read:
"Hi Ali and hope all has been well.
Just checking in to let you [know] we just completed the transfer of lease with the new owners of the property. It took us the better part of a year to complete this and in doing so the owners tried to change a few of the clauses which didn't sit well with us.
I am a little disappointed that we were not given the opportunity to purchase the property as I had expressed interest to you in the past about buying it. Out of curiosity can you please let me know what it sold for (so I can assess whether I could potentially approach the new owner) and why you did not ask me to buy.
Regards Alex."
On 1 May 2019, Alex rang Ali. Alex's evidence is that they had a conversation to the effect:
"Alex: Per my email, can you let me know who you sold the property to and at what price.
Ali: Alex, I still own the property. If you check to see what it sold for I would never sell it at that price. I'm going to become a director of the company that owns the property."
Ali alleges the conversation was to the effect:
"Alex: Hi Ali, thanks for returning my call. I see that you have sold the post office.
Ali: Hi Alex, as I have explained to Daniel the property was not sold. I still have full control of the property and it is held in trust for me. My brother and I have dissolved our business affairs. I have no intention of selling the property.
Alex: Ok, if you are thinking of selling let me know.
Ali: No worries."
For the reasons set out in [53(3)], the Court concludes that there is no material difference between the substance of these two versions and accepts that a conversation took place to this effect.
On 22 May 2019, RMB Lawyers emailed Stewart & Associates requesting the new lease be registered. On 20 June 2019, RMB Lawyers repeated the request.
On 20 June 2019, Ataturk Holdings Pty Ltd (Ataturk Holdings) was registered. Ali was the sole shareholder, director and secretary.
Over the course of July 2019, RMB Lawyers repeatedly contacted Stewart & Associates requesting the new lease be registered. On 31 July 2019, Stewart & Associates advised RMB Lawyers they no longer acted for Ali.
On 1 December 2019, Ali was appointed as the sole director and secretary of Snah. On 3 December 2019, those changes were lodged with ASIC. Ataturk Holdings became Snah's sole shareholder. Ali remains the sole shareholder, director and secretary of Ataturk Holdings.
At 6:51pm on 28 January 2020, RMB Lawyers wrote to Ali and Ken stating that Migrant's Son was prepared to commence proceedings about the change of ownership of the Land.
At 10:14am on 29 January 2020, Ali replied by email:
"… Your clients were made aware a couple of years ago of the circumstances of the transaction in which they understood and agreed. They had no problem with it then and it is a shame that as they struggle financially they want to get out of the lease. This is truly poor business and extremely poor in ethics and morals
The facts are
1 They were made aware of sale/transfer and have not done anything till now
2 Your clients took the option of their lease knowing the facts
3 I am the sole owner of the property
If they want to leave then I am happy to negotiate and release them from their obligations with a mutually agreed time and or compensation
Should this not be acceptable then I look forward to receiving the court documents
I tried unsuccessfully calling twice today…"
Migrant's Son filed its statement of claim on 2 April 2020.
[3]
The witnesses and further findings of fact
The lay evidence for Migrant's Son was given by Alex and Daniel. Migrant's Son also called Mr Lupcho Dafkovski (Alex's father in law and Daniel's father), who provided a short affidavit about his assets, and Ms Krystal Stojanovski (Alex's wife and Daniel's sister), who also provided a short affidavit about her and her husband's assets. Lupcho and Krystal were only briefly cross-examined and it is not necessary for me to say anything more about their evidence which, with no disrespect intended, was ultimately peripheral to the dispositive issues.
The lay witnesses for the defendants were Ali and Ken themselves, together with their accountant, Mr Alessandro Ianella.
The direct conflict between the parties' evidence related to only a handful of conversations. In relation to each conversation, the evidence was self-serving and uncorroborated by any other witness or contemporaneous record. The relevant conversations were denied by the alleged other party to them. Although Ali and Ken took issue with the credit of Migrant's Son's witnesses, all of the witnesses in the case presented as honest and endeavouring to give their version of the truth. Against that background, the Court's findings in relation to those conversations are:
1. In the absence of any other matter upon which the Court can rely other than the parties' respective assertions, I have not been satisfied on the balance of probabilities to a level of actual satisfaction that the conversations which Alex alleges had taken place with Ali in 2015, 2017 and June 2018 (set out in [18] and [30]) in fact occurred.
2. I am satisfied that the conversation which Ali says he had with Daniel in late May or early June 2017 (set out in [21]) before the Land was transferred to Snah did occur. Again, in the final result, nothing turns on this finding because it has not been necessary for the Court to consider Ali and Ken's defence based on conventional estoppel. Notwithstanding Daniel's evidence that he would have had no reason to be contacted by Ali, I have accepted that the conversation occurred for two reasons:
1. It is inherently likely that Ali would have contacted Migrant's Son about the change of name on the rent invoices. I readily infer that ensuring continuity of rental payments would have been a significant matter for Ali.
2. The conversation is consistent with Ali's prompt reply (set out in [49]) to Migrant's Son's lawyers when they wrote stating that Migrant's Son was prepared to commence proceedings about the change of ownership of the Premises.
1. As for the conversation said to have occurred between Alex and Ali on 1 May 2019, the substance of the two versions (set out in [41] and [42]) is identical and it is unnecessary for the Court to prefer the terms of one over the other. The Court accepts that they had a conversation to the effect that Ali told Alex that the Land had not been sold and remained in his control, that he had no intention of selling the Land, and that he would not have sold it for the Transfer Price.
Having resolved those disputed matters, it is unnecessary for me to say anything more about Migrant's Son's lay witnesses.
Ali was a straightforward witness. The Court accepts his evidence and finds that:
1. Ali at no time had any intention of selling the Land (in the sense of losing control of the Land by an arm's length sale to an unrelated third party).
2. The Land was part of a much larger portfolio of commercial assets that Ali held in partnership with Ken.
3. Ali and Ken decided to end their partnership. This was done by dividing the properties between themselves. Valuations were obtained for the purpose of effecting the division.
4. Accounts and tax returns for Ali and Ken's partnership were prepared by their accountant, Mr Ianella, including upon the dissolution of the partnership.
5. Ali wanted to keep the Land for himself, not least because it meant a lot to him as the first successful property acquisition as part of their joint business venture.
6. The Transfer Price represented the value of a half share in the Land. Ali would never have sold the entirety of the Land to anyone for only the Transfer Price. These findings are corroborated by Migrant's Son's expert's market valuation of the whole of the Land of $1,400,000 as at 19 June 2020 and the statutory assessment of land value alone recorded in the expert's report ($754,000 as at 1 July 2017). They are also consistent with what was obviously Ali's understanding and intention that he would retain his half share in the Land, albeit by transferring it into a corporate entity effectively controlled by him. Therefore, no question of consideration for Ali's half share arose.
7. Irrespective of the legal form, as a practical and commercial matter, once the Land had been transferred to Snah, Ali continued to control the Land as his own.
Ken was a particularly impressive witness who gave his evidence in a disinterested and unequivocal manner. The Court accepts his evidence and finds that:
1. Ken's only intention was to transfer his half interest in the Land to Ali as part of the winding up of their partnership.
2. Ken at no time had any intention of selling his half interest in the Land to anyone other than Ali.
3. Ken was indifferent about the Transfer Price, which he understood reflected a valuation that had been obtained, because he did not receive any money. What Ken did receive was Ali's interest in those properties which he and Ali had agreed should become Ken's.
4. Accounts and tax returns for Ali and Ken's partnership were prepared by their accountant, Mr Ianella, including upon the dissolution of the partnership.
Mr Ianella also gave his evidence in a forthright and disinterested manner. There was nothing in how he gave his evidence to suggest he was biased in any way in favour of his longstanding clients and a suggestion to this effect was not put to him in cross-examination. The Court accepts his evidence and finds that:
1. Mr Ianella had been the accountant for Ali and Ken since April 1999.
2. In addition to Ali and Ken's personal tax returns, Mr Ianella had prepared accounts and tax returns for their property partnership, including upon its dissolution.
3. Mr Ianella had not given advice to Ali and Ken in relation to the dissolution, but rather received instructions from them about how the properties were to be divided. He understood that Ali and Ken were acting on legal advice in how they were going about the dividing the assets of their partnership and that formal valuations had been obtained, but he had not seen them.
4. To Mr Ianella's observation, Ali has always had full control of the affairs of Snah. Ali had instructed him in relation to the preparation of tax returns for Snah and had ensured that any moneys payable by Snah for tax or other expenses were paid.
In addition to its lay witnesses, Migrant's Son called two expert witnesses: Mr Scott Russell, a valuer, and Mr Brett Goodyer, a forensic accountant. Ali and Ken did not file any expert evidence in response.
Mr Russell valued the Land as at 19 June 2020 at $1,400,000. He accepted that there was no particular reason for the valuation being conducted at that date other than that those were his instructions.
Mr Russell had also been instructed by Migrant's Son to value the Land as at 1 July 2017. He said in cross-examination that he had done so. That part of his valuation had not been tendered by Migrant's Son, for what the Court can only assume were forensic reasons. However, having been asked the question in re-examination without objection, Mr Russell said that he had valued the Land as at 1 July 2017 at $1,450,000. The Court gives no weight to that evidence because it is unsupported by any reasoning, and neither party relied on it in their final submissions.
Mr Russell's report contained a statutory assessment of the land value of the Land as at 1 July 2017, which was $754,000.
Mr Goodyer presented as an experienced and appropriately disinterested independent expert witness. His calculations underpinned the damages claimed, set out in [7] and [8] above. He readily accepted that, in calculating what he described as Migrant's Son's "loss on capital gain", being the difference between the Transfer Price and Mr Russell's assessment of the market value of the Land as at 19 June 2020, he had assumed that the Transfer Price represented the value of the entirety of the Land.
While there was no dispute about Mr Goodyer's methodology, Ali and Ken challenged the assumptions on which he had based his calculations.
In cross-examination, Mr Goodyer was asked to assume that Migrant's Son had to borrow twice the Transfer Price to acquire the Land and use his net present value method to calculate Migrant's Son's "loss on rental savings" on that basis. He agreed that in this scenario, Migrant's Son would suffer no loss because the net present value would be negative. In other words, the cost of borrowing $1,230,000 would exceed the rent under the Lease (including renewals).
[4]
Migrant's Son's submissions summarised
Migrant's Son submitted that Ali and Ken had breached cl 30.1 by:
1. Failing to issue a Sale Notice under cl 30.1(a).
2. Failing to issue an Offer Notice under cl 30.1(b), stating that an offer to purchase for $615,000 had been made, attaching a contract for sale in that amount which Migrant's Son could execute, and stating that contracts would need to be exchanged within two business days.
Migrant's Son submitted that cl 30.1 is to be construed objectively, by reference to what a reasonable person would have understood the terms to mean in light of the text, surrounding circumstances known to the parties, and the purpose of the transaction: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA 70]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52.
This requires consideration of the context and the nature of the clause. Migrant's Son relied on Woodroffe v Box (1954) 92 CLR 245 at 257; [1954] HCA 22 (per Fullagar and Kitto JJ):
"The term "first refusal" is not a technical term. It is a colloquial term, and indeed a somewhat inept term, because what the potential offeree wants is an opportunity of accepting an offer rather than an opportunity of refusing an offer. It may, and does, occur in various phrases, such as "give the first refusal", "have the first refusal", "give the right of first refusal", "have the right of first refusal", etc. And these phrases may be found in various contexts. It seems clear that a mere promise to give the first refusal should be taken prima facie as conferring no more than a pre-emptive right. If I promise to give you the first refusal of my property, I am making prima facie only a negative promise: I am saying: "I will not sell my property unless and until I have offered it to you and you have refused it"."
Migrant's Son submitted:
1. The chapeau of cl 30.1 provides the circumstance in which the clause is engaged: if the landlord "shall be desirous of selling the premises."
2. There are no words of limitation in the chapeau which would displace its literal meaning.
3. Clause 30.1(a) should be given a broad construction which includes an unsolicited offer to purchase.
4. However, even if cl 30.1(a) is construed narrowly so that the Ali and Ken did not have to give notice of an unsolicited offer, cl 30.1(b) still applies.
5. Clause 30.1(b) is not expressed to be limited to a sale by private treaty that is the result of putting the premises on the open market or inviting offers. If the Land was proposed to be sold by private treaty, Ali and Ken were required first to make an offer to Migrant's Son on the same terms.
Migrant's Son submitted that the transfer was a sale within the meaning of cl 30.1 because it was a transfer for consideration. The explanation of reorganising the partnership's assets does not explain the series of transactions entered into. The Deed contemplates some other financial arrangement involving the Land, seen in cl 4:
"All money owed by Ali or any company the shares of which are owned by Ali to Darrin or his father Hans van de Haar or any company the shares of which are owned by members of Hans van de Haar's family will be paid before the transfers, resignations and appointments come into effect."
It was open to Ali and Ken to provide in the Lease for a possible dissolution of the partnership and redistribution of the assets, but they did not.
The Court could infer that Migrant's Son would have exercised its right to purchase if it had been given notice, on the basis that:
1. Migrant's Son undertook an expensive fit-out of the Land.
2. Migrant's Son had sought a lease with a long term.
3. Migrant's Son insisted on an identical clause to cl 30.1 in the new lease.
4. Migrant's Son successfully operated its business from the Land.
5. Family members of Migrant's Son's directors had substantial assets, the inference being that they would have assisted in purchasing the Land.
6. Mr Goodyer's evidence that in considering a loan to Migrant's Son to purchase the Land, financial institutions would take into account Migrant's Son's cash flow, depreciation, amortisation, current rent paid and the capacity of the directors and shareholders to provide loans or personal guarantees (although Mr Galvin accepted in final address that there was no evidence of any of these matters).
Migrant's Son sought damages for loss on capital gain and loss on rental savings.
As to damages for loss on capital gain, Migrant's Son submitted:
1. Damages for loss on capital gain should be assessed as the difference between the sale price and the value of the Land.
2. The sale price was the Transfer Price of $615,000. Under cl 30.1(b), Ali and Ken were obliged to offer to sell the Land to Migrant's Son for the Transfer Price.
3. In determining the value of the Land, the ordinary rule that damages are to be assessed at the time of breach may be modified or displaced: Johnson v Perez (1988) 166 CLR 351 at 357; [1988] HCA 64 (per Mason CJ); Wenham v Ella (1972) 127 CLR 454 at 466; [1972] HCA 43 (per Walsh J).
4. Migrant's Son could not seek to mitigate the damage by purchasing a different property, because between the time of breach and the time of becoming aware of the breach in mid-2018, Migrant's Son had committed to the new lease and fit-out of the Land. Specific performance was unavailable until the trust position was disclosed. This occurred on 3 December 2019, when Ataturk Holdings (controlled by Ali) became the sole shareholder of Snah. Damages should be assessed by reference to the market value of the Land at 19 June 2020, the date of Mr Russell's valuation, being $1,400,000 (although Mr Galvin accepted in closing submissions that 19 June 2020 was, in itself, not a date that had any legal significance).
5. If that submission is not accepted, damages should be assessed at the time of breach, being 1 July 2017. The market value of the Land at that time was $1,230,000, being twice the Transfer Price.
Migrant's Son sought damages for loss on rental savings for the period of each of the option terms, submitting that there was a real possibility that the remaining options would have been exercised (a 50% chance as to the second option and a 25% chance as to the third option) because:
1. Migrant's Son exercised its first option to sign the new lease.
2. After signing the new lease, Migrant's Son re-branded the restaurant and undertook a second re-fit of the Land.
[5]
Ali and Ken's submissions summarised
Ali and Ken's submissions can be summarised as:
1. Ali and Ken were never desirous of selling the Land, so cl 30.1 was not engaged. The nature of transaction is key: it was a redistribution of assets between Ali and Ken, not a sale.
2. Migrant's Son had not proven what the terms of the Offer Notice would have been given the circumstances in [75(1)].
3. If the Court were to find there was a breach of cl 30.1, Migrant's Son had not demonstrated any proper basis to depart from the general rule that damages are assessed at the time of breach, being 1 July 2017. Damages should be calculated for the period between 1 July 2017 (the date of the transfer) to 16 March 2019 (the termination date of the Lease). Any causal link between the breach and damage would be severed on expiry of the Lease. This was especially the case when Migrant's Son had entered into the new lease with Snah (that is, knowing that Ali and Ken had transferred their respective interests).
4. Migrant's Son suffered no loss as a result of the transfer:
1. As to loss on capital gain, there was no evidence that Migrant's Son was in a position to accept any Offer Notice. Even if there was, there was no evidence of the market value of the Land at the time of the Transfer to enable damages to be calculated.
2. As to loss on rental savings, Mr Goodyer's evidence was based on assumptions which were not proven as facts. There was therefore no evidence of consequential loss.
1. Migrant's Son is estopped by convention from bringing its claim because the conventional basis of the parties' dealings after Ali's conversation with Daniel was that Ali remained the owner of the Land.
[6]
Consideration
For the reasons which follow, the Court has come to the conclusion that Migrant's Son has failed to establish both a breach of cl 30.1 and, even it had been breached, that Migrant's Son has suffered any loss entitling it to damages.
[7]
Clause 30.1 generally
It is convenient to begin by considering cl 30.1 generally. It appears as part of cl 30:
"30.1 First Right to Purchase
If at any time during the period of the Lease the Landlord shall be desirous of selling the Premises, the Landlord shall:
a) give to the Tenant notice of its said intention prior to its placing of the Premises on the open market or inviting offers privately or publicly for the purchase of same ("Sale Notice");
b) in the event of a proposed sale by private treaty, offer to sell the Premises to the Tenant at the same price and on the same terms and conditions as it is prepared to sell to anyone else ("Offer Notice") which offer must be accepted in writing by way of a formal exchange of contracts or as reasonably required by the Landlord, within 2 Business Days of Notification of the offer to the Tenant; and
c) in the event of sale by public auction ("Auction Notice"), place a reserve upon the Premises at least equal to any amount which the Tenant has advised it is prepared to pay for a purchase on the same terms as the Landlord is prepared to sell to anyone else.
30.2 No First Right to Purchase Circumstances
The Landlord shall not be bound to comply with clause 30.1 if at any time when the Sale Notice, Offer Notice or Auction Notice would required [sic] to be given to the Tenant:
a) the Tenant shall be in breach of its obligations contained in the Lease;
b) there shall have occurred any act, matter or thing attributable to the responsibility of the Tenant pursuant to the provisions of the Lease which would entitle the Landlord to determined [sic] the tenancy created by the Lease; or
c) the Landlord shall otherwise be entitled to determine the tenancy created by the lease and shall have exercised its rights to do so."
30.3 Time is Essential
Time shall be of the essence in all respects in construction of this clause 30 and the failure of the Tenant to exercise its rights contained herein within the time permitted shall render those rights null and void."
The first point to note is that cl 30.1 is only triggered "if at any time during the period of the Lease the Landlord should be desirous of selling the Premises". As I shall develop below, this requires consideration of what is meant by the "Landlord", the "Premises" and "selling". The first two of these terms are defined in the Lease and it is in their defined sense that I refer to them in what follows.
Assuming the clause has been engaged, then by reason of the "and" at the end of cl 30.1(b), the three sub-clauses must be read cumulatively.
The first thing that the Landlord must do is give notice of its "said intention", presumably within a reasonable time of forming the intention and before entering into one of the transactions referred to in cll 30.1(b) or (c). There is no difficulty in reading "said intention" as being the desire referred to in the chapeau. However, significantly for present purposes, the type of sale of which notice is to be given under cl 30.1(a) is the "placing of the Premises on the open market or inviting offers privately or publicly for the purchase of same". Beyond notifying the tenant of the Landlord's intention, giving (or failing to give) the Sale Notice does not appear to have any legal consequence. However, the following sub-clauses go on to consider the different types of sale method and the type of additional notice to be given.
Under cl 30.1(b), if the Landlord intends to sell the Premises by private treaty, then the Landlord must, by means of an Offer Notice, "offer to sell the Premises to the Tenant at the same price and on the same terms and conditions as it is prepared to sell to anyone else" (emphasis added). Neither party appears to have given adequate consideration to the importance of this requirement for their respective cases, especially in relation to damages. For example, Ali and Ken gave no evidence about what they would have been prepared to do (as opposed to Ali's evidence that he told Alex that he would not have sold the whole of the Land for the Transfer Price) and nothing was put to them about this in cross-examination.
Alternatively, if the Landlord intends to sell the Premises by public auction, then it can only do so if it has placed a reserve on the Premises that is at least equal to an amount that the tenant has said it is prepared to pay. Although not expressed in pellucid terms, the Court interprets cl 30.1(c) as requiring the Landlord, if there is to be a public auction, to give the tenant an Auction Notice informing the tenant that there is to be a public auction and informing the tenant of the terms on which the Landlord is prepared to sell the Premises to anyone else. The tenant is then required to inform the Landlord of the price which the tenant is prepared to pay for the Premises on the terms which have been notified to it by the Landlord, and the Landlord must set as the reserve an amount "at least equal" to the amount notified to it by the tenant.
So understood, the effect of cl 30.1 is to give the tenant an opportunity to purchase the Premises on the same terms and conditions as the Landlord has notified the tenant that the Landlord is prepared to sell the Premises to anyone else. In the case of a sale by private treaty that opportunity is taken up by formal exchange of contracts (or as the Landlord may reasonably require) at the price nominated by the Landlord within two business days of receiving the Offer Notice. In the case of a sale by public auction, that opportunity is presumably exercised by the tenant bidding at the auction where the reserve price is at least the figure notified by the tenant (which therefore does not exclude the possibility that someone may outbid the tenant).
[8]
The "Landlord"
In cl 29.1 of the Lease, "Landlord" is defined to mean "the Lessor named in paragraph (E) on the first page and more particularly described in Item 1". The reference to "(E)" is plainly an error for and should read "(C)", in which the Lessor is described as "Ali Denniz Yagmur & Kenan Sinan Yagmur of XXX Road, Unanderra, NSW 2526". The more particular description in Item 1 of the Reference Schedule describes Ali and Ken in exactly the same terms as their description in (C) on the first page of the Lease.
In the somewhat unusual facts of this case, the Court finds the Landlord as defined has not been shown to have been desirous of doing anything that would engage the chapeau to cl 30.1. Ali and Ken did not act in their joint capacity as Landlord as defined in the Lease. What the evidence demonstrates, and the Court has found, is that each was acting in his individual capacity as an owner of one half share of the Land. The fact that they are recorded as transferors on the transfer to Snah is not inconsistent with this conclusion. As I have already recorded, the Court has found that Ali's intention was to bring the entirety of the Land under his control; and Ken's intention was to transfer his half share in the land to his brother, all within the context of the winding up of their partnership.
In reaching this conclusion the Court does not treat their respective statements of subjective intention as completely determinative of the question of whether they had any joint intention as Landlord because subjective evidence can be falsified by other objective evidence. However, in this case, their evidence of their intention is consistent with what occurred: Ken transferring his interest to a company indirectly controlled by Ali and Ali transferring his interest to that same company. Nor is this conclusion derogated from by Ali's somewhat opaque arrangements in relation to Snah. The Court's finding in relation to Ken's intention makes it clear there can be no finding of a relevant joint intention on his and Ali's part as Landlord.
[9]
"Premises"
Clause 29.1 of the Lease defines "Premises" as "the premises described in Item 3A and includes and [sic] Landlord's Property in the Premises". Item 3A of the Reference Schedule identifies the Premises as "XXX Lawrence Hargrave Drive, Thirroul, NSW 2515, being the whole of the land contained in Folio Identifier: 11/X/XXXX." "Landlord's Property" is defined in cl 29.1 of the Lease to mean "any plant, equipment, appurtenances, services, fixtures and fittings servicing on the Property owned by, leased or licensed to, the Landlord". It is not necessary for present purposes to set out the extended definition of "Property" beyond noting that it includes the "Land" (which is itself defined in the Lease and takes one back to the Torrens title description by folio identifier).
Migrant's Son has failed to prove that whatever the "Landlord" was desirous of "selling" (however those two terms are defined) was the "Premises" as defined in the Lease. The Court finds that, on the evidence, the subject matter of any desire or intention was not "the whole of the land contained in Folio Identifier: 11/X/XXXX" (as the Premises are defined) but rather the individual half shares in the Land of each of the registered proprietors. This may be contrasted with what undoubtedly would be the situation if the Land was being sold at market price to an independent third party. In that case the relevant desire or intention of Ali and Ken acting jointly as the "Landlord" would obviously be to sell the Premises as such.
[10]
"Selling"
I do not accept Migrant's Son's submission that "selling" is to be given its literal or widest possible construction of "sale" to the effect of, as I understood the submission, any transfer for consideration.
The principles applicable to the interpretation of a document such as the Lease are, with respect, conveniently summarised in the judgment of the plurality in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] (citations omitted):
"Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating"39. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience"."
In the context of this case, the Court has no evidence of surrounding circumstances known to the parties. Nor is there any extraneous evidence of the commercial purpose or objects to be secured by the Lease. The Court is left with what in any event must be paramount: the language of the Lease. Other than submitting that the Lease was a commercial document negotiated through lawyers, neither party relied on any particular surrounding circumstance for the construction of cl 30.1. The parties accepted that the construction cl 30.1 was a question of ascertaining the meaning of the words in the context in which they appeared without more.
While the Court will always begin with the natural and ordinary meaning of particular words, their proper construction in any particular contract will necessarily have to consider the context in which the relevant word appears.
In this case, the meaning of "selling" must be informed by the context of the balance of cl 30.1. That context is references to placing the Premises "on the open market or inviting offers privately or publicly for the purchase of same", "a proposed sale by private treaty", "at the same price and on the same terms and conditions as it is prepared to sell to anyone else", "a sale by public auction" and "on the same terms as the Landlord is prepared to sell to anyone else."
This context does not capture what happened in this case, which the Court has found was, in substance and effect, the transfer by one partner of his half interest in the Land to the other partner as part of the dissolution of their partnership. Read in the context of the entirety of the clause, the Court concludes that "selling" means an arm's length sale, namely sale to a party unrelated to the "Landlord" as defined in the Lease where both the "Landlord" and the purchaser are acting independently in their own interests.
While not determinative, I am fortified in this conclusion by the somewhat archaic language of "desirous of selling". The parties accepted that the Lease had been propounded and negotiated through their respective lawyers. The use of "desiring to sell" in relation to land may be traced back directly to the well-known language of Griffiths CJ in Spencer v The Commonwealth (1907) 5 CLR 418, stating the classical legal definition of market value at 432:
"In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e. whether there was in fact on that day a willing buyer by enquiring "What would a man desiring to buy the land have had to pay for it on that day to a vendor to sell it for a fair price but not desirous to sell?"
I make this observation merely to demonstrate that the language of "desiring to sell" has historically been connected with what are colloquially referred to as arm's length transactions, understood in the way I have set out in [94]. However, I hasten to add that I do not consider that "selling" in cl 30.1 therefore necessarily connotes selling at a market value. The price under cl 30.1 will either be the price specified by the Landlord (in the case of a proposed sale by private treaty) or by the Tenant (in the case of a sale by public auction), both on the same terms as the Landlord is prepared to sell to anyone else. These values may not be the same as the market price that would be determined in accordance with the Spencer test, although it can be safely assumed that a vendor in an arm's length sale (as I have used that term) would be wanting to obtain at least the market price for its asset.
[11]
Damages - Legal principles
Assuming I am wrong in my construction of cl 30.1 so that, contrary to my view, there has been a breach of that clause, I will set out the Court's conclusions in relation to damage. For the reasons which follow, those conclusions are also adverse to Migrant's Son. It is convenient to begin with some basic propositions of principle.
The fundamental principle is that where there has been a breach of contract, the plaintiff is to be placed in the same position, so far as money can do it, as if the contract had been performed: Robinson v Harman (1848) 1 Exch 850 at 855.
The plaintiff must be able to demonstrate that any loss was caused by the defendant's breach and that the damages claimed are not too remote. Questions of remoteness are resolved by reference to the test in Hadley v Baxendale (1854) 9 Exch 341.
The loss of an opportunity to obtain a benefit is a compensable loss. The plaintiff must prove on the balance of probabilities that it has sustained some loss or damage, with the value of that loss determined by reference to the Court's assessment of the probable or possible outcomes had the opportunity been taken up: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4.
Damages for breach of contract are generally assessed as at the date of breach of the contract. This principle was discussed by the Court of Appeal in Ng v Filmlock Pty Ltd (2014) 88 NSWLR 146; [2014] NSWCA 389. Emmett JA (with whom Gleeson JA and Tobias AJA agreed) said at [14]:
"The general rule is that damages for breach of a contract for sale of land are assessed as at the date of the breach of contract. That question is usually addressed by comparing the contract price with the value of the relevant land at the time of the purchaser's breach. If the value is greater than the contract price, the vendor has suffered no damage. However, if the value is less than the contract price, it may be inferred that that discrepancy is an element of the vendor's loss."
Gleeson JA, in a separate judgment (with which Tobias AJA also agreed), made these additional observations at [50]-[59] in relation to when damages are to be calculated:
"50 However, something further should be said in relation to the vendors' argument generally. The fact that a vendor has proceeded, with due diligence but delay, to effect a resale of the subject land in a falling market does not, of itself, displace the "usual" measure of a vendor's damages. Prima facie this is the difference, if any, between the contract price and the market value of the land at the time the bargain was lost, with consequential adjustments as may be required on the facts of the particular case: Castle Constructions Pty Ltd v Fekala Pty Ltd at [11]; Statewide Developments Pty Ltd v Higgins [2011] NSWCA 35; 15 BPR 29,195 affirming Higgins v Statewide Developments Pty Ltd [2010] NSWSC 183; 14 BPR 27,293 at [96]-[102] (Barrett J, as his Honour then was).
51 As Keane J explained in Clark v Macourt [2013] HCA 56 at [110], the date of breach rule serves the important end of bringing finality and certainty to commercial dealings.
52 However the general rule that damage is assessed at the date of breach of contract is not inflexible. Johnson v Perez [1988] HCA 64; 166 CLR 351 at 367 recognises that the general rule will yield if "in the particular circumstances, some other date is necessary to provide adequate compensation". See generally: 355-356, 371 and 386.
53 In Vieira v O'Shea [2012] NSWCA 21 at [45] Basten and Meagher JJA identified a number of circumstances in which the general rule must give way, in the interests of justice, because another approach is necessary to give the plaintiff an amount of damages which will appropriately compensate for the breach of contract.
54 One such circumstance identified by their Honours is where the plaintiff has acquired an asset which would not otherwise have been acquired and the asset is not readily marketable at the time of acquisition. The rationale for a later date of assessment of loss is that, in these circumstances, the plaintiff may not have acted unreasonably in retaining the asset.
55 The date of breach rule assumes that there is a market in which the innocent party can resell the subject matter of the sale in question (or buy a replacement as the case may be). Where there is no such market, a later date may be appropriate to give the plaintiff an amount of damages which will compensate for the breach of contract: Johnson v Perez at 357; Wenham v Ella [1972] 127 CLR 454 at 467; and Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; 236 CLR 272 at [13].
56 Accordingly, I would not exclude the possibility that, in an appropriate case, the interests of justice may require that "the date of breach" rule should not apply and damages may be assessed by reference to a later date, such as the contract price on resale. …
59 It needs to be emphasised that departure from the general rule is not a matter of discretion: Clark v Macourt at [109] (Keane J). A vendor claiming damages assessed at a date later than "the date of breach" must demonstrate that there are particular reasons on the facts which would make it unjust to apply the prima facie or "usual" measure of damages."
The only case which the parties or the Court were able to find which expressly dealt with the issue of the calculation of damages for breach of a tenant's option to purchase is the decision of Wynn-Parry J in Wright v Dean [1948] Ch 686, referred to in James Edelman (ed), McGregor on Damages (Sweet & Maxwell, 21st ed, 2021) at [28-037]. In that case, his Lordship assessed damages as a sum representing the value of the premises as sold with vacant possession at the date of the purported option, less the option price and the estimated value of the remainder of the lease. Migrant's Son sought to distinguish this case.
[12]
Damages - When to be determined
This was another issue to which the parties appeared not to have given close attention. So much is apparent from the fact that neither party led any direct evidence of the market value of the Land as at 1 July 2017. Furthermore, Migrant's Son accepted that the date of Mr Russell's valuation of the market value of the Land was of no legal significance.
Nevertheless, Migrant's Son's primary case was that damages should be assessed by reference to the market value as at the date of Mr Russell's valuation, 19 June 2020. As best as I understood the submissions, it was contended that the usual rule of assessing damages at the date of breach should be displaced to December 2019, when the changes set out in [47] took place.
I do not accept Migrant's Son's submission that those or any other circumstances in this case support a departure from the general rule that damages should be assessed as at the date of the breach of contract. On Migrant's Son's case, that breach was the failure to give an Offer Notice. There is no specific evidence that enables the Court to find when Ali and Ken became "desirous" of dealing with their respective interests in the Land. However, on any view, they must have had that intention on 1 July 2017 when they transferred their respective interests in the Land to Snah. Having transferred the Land on that date, they put it out of their power to give an Offer Notice. For that reason, 1 July 2017 is the only date by reference to the evidence on which the Court can find, as it does, that there was a breach of the Lease (if it was such).
There were also some passing suggestions in Migrant's Son's submissions that damages should be assessed as at when it became aware of the transfer to Snah. The Court has found that Migrant's Son was informed before the transfer occurred (see [53(2)]). However, even if that be wrong, Migrant's Son's own evidence was that it became aware the Land had been transferred when it sought to exercise its first option under the Lease. However, the Court does not accept that the usual rule should be displaced in favour of that date. Migrant's Son lost the benefit of cl 30.1 when Ali and Ken transferred their respective shares in the Land to Snah. There was nothing Migrant's Son could have done about it differently, whether it discovered the transfer one month or one year later.
[13]
Damages - No loss
In my respectful view, a fatal difficulty with Migrant's Son's damages case was a failure to engage in sufficient detail with exactly what it had to prove by reference to the alleged breach. If the fundamental purpose of damages is to put Migrant's Son back in the position it would have been in, as far as money can do it, had cl 30.1 been performed, the relevant counterfactual must be that it would have received an Offer Notice in accordance with the terms of cl 30.1(b). Migrant's Son would first have to deal with the hypothetical of what the terms of the Offer Notice would have been - most relevantly, the price at which Ali and Ken would have been prepared to sell the Premises to anyone else.
Having answered that question, Migrant's Son would have to provide evidence from which the Court could infer some possibility or probability that:
1. Migrant's Son would have accepted such an Offer Notice;
2. Migrant's Son could have accepted such an Offer Notice in the sense of being able to finance such a purchase; and
3. Migrant's Son would have exercised one or more of the remaining options under the Lease.
As a matter of evidence, Migrant's Son failed to engage directly with the hypothetical Offer Notice and the three questions posed in the preceding paragraph. Conspicuously absent from Migrant's Son's affidavit evidence were statements from any of its directors that if they had received an Offer Notice in any amount up to $X they would have caused Migrant's Son to accept the offer. I do not accept that Migrant's Son's insistence on including a first right of purchase in either the Lease or in the new lease with Snah pursuant to exercise of the first option is, without more, a sufficient basis to infer any probability or possibility that Migrant's Son would accept an Offer Notice. Nor did Migrant's Son's evidence deal with how it would finance any acquisition pursuant to accepting an Offer Notice. There was, for example, no evidence from an expert finance broker to the effect that it could have obtained finance up to $X on certain terms and security. Such evidence as there was accepted that Migrant's Son would have required external finance, but the only evidence on how it might have obtained finance that was admitted was a statement from Lupcho as to his assets and that he had previously assisted Alex and Daniel in their business endeavours. There was no admissible evidence of the value of those assets.
Nor was there any express evidence of whether subsequent options after the first would be exercised. Migrant's Son submitted there was a 50% chance it would renew in 2024, based on an inference derived from having spent substantial funds on the fit-out of the Premises, and a 25% chance it would renew in 2029 based on inference only (presumably the only fact relied on for the inference being the existence of the option itself). I am not satisfied that Migrant's Son has proven either of these even as possibilities, again not least because there was no direct evidence from anyone for Migrant's Son as to what they would have done. I deal with this further at [120]-[123].
These deficiencies in Migrant's Son's evidence on damages are sufficient for the Court to conclude, as it does, that Migrant's Son has failed to prove any loss.
However, the Court has also concluded that Migrant's Son's damages case must fail even if a number of counterfactual assumptions are made in its favour. Mr Goodyer performed his damages calculations on the assumption (which was also the most favourable to Ali and Ken) that Migrant's Son would have had to have borrowed the entire amount of the purchase price for the Premises. While not specifically addressed in submissions, that assumption accords with Migrant's Son's profit and loss statements and balance sheets that were in evidence and, for the purposes of what follows, the Court can only assume that would have been the case (there being no evidence or submission to the contrary). Furthermore, I will assume that Migrant's Son was in fact ready, willing and able (in the sense that it would have obtained the requisite finance) to accept an offer to purchase the Premises for the price contained in the hypothetical Offer Notice. The essential question then becomes what that price would have been.
As I have already noted, neither party expressly addressed in its evidence what the price for the Premises would have been in an hypothetical Offer Notice given on or about 1 July 2017, being the price at which Ali and Ken would have been "prepared to sell [the Premises] to anyone else". In any other case, it might have been open to Migrant's Son to submit that the Court should infer that price would have been the Transfer Price. However, the Court can make no such inference in this case because the Court is satisfied that the Transfer Price was notional consideration which, even if it had been paid to Ken, only represented the value of a half share in the Land. In its closing submissions, Migrant's Son seems to have accepted that was the case.
In determining what the price in the hypothetical Offer Notice might have been for the Premises (being the whole of the Land), the Court would not do so on the basis that Ali and Ken would be assumed to act uncommercially or contrary to their interests. By way of analogy, such an approach would be no different from the well-understood principle that in calculating damages, where the defendant could have performed the contract in more than one way, damages are assessed on the assumption that the contract would have been performed in the way least onerous to the defendant: J D Heydon, Heydon on Contract (Lawbook Co, 2019) at [26.200].
On the basis that there is no direct evidence about the price they would have specified in the hypothetical Offer Notice, and assuming that Ali and Ken would not act uncommercially, the Court finds that they would have been prepared to sell the Premises to anyone else for the market price. Migrant's Son ultimately put that the market price as at 1 July 2017 was twice the Transfer Price ($1,230,000). The Court so finds.
This outcome has two results for Migrant's Son's damages case, both negative. First, there is no difference between the market price for the Premises and the price which Migrant's Son would have been hypothesised to have paid for the Premises. There is, therefore, no "loss on capital gain". Furthermore, given that Migrant's Son had presented its case solely on the basis that it would fully finance any such purchase, there would be no "loss on rental savings". So much was accepted by Mr Goodyer when he was asked to assume the fully financed acquisition cost of $1,230,000 (see [64]).
This brings me to a final point. Had Migrant's Son been able to demonstrate any loss by reference to a difference between its borrowing costs and its rent payable under the Lease, the Court would not have awarded that sum beyond 16 March 2024, being the end of Migrant's Son's current lease from Snah. It will be recalled that the current lease is the product of Migrant's Son's exercise of the first of three options. I will briefly set out my reasons why the Court would not have awarded damages beyond this period.
Having regard to the first part of the rule in Hadley v Baxendale, in my respectful view the loss represented by the difference between borrowing costs and rent which may be said to arise naturally upon the breach of the Lease is for the term of the Lease which has been breached (up to 16 March 2019). This was the view propounded on behalf of Ali and Ken. To recover loss beyond that period would require Migrant's Son to satisfy the Court that there was some probability or possibility that it would have exercised its options to renew.
In this case, the Court would be easily satisfied for the purposes of a damages award that the first option would have been exercised because Migrant's Son had in fact done so. It would therefore be entitled to this head of damages calculated up to the end of the current lease (16 March 2024).
It would still then fall on Migrant's Son to demonstrate to some degree, in this hypothetical world, that it would have exercised its remaining two options. This requires the Court to forecast Migrant's Son's conduct in 2024 and 2029.
As I have noted in [111], on no view can it be said that the Migrant's Son has discharged its onus of proof in relation to either of these two options. There is no evidence expressly addressing the point. The mere fact that the Migrant's Son exercised its option in 2018 is an insufficient basis for the Court to conclude that there is any prospect that it would exercise its options in 2024 and 2029. Nor does Migrant's Son's reference in its submissions to its one month re-fit in July 2018 assist to draw any inference about its future conduct because there was no admissible evidence of the re-fit's cost or magnitude.
Furthermore, there are at least four matters in the evidence which, as they stand, could be seen as pointing against the prospect of further options being exercised:
1. There was no dispute that in 2014, Migrant's Son made a significant investment in the fit-out of its restaurant. That is one of the reasons it gave for wanting, potentially, a 20 year lease. It is understandable in those circumstances that, to get value from its investment, it sought to exercise its first option in 2018. However, Mr Russell gave evidence that the life cycle of restaurant fit-outs is somewhere between 7 to 10 years. It might be said that by 2024, and notwithstanding its re-fit in 2018, Migrant's Son would have to decide whether it wished to make a further substantial capital investment to renew the Premises. While there is no evidence about whether Migrant's Son could or would do further work on the Premises, it arguably may be less likely by reason of the next three matters.
2. Like many businesses of its kind, Migrant's Son's restaurant has been impacted by the COVID-19 pandemic. Alex's evidence was that the restaurant was closed during the first lockdown and that during the current lockdown it has been breaking even or making only a small profit. How long any recovery in the business may take after COVID-19 restrictions are lifted would be a matter of complete speculation because there is no evidence about it.
3. Alex, the controlling mind and driving force of Migrant's Son, has relocated permanently to Adelaide and is no longer involved in the day to day operations of the restaurant, which are now overseen by an employed manager.
4. Daniel has departed the business, although he remains a shareholder.
[14]
Ali and Ken's conventional estoppel defence
Given the Court's conclusions in relation to Migrant's Son's claims, it is not necessary for the Court to consider whether that defence would have been made out if those claims had otherwise been successful.
[15]
Conclusion
The Courts orders are:
1. Proceedings dismissed.
2. The plaintiff is to pay the defendants' costs.
3. The exhibits are to be returned to the parties and held by them in accordance with paragraph 28 of Practice Note SC Gen 18.
[16]
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Decision last updated: 29 September 2021