White Property Developments Ltd v Richmond Growth Pty Ltd & Ors [1998] FCA 1422

The quantum of damages for breach of contract The notices of cross-appeal called into question the trial judge's finding of breach of contract by Richmond Growth, in relation to the right of first refusal. But these grounds were abandoned. The remaining point is the quantum of the damages assessed by the trial judge. White says the figure of $200,000 allowed by his Honour is manifestly inadequate and based on a misapprehension of the evidence, the respondents say it was wrong to allow more than a nominal sum. The evidence on damages is unsatisfactory. This was recognised by Mr Burbidge during the trial, when he sought an adjournment to enable him to supplement the evidence available to him. This application was refused by the trial judge, for reasons he expressed, and that refusal is not challenged before us. In the present case we are satisfied that the appellant has suffered loss as a consequence of the breach of contract. It has lost the opportunity to acquire the property on the more favourable terms ultimately offered to Woolworths. The trial judge found, on the balance of probabilities, that White would have exercised its right of first refusal to acquire the property. The loss of this opportunity had commercial value. The question for determination is the quantum of the loss sustained by White. As the Full Federal Court pointed in Enzed Holdings Ltd v Wynthea Pty Limited (1984) 57 ALR 167 at 183, after referring to relevant authorities: "The principle is clear. If the Court finds damage has occurred it must do its best to quantify the loss even if a degree of speculation and guess work is involved…. We emphasise, however, that the principle applies only when the Court finds that loss or damage has occurred." This statement was approved and applied by Brennan J in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332. During the argument on the appeal there was a deal of confusion about the status of some of the material in the appeal books relating to damages. It transpired that the tender of some of this material had been rejected at the trial. Some material was admitted only as against some of the respondents. We take the opportunity of saying it is a matter of cardinal importance that solicitors preparing appeal books ensure they contain only evidence that was admitted at trial. If evidence was admitted only against some parties, this should be prominently indicated on the copies of the material reproduced in the appeal books. Unless this is done, a Full Court may fall into the error of having regard to material that was rejected at the trial and whose admissibility has not been argued before the Full Court. The trial judge felt he had no worthwhile evidence concerning the quantum of damage. He said in his reasons: "This case, in my opinion, is close to the borderline but I think that principle requires that I do my best to make some assessment. In my opinion, one can make a judgment that White Property lost a significant chance to make some substantial profit. That, however, imprecise it is, is nevertheless as precise as one can be. I am conscious that such a finding is a vague one. There was no evidence to establish an actual likely resale price. As a real possibility, no profit might have been realised; I cannot say how great that possibility was. When any profit might have been realised is problematic. Whether any profit would actually have been large or small is unknown. Nevertheless, the choice is between awarding a purely nominal amount which, despite the uncertainties and guesswork, I believe would certainly do an injustice to White Property, or making an assessment that can be little better than a stab in the dark and which might, because of that, do one of the parties an injustice. In my view, the certainty of injustice should be avoided despite the great attendant difficulties in so doing. In the circumstances, an assessment must be very much a subjective affair: an award of $100,000 seems to me to be too little; anything over $500,000 seems too much. Because of the uncertainty, conservatism seems prudent. I think that an award of $200,000 is, but is all that is, warranted." We sympathise with this view. However, having cut our way through the thicket of material in the appeal books, with some assistance from counsel, we think the situation was not quite as bleak as his Honour suggested. The admitted evidence included the following: (i) A feasibility study prepared by White in February 1995 estimating a development profit (on a development of 21,520 square metres) of $5,888,978. This study assumed a land cost of $9.5m (very close to the actual cost) and a building construction cost (excluding consultants) of $26,713,000. (ii) A feasibility study of the Woolworths' proposal prepared by consultants,dated 7 March 1995. This study assumes a land price of $9.55m, construction costs of $21,255,550 and estimates a development profit of $4,125,000. (iii) Evidence from a property consultant, Mr Walker. While most of his evidence was rejected, his evidence was that the appropriate capitalisation rate for the purpose of assessing the value of the development was 10.25 per cent to 10.5 per cent. (iv) A letter from Woolworths' agents to Abrigroup Contractors Pty Limited, a company that was Woolworths' principal contractor on the project, containing what was called "a Final Tender Assessment Schedule". This Schedule itemised construction costs totalling $22,260,547. Although the situation is not totally clear, it seems likely that this was the price shown in the building contract. (v) A brochure published by Woolworths offering the completed development for sale. The brochure gives areas totalling 16,170 square metres (of which 10,503 square metres was leased to Woolworths under 20 year leases), a gross rent of $5,116,027 per annum and outgoings of $1,091,800. The nett return was stated to be $4,024,227. (vi) The documentary and oral evidence indicated there was fierce competition for Richmond Growth's land. At least three substantial companies (White, Woolworths and Coles) made offers to purchase the land for sums in the order of $8 to $9.5m. It is a reasonable inference that experienced shopping centre developers would not have been ready to make offers of that magnitude without believing the land provided the opportunity to make a development profit that would be measured in several millions of dollars. Indeed it is clear that White, after considering the matter, had formed and acted on that view. We agree with counsel for the respondents that the evidence presented to the Court by White was incomplete and, in many respects, unsatisfactory. Nonetheless, there was evidence relevant to the value of White's loss of opportunity. Mr Burbidge submitted that Richmond Growth would have had a 100 per cent chance of achieving a profit of between $3.2 million and $4.5 million and that damages should be assessed on this basis. With proper evidence, White may have been able to establish a claim of this magnitude. Because of the gaps in the evidence, and the uncertainties they necessarily engender, we must heavily discount the figures we have mentioned. Additionally, as the trial judge observed, the evidence although again incomplete, suggested that there were differences between the Woolworths development, and Woolworths' commercial objectives, and those of White. Nonetheless, the Woolworths figures provide some evidence, albeit of limited probative value, tending to reinforce White's contemporaneous assessment that it would have derived substantial profits from the development had Richmond Growth honoured the right of first refusal. We agree with counsel for the respondents that we would not be justified in simply substituting our assessment for that of the trial judge. We should interfere with his award only if we reach the conclusion that he made some error of principle or law, or overlooked material evidence. However, we think his Honour fell into this last error. In his understandable concern about the quality of the material that had been adduced in evidence, he seems to have overlooked the material we have summarised. With all its deficiencies, it indicates that White's loss, assessed in accordance with the relevant principles, was substantially greater than $200,000. We accept that this is not a case in which a precise figure can be reached by mathematical calculations. However, it is not quite a case in which we are restricted to a "stab in the dark". Due consideration must be given to the unsatisfactory nature of the evidence. For this reason, we start with the lower end of Mr Burbidge's range, namely a profit of $3.2 million (although the evidence suggests that White would have contemplated and aimed for a considerably higher profit). We would rate White's chance of achieving this profit, having regard to all the circumstances and uncertainties, as in the order of 30 per cent. This produces a figure of $960,000. We think the appropriate course, therefore, is to substitute a figure of $960,000 for the $200,000 adopted by the trial judge.

Project management fees The third matter can be dealt with shortly. It involves two elements: project management fees up to the date of sale of the property and compensation for project management fees foregone because of the sale. As to the latter, if damages are awarded for loss of the right of first refusal, there can be no claim. White would not have earned project management fees from Richmond Growth after it had purchased the property. Anyway we agree with his Honour that, upon its proper construction, the agreement between the parties did not contemplate the payment of project management fees after any sale by Richmond Growth. The trial judge awarded $50,000 for pre-sale project management fees. Mr Burbidge contends there was an arithmetical error; his Honour intended to award one-third of $180,000; that would be $60,000. We are not persuaded. It is true his Honour spoke of allowing one-third (rather than one-half as claimed) of the salary and on costs alleged by White. But he was clearly of the opinion that all the project management fee claims were exaggerated. He said that, "applying the conclusions set out above in a broad brush way", it seemed to him "an allowance of $50,000 would be appropriate". We do not think there was an arithmetical error.

Trial costs Notwithstanding the submissions put to us by counsel for the cross appellants, we do not think it is appropriate for us to interfere with the trial judge's exercise of discretion regarding the costs of the trial.

Orders We allow the appeal by White against Richmond Growth in part. We vary order 3 made by the trial judge by substituting for the figure "$250,000" the figure "$1,010,000". We make a consequential variation of the amount of interest set out in order 4, changing $84,274 to $340,466. Otherwise the appeal will be dismissed. All cross-appeals will be dismissed. As to costs, we think there should be no order for the costs of the appeal or cross-appeal as between White and Richmond Growth. Although White has succeeded in increasing the quantum of damages, it fails on the s52 claim. That claim occupied more hearing time than the damages claim. As between White and the second, third and fourth respondents, the balance of success favours the latter. They should only have two-thirds of their costs because the second and third respondents raised grounds on the cross-appeals relating to breach of contract and the fourth respondent failed to make good a number of his grounds of appeal. I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justices Wilcox, Tamberlin and Sackville

Associate: Dated: 4 November 1998 Counsel for the Appellant/Cross Respondent: R J Burbidge QC and J W Stevenson

Solicitor for the Appellant: Malleson Stephen Jaques

Counsel for the First Respondent/First Cross Appellant: S White

Solicitor for the First Respondent/First Cross Appellant: Gibsons

Counsel for the Second and Third Respondents/Second Cross Appellant and Third Cross Appellant: B McClintock SC and S White

Solicitor for the Second Respondent/Second Cross Appellant and Third Respondent/Third Cross Appellant: Ebsworth & Ebsworth

Counsel for the Fourth Respondent/Fourth Cross Appellant: Dr Flick SC and M Christie

Solicitor for the Fourth Respondent/Fourth Cross Appellant: Murray Stewart & Fogarty

Date of Hearing: 2, 3 and 4 November 1998

Date of Judgment: 4 November 1998