WINNOTE PTY LTD & Anor v PAGE & Ors

WINNOTE PTY LTD & Anor v PAGE & Ors - [2006] NSWCA 287 - NSWCA 2006 case summary — Zoe

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Argyropoulos v Layton [2002] NSWCA 183 Astley v Austrust Ltd (1999) 197 CLR 1 Bell v Peter Browne & Co [1990[ 2 QB 495 Brown v Dunn (1893) 6 R 67 (HL) Bryan v Maloney (1995) 182 CLR 609 Cartledge v E Jopling & Sons Ltd [1963] AC 758 Christopoulos v Angelos (1996) 41 NSWLR 700 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Conquer v Boot [1928] 2 KB 336 Deputy Commissioner of Taxation v Zimmerlie [1988] 2 Qd R 500 D W Moore & Co Ltd v Ferrier [1988] 1 WLR 267 Ex parte Colonial Petroleum Oil Pty Ltd (1944) 44 SR(NSW) 306 Froster v Outred & Co [1982] 1 WLR 86 Gillespie v Elliott [1987] 2 Qd R 509 Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547 Hammond v Minister for Works (1992) 8 WAR 505 Hawkins v Clayton (1986) 5 NSWLR 109 Hawkins v Clayton (1988) 164 CLR 539 Heydon v NRMA Ltd (2000) 51 NSWLR 1 Honeywood as executrix of the Estate of the late Neville Honeywood v Munnings [2006] NSWCA 215 Larkin v Great Western (Nepean) Gravel Ltd (1940) 64 CLR 221 Law Society v Sephton & Co (a firm) [2006] UKHL 22; [2006] 2 WLR 1091 Lee v Brand [2003] NSWCA 198 CASES CITED: Macquarie Bank Limited v National Mutual Life Association of Australia Limited (1996) 40 NSWLR 543 McDonald v Deputy Federal Commission of Land Tax (NSW) (1915) 20 CLR 231 Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp [1979] Ch 384 Minister for Environmental Planning v San Sebastian Pty Ltd [1983] 2 NSWLR 268 MMAL Rentals Pty Ltd v Bruning [2004] 63 NSWLR 167 Mount Albert Borough Council v Johnson [1979] 2 NZLR 234 Moylan v The Nutrasweet Company [2000] NSWCA 337 Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394 Onerati v Phillips Constructions Pty Ltd (1989) 16 NSWLR 730 Potts v Miller (1940) 64 CLR 282 Registrar-General v Cleaver (1996) 41 NSWLR 713 Roach & Ors v Page & Ors (No 37) [2004] NSWSC 1048 Scarcella v Lettice (2000) 51 NSWLR 302 Segal v Fleming [2002] NSWCA 262 Sheldon v McBeath (1993) Aust Torts Rep 81-209 Spencer v The Commonwealth (1907) 5 CLR 418 State Rail Authority of New South Wales v Brown [2006] NSWCA 220 Turner v Minister of Public Instruction (1956) 95 CLR 245 at 268 Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 Ward v Lewis (1896) 22 VLR 410 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Wardman v Hatfield [2003] NSWCA 283 Wilson v Rigg [2002] NSWCA 246 Winnote Pty Ltd v Page & Ors [2005] NSWCA 362

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Overview of facts relevant to breach 5 The appeal concerns a deposit of peat at Swan Marsh, Victoria. In 1988, peat was being extracted by Revili Pty Ltd, under a deed of licence with the landowner, Mr Sadler. Revili was controlled by Mr Luscombe. 6 In 1988 Mr Luscombe and Mr Roach agreed to form a joint venture to exploit the resource. A written agreement dated 21 July 1988 provided that a company would be formed to take over the existing "lease". Winnote was acquired and its shares were allotted to Roach and Luscombe equally. 7 Mr Roach had retained FS to advise and draft the appropriate documentation. After obtaining advice from FM concerning Victorian law and passing it on to Mr Roach in August 1988, FS was instructed to prepare a real property lease (RPL) between Mr Sadler as lessor and Winnote as lessee as the means of securing the right to exploit the peat deposit. 8 The RPL was executed on 7 November 1988. Its function is summarised in Recital F as being to permit Winnote "to extract, wash, process and carry away such peat on the terms and conditions contained herein...". Salient features of the RPL (summarised at J101) include the grant of an exclusive right to extract peat from an area not exceeding 80 ha within the demised property; an obligation to pay the lessor a royalty at the rate of $4 per cubic metre of peat extracted, with a minimum of $10,000 per year; and retention of farming and grazing rights by the lessor other than over a stipulated "storage area" and that part of the "work area" from which the lessee is extracting peat from time to time. The "lease" was for a term of five years from 30 June 1988 with a rolling option to renew exercisable a maximum of seven times. In truth, the RPL was a profit à prendre, a licence to enter the land and remove peat from it. 9 The RPL was not registered in circumstances discussed below. This did not affect its validity, nor is non-registration part of any cause of action in the proceedings. 10 Sperling J held that, if Mr Roach had been given the correct legal advice, he would have dealt directly with the Crown and obtained both a mining lease and an exploration licence under the Mines Act 1958 (Vic) (J297-304). This would have secured effective exclusivity to peat located in the area described as the hambone, approximately ninety per cent of which was within Mr Sadler's land. The putative mining lease and exploration licence would have contained terms (including minimum employment and annual expenditure requirements) substantially identical to those later undertaken by Mr Groves (J302-4). 11 The Mines Act 1958 allowed mining on private land pursuant to a "mining lease". The consent of the landowner was not required as a condition for the grant. However, by ss304 and 306 compensation was payable to the owner for deprivation of possession of the surface of the land and any damage to the surface or to improvements. Rights under the mining lease were conditional upon the lease holder having paid or tendered compensation to the owner, or having entered into an agreement with the owner as to such compensation and as to payment. Failing such agreement, the compensation could be determined by an independent authority, as provided for in the Act. A royalty was payable to the Crown (at the rate of 2.75 per cent of the value sold, in the case of peat). 12 Section 291 permitted a substance to be declared the property of the Crown and peat had been thus proclaimed in 1982. This information was unknown to Messrs Sadler, Luscombe and Roach until 1993. The failure of both FS and FM to bring it to the attention of Winnote in August 1988 was the negligent omission found against the solicitors that is unchallenged in the appeal. 13 The Mines Act also provided for exploration licences that allowed a person to occupy and explore land with a view to studying the feasibility of establishing a mine. The licence was for an initial term of five years, with extensions (as decided by the Minister) up to a cumulative extension of two years (ie a total maximum of seven years). The licence was effectively exclusive (see s514(16)(d) of the Mines Act 1958 and s25(1)(b)). 14 Between 1988 and 1993 Winnote extracted peat from the site, paying contractual royalties to Mr Sadler pursuant to the RPL. The business was never profitable. 15 In 1992 Winnote decided to seek a buyer for the business. Mr Groves came on the scene and Messrs Roach and Luscombe were willing to sell Winnote's rights under the RPL for a nominal consideration, subject to Groves' acquiring a stockpile of already mined peat for $40,000. Instead of that occurring, Mr Groves undercut Winnote's interest in the peat deposit by obtaining his own mining licence (ML 4667) in May 1993 (J188-220). ("Mining licence" (ML) was the new terminology for what was previously called a mining lease. The Mineral Resources Development Act 1990 (Vic) had substantially reenacted the Mines Act so far is presently relevant: see J196.) Having thus obtained "ownership" of the heart of the deposit Mr Groves was able to exclude Winnote. Mr Groves subsequently obtained an exploration licence over a larger area of surrounding land. 16 Winnote alleges that the events of 1993 frustrated an otherwise viable venture. Sperling J found otherwise, holding that nothing of value was lost in 1993.

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• the findings about what Winnote would have done in 1988 if correct advice had been given. 26 The last point is made explicit in the heading immediately before J275 ("Winnote would have obtained an exploration licence and a mining lease in 1988") and the statement in J303 that it was reasonable to assume that whatever motivated Mr Groves in 1993 "would have operated from Winnote's standpoint in 1988, with the same results". Further proof may be found in J305 (emphasis added): Whether Winnote would have continued to hold an exploration licence in 1993 is uncertain. There would have been the condition for annual expenditure. In view of the financial constraints on the Roach companies in the early 1990s , there would have been strong reasons for avoiding expenditure of that kind. The minister could vary or suspend that requirement. Whether he would have done so in response to the adverse economic conditions of the early 1990s I do not know. It is also possible that, five years on from 1988 , no further exploration operations would have been warranted and Mr Roach and Mr Luscombe would, by then, have let the exploration licence go without further renewal, resting content with the mining lease they would have had , as others appear to have done subsequently. 27 There was no evidence from Mr Roach nor any finding by the trial judge as to what Winnote would have done after 1988 as regards taking up a mining lease and/or an exploration licence had the true situation been brought to Mr Roach's attention after 1988. Winnote asks this Court to find that Winnote would have sought a mining lease/licence at any time up to May 1993 when Mr Groves beat Winnote to the punch. The inference becomes harder to draw in 1992 as dissatisfaction with the commerciality of the deposit became apparent. 28 Evidence on the issue points in opposite directions. On the one hand, Mr Roach was asserting against Mr Sadler that the RPL was to be renewed as late as June 1993 (J216). On the other hand, there were findings that Mr Roach was eager to sell the deposit by September 1992 (J171). Mr Roach was definitely willing to sell "the deposit" to Mr Groves for a small consideration by early 1993. The conditions of a mining licence and exploration licence were onerous and potentially expensive. Mr Roach's evidence that he would have sat on a mining lease acquired in 1988 and ridden out the economic storm in 1992-3 was not accepted by Sperling J (J249). 29 It is unnecessary for me to resolve this unanswered question, which would only become relevant if the Court accepted the continuing duty argument discussed below in the limitation context. 30 Notwithstanding the criticality of 1988 on the judge's findings and the essentiality of the period after 15 November 1989 on the limitation issue (below), it became common ground at trial that the exercise of valuing what Winnote lost in consequence of the solicitors' negligence had to take place as at 1993 as regards the claim for expectation damages. Sperling J held that "it is not a loss of a chance case. It is a valuation case" (J315). Winnote's challenge to this finding (Ground 23) was abandoned. His Honour proceeded, at the invitation of the parties, to consider the value of what was lost as at 1993. 31 Factually, the year 1993 was chosen because Mr Groves' acquisition of ML 4667 in May 1993 gave him control of the central part of the deposit. When Mr Roach learnt of this, he effectively allowed the RPL to lapse on 30 June 1993 (J215-220). 32 The events in 1993 brought home the full implications of the solicitors' negligence, without providing a clear explanation why that date was legally relevant or chosen for the valuation enquiry.

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Limitation issues 33 The proceedings were commenced on 15 November 1995. Limitation defences were pleaded and it is common ground that the applicable statute is the Limitation Act 1969 (NSW). The limitation period in contract and tort is six years (s14) and there is no relevant power to extend time. If the causes of action now pressed did not accrue after 15 November 1989 then all claims are statute-barred. 34 In addressing limitation issues it will be assumed that Winnote is correct in its submission that both FS and FM were negligent. I do not understand Winnote to argue that there was any material difference between the firms in the scope of the assumed responsibility underlying FS's contractual duty or both firms' tortious duty or in the nature of the conduct representing breach. 35 As indicated, the only breach found by Sperling J was the negligent advice given in 1988. On this basis, any contractual claim was statute-barred (as the judge held, at J92). On appeal, Winnote submits that there were further breaches of a continuing contractual duty in 1989-90. 36 Whether or not the tort claim was barred depends in the first analysis upon what torts were pleaded and proved. In negligence, where damage is of the gist, the defendant bears the onus of proving (in relation to the torts relied upon by the plaintiff) that actual and measurable loss occurred outside the statutory period (Segal v Fleming [2002] NSWCA 262 at [27]). The judge found it unnecessary to decide this question given his conclusion that the plaintiffs failed to establish the loss it claimed (J506-7). A notice of contention presents the matter afresh in this Court. 37 Two distinct limitations issues are presented. Neither was addressed in the reasons of the primary judge. The first did not have to be addressed in light of the findings that no damage occurred in 1993, the date chosen by the parties for exclusive attention as regards the claim for expectation loss damages. The second was overlooked, in large part because of the paucity of evidence directed to it.

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(i) Assuming tortious breach in 1988 when was measurable damage first suffered? 38 Winnote submits that its claim in tort was not statute-barred because, even if the breach occurred in 1988, damage was not suffered until 1993. 39 At trial, Winnote had claimed (in the alternative) reliance damages with respect to lost expenditure commencing in 1988 (J496). This claim failed for reasons that are no longer relevant (J501). Winnote appealed, but abandoned the relevant grounds of appeal at the commencement of the hearing. This may have happened because Winnote's legal advisers perceived that a reliance damages claim could cause trouble for the limitation case without yielding the substantial award said to proceed from the alternative and primary claim for expectation damages. But this is neither here nor there. What is important is that Winnote's tergiversation meant that, on appeal, the respondents assumed the labouring oar in seeking to prove that tort-related damage first occurred before November 1989. Of course, a defendant bears that onus in any event (Segal at [27]). 40 A plaintiff cannot sue for damages in negligence until the cause of action accrues. But once it accrues, time commences to run. Absent a special statutory provision, it does not matter that the plaintiff was ignorant of the true position (Scarcella v Lettice (2000) 51 NSWLR 302 at 306). According to Cartledge v E Jopling & Sons Ltd [1963] AC 758, which established the latter proposition, damage in this context means damage that is "beyond what can be regarded as negligible" (at 772 per Lord Reid). In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, Mason CJ, Dawson J, Gaudron J and McHugh J spoke (at 531) of "measurable" damage. See also Hawkins v Clayton (1988) 164 CLR 539 at 561, 587-8, 599-601. 41 Winnote's claim is for economic loss. "With economic loss, as with other forms of damage, there has to be some actual damage. Prospective loss is not enough" (Wardley at 527 per Mason CJ, Dawson J and McHugh J). Recently Lord Mance expressed the point in these terms (Law Society v Sephton & Co (a firm) [2006] UKHL 22; [2006] 2 WLR 1091 (Sephton) at [60]): Any cause of action … for negligence accrued when the [plaintiff] first suffered any 'actual' damage of a relevant and measurable kind bearing in mind the measure of damage applicable to the wrong in question. 42 In this Court Winnote contends, in effect, that the disadvantage it suffered in 1988 by failing to acquire a proper mining tenement was merely contingent. Actual damage first occurred in 1993 when Mr Groves' intervention prevented the enjoyment of the deposit. Prior to then, so the argument now goes, Winnote was able to enjoy an unimpeded right to remove peat on terms acceptable to itself and Mr Sadler. 43 This argument lies uncomfortably with the submission made many times in a non-limitation context that the negligence caused Winnote to acquire a "lemon", namely the RPL. 44 In my view, Winnote's argument should be rejected. This is not a contingent loss case of the type discussed in Wardley and Sephton. On the contrary, there was clearly demonstrable "actual" damage suffered in 1988. Time then commenced to run in tortious negligence and it expired before proceedings were launched in 1995. 45 In Sephton, Lord Mance said (at [67]): There is considerable case-law concerning situations where a person's legal position has, through negligence, been altered to his immediate, measurable economic disadvantage, and it has been held that a cause of action accrued although the beneficiary neither knew nor had any reason to know about its existence. In Forster v Outred & Co [1982] 1 WLR 86 a mother, in reliance on negligently given advice, executed a mortgage over her home to secure her son's borrowings, thereby immediately diminishing her home's value. In D W Moore & Co Ltd v Ferrier [1988] 1 WLR 267 due to solicitors' negligent advice, the claimant company took on Mr Ferrier under contractual agreements which failed to prevent him, if he left, from establishing his own competing business. The claimant's "rights under the two agreements were demonstrably less valuable than they would have been had adequate restrictive covenants been included" (per Neill LJ at p.278G). "Instead of receiving a potentially valuable chose in action they received one that was valueless" (per Bingham LJ at p.279H). In Baker v Ollard & Bentley (unreported), 12th May 1982 (cited in D W Moore & Co Ltd v Ferrier [1988] 1 WLR 267), the claimant due to solicitors' negligence acquired a less valuable interest in a house held on trust for sale, rather than a separate and saleable interest in its first floor. In Bell v Peter Browne & Co [1990] 2 QB 495, after a marriage breakdown, a solicitor's negligence led to the husband putting the matrimonial home into his wife's name, without any accompanying document being prepared or any caution lodged to protect the one-sixth interest which the wife had agreed that the husband should have on any sale of the house. His resulting equitable interest was "clearly less valuable" than an interest secured by a charge or protected by a deed of trust (per Beldam LJ at p. 510F); further, even though his equitable interest could have been protected at any time until the wife sold the home, that would have involved at least some costs recoverable in damages from the defendant (per Nicholls LJ at p. 503G). 46 In the same case, Lord Walker of Gestingthorpe referred (at [45]) to cases such as Forster v Outred & Co and Bell v Peter Browne & Co as: … cases where the client had through the negligence of his professional adviser ended up with a package of rights less valuable than he was entitled to expect - damaged or defective goods, to pursue the metaphor, rather than the undamaged and serviceable goods which he should have got. Lord Walker described these as "transaction" cases (at [46]). 47 In Wardley, several of the earlier English decisions, including Forster were discussed and distinguished by the High Court. The Court emphasised (528-9) that Forster was explicable as an actual loss case because the execution of the mortgage had an immediate effect on the value of the plaintiff's equity of redemption. (Cf Segal at [23].) The value of that equity was reduced because the mortgage executed on the negligent advice of the solicitors and designed to secure the debts of the plaintiff's son had an immediate negative impact on the value of the equity of redemption of the plaintiff's property. Later (at 531) the Court indicated that Forster and D W Moore & Co were illustrations of decisions in which the plaintiff sustained "measurable loss at an earlier time, quite apart from the contingent loss which threatened at a later date". Nothing indicated any concern about the correctness of those decisions, properly understood (see esp 529, 531-2). 48 Wardley involved a plaintiff that granted an indemnity to National Australia Bank Ltd against a facility given by the Bank to Rothwells Ltd. The plaintiff had been induced to act by the misleading and deceptive conduct of the defendant, the State of Western Australia. One issue to be determined was the time when Wardley's cause of action under the Trade Practices Act 1974 (Cth) accrued. It was held that the indemnifier suffered no loss until the contingency of Rothwells not satisfying its liability to the Bank was fulfilled. The Court distinguished the line of English cases "in which the plaintiff acquires property (or a chose in action)" (at 533) and suffers actual loss in the circumstances. See also at 530-1. 49 Australian cases have approached the "transaction" cases in similar fashion to the English line. 50 In Gillespie v Elliott [1987] 2 Qd R 509 a solicitor acted in the purchase of a hotel business. The contract of purchase, entered into in 1975, specified the terms of a lease and sub-lease which were to be acquired. There were options for extension at a rental "to be agreed by mutual consent". In 1977 the plaintiff reached agreement "in principle" for the sale of the business and leases, but the potential purchaser refused to proceed because the options were unenforceable. A claim for negligence that was filed in 1983 alleged that the loss of the value of the agreement "in principle" as the damage stemming from the negligence. (The situation was therefore was on all fours with that contended for by Winnote in the present case.) The Full Court of the Supreme Court of Queensland held that the claim was statute-barred. The plaintiff's submission that damage was not suffered until they went to sell the business was rejected. Actual damage was held to have occurred in 1975 "even though the quantum may depend on future events and, in some cases, upon an assessment of the likelihood of those events occurring" (per Macrossan J at 519). As Carter J put it (at 520): As a result of [the] breach the appellants had acquired property significantly less valuable than that which they had expected to receive. The loss thereby caused was quantifiable and … the quantum of that loss was the difference between the value of the lease and sub-lease with enforceable options for renewal and the lease and sub-lease which they, in fact, got.

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The English decisions of Forster and Baker were applied. 51 See also Ward v Lewis (1896) 22 VLR 410; Minister for Environmental Planning v San Sebastian Pty Ltd [1983] 2 NSWLR 268 at 290-1, 315-16, Deputy Commissioner of Taxation v Zimmerlie [1988] 2 Qd R 500, Segal. 52 In Scarcella, a solicitor retained to act on a land purchase negligently failed to detect that there was a defect in title with a right of way thought to benefit the land. The purchase occurred in 1982, but it was not until 1994 that the plaintiffs discovered the problem, when adjoining owners pointed out that they could not subdivide because title searches revealed that there was in truth no right of way. This Court held that the claim in negligence was statute-barred because damage had accrued on acquisition of the property. There was a discoverable defect in title the effect of which was that the true value of the property in 1982 was $62,000 and not the $66,000 that the plaintiffs had paid. It was held that actual damage sufficient to complete the cause of action in negligence had been suffered in 1982, even though the plaintiffs were then unaware of it. 53 Handley JA said (at 307[23]): There is no reason for thinking that the plaintiffs could have ever sold this property and avoided economic loss. The defect in their title would have been discovered, either by their solicitors in preparing the contract of sale, or by the solicitors for the purchaser, and in that event they would have faced claims for compensation or rescission. 54 (I pause to observe that this is exactly the situation in which Winnote found itself from 1988 onwards, demonstrated (as it turned out) by what happened with Mr Groves. This point is developed more fully elsewhere in these reasons.) 55 Handley JA continued (at 308[24]): The general principle is that time runs from when the cause of action is complete, whether or not this is discovered or discoverable. The exceptions for latent defects in buildings, latent defects in title, and prospective and contingent losses are only apparent exceptions to this general rule. They depend in each case on a finding that the particular form of economic loss had not been suffered when the plaintiff became committed to the risk, but only later when the risk actually accrued. 56 His Honour had earlier referred to several cases involving latent defects in buildings; to Christopoulos v Angelos (1996) 41 NSWLR 700 and Registrar-General v Cleaver (1996) 41 NSWLR 713 as cases involving latent defects in title; and to Wardley as a case involving prospective and contingent losses. 57 Giles JA said (at 310[42]): The incomplete right of way was apparent upon search and would become known to any (non-negligent) purchaser, including a purchaser from the plaintiffs. So the $62,000 was the true value of the property in 1982, and the plaintiffs were immediately worse off by $4,000. Their economic loss was suffered in 1982 when they paid too much for the property. It was not prospective, suffered only when they were denied access to the rear of the property. As explained by Handley JA, Christopoulos v Angelos (1996) 41 NSWLR 700 and Registrar-General v Cleaver (1996) 41 NSWLR 713 were quite different in that the title discrepancies were not ordinarily discoverable on search and until their discovery the market values of the properties were and remained their values without the title discrepancies. 58 The third member of the court, Powell JA, was firmly of the opinion that the plaintiffs in Scarcella sustained damage in 1982. He was unable to agree with his colleagues as to the basis underlying Christopoulos v Angelos and Registrar-General v Cleaver. Powell JA considered those cases to have been wrongly decided. 59 Of course, a defendant wishing to show that the negligently induced "transaction" caused immediate actual loss of a measurable kind has to establish that proposition. But sometimes this can be "self-evident" (Wardley at 528 per Mason CJ, Dawson J, Gaudron J, McHugh J) or "clear beyond argument" (Moore & Co at 279 per Bingham LJ. See also per Neill LJ at 277.). 60 The present is such a case, in my opinion. From the outset, Winnote got significantly less than it should have, in consequence of the solicitors' 1988 negligence. The "goods were damaged" to use Lord Walker's terms. This is demonstrable when one compares the rights secured under the RPL with the rights that ought to have been secured under mining tenements from the outset. The former instrument was legally worthless as later events demonstrated. As Mr Gageler SC put it during argument in this Court, the rights secured by the RPL "were of a dramatically inferior kind" (CA Tr p24). 61 Entry into the RPL and onto the land also prejudiced Winnote from the outset. There was measurable damage, albeit that the assessment exercise would have been a difficult one had Winnote got the matter to court in 1989-90. In October 1988 Winnote paid FS $3,650 for professional costs in drafting the RPL. Further substantial costs were paid in August 1989 for legal services provided by FS and FM in relation to obtaining the lease (J105-6). On 21-22 August 1989 Winnote paid Mr Sadler $7519 on account of royalties and $5305 on account of his costs (Blue 14/3403, 3417. Orange 533), these being obligations imposed by the RPL. The royalties were paid for peat that was not Mr Sadler's to sell. In truth, Winnote had exposed itself to a claim in conversion by the true owner of the peat, ie the Crown in right of Victoria. All of these were items of wasted expenditure that did not produce any proven commensurable value (see Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 81-2, 107). 62 If it matters, the royalties paid to Mr Sadler were also at higher rates than those payable to the Crown: the RPL royalty rate was $4 per m³, subject to annual escalation and a minimum annual amount of $10,000 compared to the statutory rate under the Mines Act of 2.75 per cent of the value of peat sold. 63 These observations as to measurable loss in 1988-89 do not preclude the Court from endorsing the trial judge's finding that the peat deposit is worthless in 1993 if that finding is properly made (see below). Winnote chose to pitch its primary claim (and in this Court, its exclusive claim) as one for expectation damages to be calculated on the basis of an expectation dashed in 1993. This may or may not be a correct temporal reference point for calculation of loss stemming (in the eye of the law) from a breach of duty that occurred in 1988. But it was the reference point adopted at trial and is the sole reference point pressed on appeal. 64 The question whether a single cause of action has commenced to run in consequence of particular damage having occurred may arise in several contexts. It may be important for res judicata (see, for example Honeywood as executrix of the Estate of the late Neville Honeywood v Munnings [2006] NSWCA 215), for determining whether a jurisdictional limit could be avoided by the plaintiff bringing two actions in a court of limited jurisdiction (see, for example Conquer v Boot [1928] 2 KB 336 at 341, Sankey LJ) or in a limitation context, like the present case. A plaintiff who can demonstrate separate causes of action arising out of separate incidents of damage, is free to select those accruing within the limitation period. But in determining the true situation, the law looks at the substance of the matter and not the formal framework that may have been artificially erected by the plaintiff in an endeavour to gain a juridical advantage (see Onerati v Phillips Constructions Pty Ltd (1989) 16 NSWLR 730 at 746-7, Giles J; Macquarie Bank Limited v National Mutual Life Association of Australia Limited (1996) 40 NSWLR 543 at 559, Clarke JA with whom Priestley JA agreed; Honeywood). 65 In Conquer, Talbot J at 344 distinguished between two situations. The first was "one contract and one promise to be performed at one time, although no doubt the defendant may have failed to perform in one or many respects". The second was the situation where there may be "many promises in one contract, the breach of each of which is the separate cause of action". His Lordship pointed out that in the latter situation the period of limitation would be different for each breach. But in cases where there was but one promise, separate or successive breaches would not prevent time from running from the date of the first breach. A plaintiff could not choose to ignore the limitation consequences of the earlier breach and its damages by confining its claim to the later breach (and damages) occurring within the limitation period. As Talbot J put it (at 344-5): Here there is but one promise, to complete the bungalow; and the question whether or not it has been performed is to be decided by the state in which the bungalow was when it was handed over by the defendant to the plaintiff as complete. From that moment the Statute of Limitations began to run as to the whole. The plaintiff could not alter the fact that he was recovering damages for the breach of this single promise by failing to specify in his action all the particulars of the breach and all the damages to which he was entitled.

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(ii) Was a continuing duty breached in 1989-90? 68 Winnote submits, in the alternative, that a continuing contractual and/or tortious duty was breached in 1989-90, within the limitation period. The breach was a continuing failure to give correct advice about the status of peat under the Mines Act. This occurred while the solicitors were still acting for Winnote, pressing Mr Sadler to register the RPL. 69 The express terms of the pleaded retainer of FS are set out above. 70 At the opening of the trial on 19 August 2003 the plaintiffs were given leave to file a Third Further Amended Statement of Claim that pleaded (in pars 11 and 17) that FS and FM breached their continuing duty in failing at any time to provide, during the course of their retainer (my emphasis), advice concerning the matters set out in par 9F(i)-(xi) (FS) and par 15C(i)-(xi) (FM). In substance, the allegation was that advice should have been given that peat was a "mineral" for the purposes of the Mines Act 1958 (Vic); that Mr Sadler had no title to the peat on the land, no right to licence any party to extract it, and no right to obtain any royalty for it; and that a mining tenement rather than a lease or licence from the landowner was the proper method of securing the right to extract peat. 71 This focus upon a negligent advice allegation is understandable. Advice as to whether peat was a mineral was specifically sought (J47) and given (J63-89) in July-August 1988. Consequent upon that advice, the solicitors were asked to prepare the RPL to give effect to already partially negotiated arrangements with Mr Sadler. This led to extensive negotiations with the lessor's solicitor leading to agreement as to the terms of the RPL that was executed on 7 November 1988. 72 The 1989-90 troubles over registration of the RPL stemmed from this standpoint, one that both client and solicitor had adopted in August 1988. 73 The presently critical questions are whether there was a continuing duty to give such advice after 1988 and/or whether failure to do so after 1988 was an additional act of negligence (ie a further breach). 74 Despite the late amendment to plead post 1988 breaches, there was no amendment to the existing allegations of reliance pleaded against the two firms (in pars 10 and 16). Those two paragraphs were similar in effect, the pleading against FS alleging: Acting in reliance upon such advice (including the lack of any advice as to the matters referred to in paragraph 9F above) and believing the advice to be correct and that it was not necessary to obtain a lease to extract the peat from the Land pursuant to the Mines Act 1958 (Vic), the Plaintiffs set up and established a peat extraction operation on the Land and incurred great expense in so doing. 75 I have already drawn attention to the absence of evidence or findings as to what Winnote would have done after 1988 as regards applying for mining tenements had it received accurate information about the status of peat. 76 The statement of claim pleaded that the retainer agreement(s) were formed in about August 1988. FS admitted that the agreement stipulated expressly that FS would advise and act in connection with the obtaining of a lease over the land and that FS would advise whether any, and if so what kind of, lease licence or permit was necessary under the laws of Victoria to enable peat to be extracted. FS further admitted that it was an implied term of that retainer agreement that FS would exercise reasonable care in the performance of their duties under it (see also Astley v Austrust Ltd (1999) 197 CLR 1 at 22-3). 77 The conceded contractual duty to "act" could not rise beyond doing what was instructed to be done, including of course anything reasonably incidental to the tasks undertaken to be performed in the course of the retainer. It was never part of the retainer that the solicitors would procure the right to mine the peat. In the final analysis, that power lay with Mr Sadler (it was thought), although in reality with the Minister (Mines Act 1968, s35). The solicitors' role required the exercise of due care, but it was never one that contemplated the solicitor achieving a particular outcome or filing a particular document. 78 The plaintiffs submitted at first instance that the solicitors were under a continuing duty to provide the correct advice until the retainer was terminated. Sperling J said that that approach was not pressed, adding "and properly so" (J94). It is common ground in this Court that his Honour was mistaken in thinking the point was abandoned. The plaintiffs kept it alive in their final submissions although, as will emerge, they had directed precious little evidence toward the topic during the trial. 79 In Larkin v Great Western (Nepean) Gravel Ltd (1940) 64 CLR 221 Dixon J said (at 236): If a covenantor undertakes that he will do a definite act and omits to do it within the time allowed for the purpose, he has broken his covenant finally and his continued failure to do the act is nothing but a failure to remedy his past breach and not the commission of any further breach of his covenant. His duty is not considered as persisting and, so to speak, being forever renewed until he actually does that which he promised. On the other hand, if his covenant is to maintain a state or condition of affairs, as, for instance, maintaining a building in repair, keeping the insurance of a life on foot, or affording a particular kind of lateral or vertical support to a tenement, then a further breach arises in every successive moment of time during which the state or condition is not as promised, during which, to pursue the examples, the building is out of repair, the life uninsured, or the particular support unprovided. The distinction may be difficult of application in a given case, but it must regarded as one depending upon the meaning of the covenant.

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See also Hawkins v Clayton (1986) 5 NSWLR 109 at 115-6 (Kirby P) and 122-3 (Glass JA). 80 In Hammond v Minister for Works (1992) 8 WAR 505 Ipp J (with whom Rowland and Owen JJ agreed) concluded a lengthy review of the continuing duty cases with this summary (at 516): In none of the authorities to which we were referred, and which I have read in my own researches, has it been held that a breach of an obligation to perform a single act, by a date capable of determination, results in a fresh cause of action each day there is non-performance. Once the obligation is to be completely discharged by a single act, the failure to perform gives rise to only one cause of action, although that failure to perform may continue indefinitely and the obligation may even be capable of being specifically enforced. 81 At the trial, the plaintiffs put the continuing duty argument as follows in a Précis of Some Submissions in Reply dated 10 February 2004: 33. The defendants also submitted that there was no continuing duty and that on or about 23 August 1988 they performed the obligation or duty to exercise reasonable care in advising as to whether peat was a mineral once for all. That cannot be right, since the obligation or duty was to exercise reasonable care in advising and assisting the relevant plaintiff to obtain and secure the right to mine peat. The pleaded case, in paragraph 6 of the Further Amended Statement of Claim, was that the defendants, or the first defendants, were instructed or retained in connection with the obtaining of a lease over the land and the "… obtaining of all necessary leases, licences and permits from the Victorian government or any relevant governmental authority, agency or department to enable peat to be extracted from the land and to secure the plaintiffs right to do so". 34. That retainer or obligation was not discharged once for all by the furnishing of wrong advice on 23 August 1988. Thereafter the defendants proffered the real property lease as, when registered, discharging the performance of the duty. That lease was never registered and the defendants were continually engaged until either 1990 or 1991 in seeking to obtain its registration and continuing to advise the plaintiffs in respect of it. Indeed, in his letter to Mr Roach of 28 August 1990, Mr Hutchinson asserted, wrongly that the caveats were "… still protecting your interests". 82 The portion of par 6 of the Further Amended Statement of Claim referred to in par 33 of this extract was not admitted on the pleadings by FS. Nevertheless, the trial judge found that the 1988 retainer was in effect as broad as the plaintiffs pleaded it was (see J47-54). In particular, the content of the retainer was found to be that FS would provide the following services (J54):

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See also at 135[402] and Hawkins at 544. 85 The critical point argued for by Winnote is that so long as the solicitors were engaged to represent Winnote's interests referable to the peat deposit transaction (ie until December 1990) their duty to advise how best to secure the ongoing right to mine the peat itself continued and was breached continually. Accordingly, there were breaches after 15 November 1989 which meant that there was no limitation problem for the contract claim or for the tort claim that now focussed exclusively on loss said to have occurred in 1993. 86 The RPL was executed on 7 November 1988 in reliance upon the negligent advice given in August that year. Thereafter Winnote embarked upon mining activities reliant upon its rights under the RPL until Mr Groves' conduct removed the scales from Mr Roach's eyes in early 1993. 87 In August 1988 the solicitors had advised Winnote that the RPL should be registered, and they thereafter assumed responsibility in this regard. However, the power to procure registration lay directly with the lessor who (or whose mortgagee) presumably retained the duplicate certificate of title. The RPL contained a clause obliging the lessor to register. Winnote had to pay stamp duty and for a time there was delay at the office of the Victorian Comptroller of Stamps. 88 In February 1989 the solicitors lodged a caveat which itself had to be amended in June 1989 (Blue 13/3349). The case has been fought on the assumption that the RPL was registrable even though its terms disclose a profit à prendre and not a lease. On this assumption (to which the parties ought in fairness to be held), the solicitors' files were kept open throughout 1989 and 1990. 89 In about February 1989, Mr Sadler's solicitor disclosed that his client's land (of which the area covered by the RPL formed was part) had been subdivided (Blue 2314). The lessor sought Winnote's permission to amend the description of the land area described in the RPL to accord with the lot numbers of his new plan of subdivision, apparently on the basis that the Titles Office would no longer recognise parcels described by reference to their Crown allotment numbers (Blue 3243). FS contacted Mr Roach and sought his instructions. A facsimile dated 6 April 1989 advised Mr Roach (Blue 3244): Although the newly described Lots appear to coincide with the Crown allotment described in the Lease Agreement, we are unable without conducting further searches to confirm that the area and description of the new described Lots are identical to the Crown allotments. If you are happy with the newly described Lots please advise the writer who will then instruct the landlord's solicitor to proceed with the registration of the Lease. 90 It would appear that Mr Roach did not give instructions on this matter and this prompted a follow-up communication from FS on 21 June 1989 (Blue 3330). FS was at the same time communicating concern about the legal costs that remained unpaid. 91 Winnote does not suggest that its contractual rights under the RPL were prejudiced by the registration of the plan of subdivision, beyond complaint that Winnote became exposed to the potential of dealing with multiple landlords (14). This inevitable incident of the RPL was a detriment contrasted with the situation that would have prevailed under a mining tenement. If the problem generated measurable damage it would be another instance of damage first occurring outside the limitation period. 92 The delay in obtaining registration became a matter of considerable agitation to Mr Roach and he hounded FS about it, sometimes blaming them (as distinct from the lessor) for the past and continuing holdups. Thus, for example, he faxed FS on 31 May 1990 as follows (Blue 13/3475): RE: SADLER & WINNOTE P/L LEASE We have not received a copy of the above lease (although prepared in 1988). It appears the lease has never been registered. It also appears no search was done on the property when the lease was prepared and "old" titles appear on the document. A new subdivision has recently been granted (approved). It is urgent that this matter be resolved. 93 On 14 June 1990 FS faxed Mr Roach confirming his instructions to carry out a title search on the leased property (Blue 14/3493). The fax summarised various matters still to be attended to by Mr Roach in order to finalise the transaction. These included: You have yet to instruct whether the amendments to the title description of the property as suggested by [the lessor's solicitors] are acceptable. 94 The title conferred under the RPL was never at risk. Caveats were in place and Winnote was in visible occupation of the relevant part of Mr Sadler's land. Winnote was able to enter into negotiations with Mr Groves with a view to assigning the RPL. There were dealings between Sadler and Winnote in 1992-93 in which each party purported to enforce rights under the RPL including, in Winnote's case, a belated attempt to exercise the option to renew. 95 There is a live issue as to whether these lease registration problems bore upon Winnote's capacity to exploit the deposit and/or Mr Roach's decision to abandon production and sell the deposit to Mr Groves. But what is presently important is that both client and solicitors conducted themselves throughout 1989 and 1990 on the basis that the retainer would only be fully performed when registration of the RPL was procured. It was a dispute over costs that caused the final rupture in December 1990. 96 To show that the file remained open with RPL registration work yet to be performed does not resolve the limitation issue in favour of Winnote. A closer analysis is required. 97 Winnote relies on a passage in the judgment of Oliver J in Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp [1979] Ch 384 at 438: The defendants here never treated themselves as functi officio in relation to the option. They kept the document on Geoffrey's behalf in their strongroom. They opened a file relating to the matter. They were consulted about it at intervals over the next 6½ years. In my judgment the obligation to register which they assumed when they were first consulted continued to bind them. It was an obligation to protect the interest from third parties by registration and without their client's knowledge they failed to perform it until it ceased to be effectively capable of performance on August 17, 1967. It seems to me that it was then that the contract was broken once and for all. 98 In my view, this passage does not assist Winnote on the limitation point. The negligence in Midland Bank consisted of the solicitor's omission to register an option to purchase as a land charge. It was a case of simple nonfeasance (Bell at 507). Non-registration meant that the option was defeated by the sale of the land to a third party. Registration of the option was part and parcel of the proper handling of the conveyancing transaction actually embarked upon. The duty assumed by the solicitor did not involve the giving of advice. 99 Oliver J emphasised that the breach was in the nature of simple non-feasance. In this sense, it involved failure to attend to a continuing duty. His Lordship contrasted the situation of negligent advice, pointing out that such a breach generally occurs once and for all. The following passage (at 435) makes this plain:

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Suppose that Mr Stubbs had woken up to the fact that he had failed to register the option in, say, May 1961 and had then registered it. And suppose that, four years later, Geoffrey had caused a search to be made and had discovered that the charge had not been registered until two months after the date of the option? Could Geoffrey have successfully sued the firm for breach of contract on alleging those facts? Mr Gatehouse says yes. There would he says have been a technical cause of action for breach of the duty to exercise reasonable care and skill which would have entitled Geoffrey to nominal damages. I think that the action would have been struck out as an abuse of the process of the court. 100 In the present case non-registration of the RPL was not the negligence sued upon. On the contrary, the gravamen of Winnote's complaint is that matters took a wrong turn in August 1988 when, in consequence of negligent advice, Winnote and Freehills proceeded down the RPL track instead of the mining tenement track. The negligence established relates to the advice then given. 101 The respondents submit that any failure to revisit and correct that advice in and after 1989 was a failure to remedy the existing breach, not the commission of a further breach. I agree. The solicitors did not have a legal duty to disclose their own negligence of which they were ignorant (Wood v Jones (1889) 61 LT 551). No such duty was alleged, in any event. 102 There is another passage in Midland Bank, relied on by the respondents. Oliver J said (at 402-3): Now no doubt the duties owed by a solicitor to his client are high, in the sense that he holds himself out as practising a highly skilled and exacting profession, but I think that the court must beware of imposing on solicitors, or on professional men in other spheres, duties which go beyond the scope of what they are requested and undertake to do. It may be that a particularly meticulous and conscientious practitioner would, in his client's general interests, take it on himself to pursue a line of enquiry beyond the strict limits comprehended by his instructions. But that is not the test. The test is what the reasonably competent practitioner would do having regard to the standards normally adopted in his profession, and cases such as Duchess of Argyll v Beuselinch [1972] 2 Lloyd's Rep 172, Griffiths v Evans [1953] 2 All ER 1364, [1953] 1 WLR 1424 and Hall v Meyrick [1957] 2 All ER 722, [1957] 2 QB 455 demonstrate that the duty is directly related to the confines of the retainer. It is not seriously arguable that a solicitor who or whose firm has acted negligently comes under a continuing duty to take care to remind himself of the negligence of which, ex hypothesi, he is unaware (see, for example, Kekewich J in Wood v Jones (1889) 61 LT 551 at 552) but counsel for the plaintiffs suggests that in this case, because the exercise of the option was crucial to the scheme which Geoffrey was proposing in June 1967, it then became Mr Kenneth Stubbs's duty to consider and check on the registration of the option. But that was not what he was asked to do. The instructions were given in the context of an agreement between father and son who were on friendly terms and against the background that Mr Stubbs's firm had, for years, acted as solicitors for both parties and would expect to know if Walter was contemplating any sale of his property. Mr Kenneth Stubbs told me, and I accept, that he had heard of no family discord and Geoffrey's own evidence, in the affidavit to which I have made previous reference, was that he had not quarreled with his father. Furthermore, only in the previous year, Walter had, to Mr Kenneth Stubbs's knowledge, concurred with Geoffrey in the arrangements over Poplar and Walk Farms, all of which pointed to the existence of harmonious family relationships. 103 Three matters can be derived from the passages quoted from Midland Bank. 104 First, to identify a relevant continuing duty, it must still be an aspect of the retainer at the supposed time of breach. Thus, it was always part of the solicitor's duty in Midland to register the option, but it was not part of his assumed retainer to keep asking himself whether he had earlier been negligent with a view to informing the client if he discovered that he had. 105 Secondly, the question whether an omission is negligent has to be determined at the time when it is said to have occurred and by reference to the context at that time. 106 Thirdly, there is a categorical difference between the giving of negligent advice, which occurs when and whenever it is provided, and the continued failure to perform a step in a transaction embarked upon on instructions. 107 Cases involving negligence by a solicitor who fails to commence proceedings within time do not assist Winnote. A solicitor who is instructed to commence proceedings and armed with sufficient information to do so commits a breach of the retainer each day after there has been a reasonable time to act on the instructions. Assuming the client had a viable cause of action, there is measurable damage when it becomes statute-barred and time commences to run in favour of the solicitor from that date, as regards negligent failure to carry out the instructions (see Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394 at 403-4). 108 Winnote has failed to show either that the retainer embarked upon in 1988 had relevant work to do in the now critical late 1989 and 1990 time period or that it was negligent at that later time for the solicitors to have then failed to give the correct advice. The omitted advice, according to the pleadings, is the same advice as that which should have been given in 1988. 109 During oral submissions, Winnote's counsel suggested that the retainer incorporated some kind of obligation to correct or keep under review any advice given about a lease, licence or permit needed to extract peat. But no such obligation was pleaded, nor was there evidence directed to this aspect of a solicitor's duties, generally or in the particular case. A retainer that required matters to be kept under constant review in such a way would have costs implications for the client. After the advice of 23 August 1988 had been given, attention turned to the practical matters of drafting the RPL, its execution, stamping and registration, lodgement of caveats pending registration and so on. FS was never instructed to review its earlier advice or to carry out fresh or later investigation as to the status of peat under the Victorian legislation. 110 Winnote's submissions on breach of a continuing duty elide its need to establish both that the duty to exercise care in giving the omitted advice continued after 15 November 1989 and that it was breached after that date. There are no findings on either matter. As indicated, Sperling J thought that the continuing duty issue was not pressed; and his findings as to breach were confined to 1988. 111 Accordingly, there was no relevant continuing duty and no fresh or continuing breach of such a duty. This is sufficient to dispose of the continuing duty submissions. In the circumstances, I merely record that the respondents have submitted that there is a further hurdle in the way. We were referred to the statement by Glass JA in Hawkins (at 124) that: Assuming a continuing duty of care, a fresh cause of action will only arise if a fresh breach causes loss going beyond the loss resulting from the barred cause of action.

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Dealings with the peat deposit: 1988-2003 120 The peat basin at Swan Marsh near Colac covers an area of approximately 6.5km² roughly in the shape of a hambone. In 2000 consulting geologists estimated the resource to contain 13.3 million m³ of peat. 121 As Sperling J remarked (J335): Peat was a marketable product in Australia in 1993 and thereafter. But it is not self-evident that a marketable substance which is in the ground has a value. There are many deposits of marketable substances which have no value because the substance cannot be extracted and sold at a profit. 122 The black peat at Colac was suitable for growing mushrooms as well as for general horticultural purposes. It became common ground at trial that the potential geographical market was in Victoria, New South Wales and South Australia as well as overseas. The main competition in the three Australian states was from overseas peat. 123 Neither Winnote nor any later owner of the deposit have made any money out of the peat deposit, except in 1990 when there was a non-arms length sale of Winnote's stockpile of peat to Roach Industries Pty Ltd for $129,000 (J165). Otherwise, there has been a consistent history of loss, despite extensive expenditure on "research and development" that included market research and actual selling in the market. 124 Winnote's peat mining business was not profitable in the years 1988 to 1993 (J148). Detailed reasons were given by the trial judge and they include several admissions by Mr Roach (J149-187, 237). Winnote recorded losses in its financial statements for 1989, 1991, 1992 and 1993 (see esp J184). By September 1992 Mr Roach had it firmly in mind to dispose of Winnote's interest in the peat deposit one way or another (J171, 177). None of these findings of primary fact are challenged. The reasons are further summarized at J223 and 245. 125 Sperling J held that a mining lease and/or exploration licence in 1988 would have made no difference to Winnote's fortunes. The company would still have operated at a loss (J243). His Honour also held (J248-249): 248 I find that the poor financial performance of Winnote during the years 1988 to 1993 was unrelated to the problems concerning the registration of the real property lease, as the plaintiffs assert, or to concerns about security of tenure in that regard or to anything else arising from the lack of a mining lease and / or exploration licence. It was unrelated to the breach of duty on the part of FM which I have identified. The fortunes of Winnote would have been no different if the correct advice had been given. 249 I also find that the decision to sell to Mr Groves on the proposed terms was unrelated to the problems concerning registration of the real property lease, to concerns about security of tenure, or to the breach of duty by FM. The decision to sell to Mr Groves would have been no different if the correct advice had been given.

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(The findings in these two paragraphs are challenged by Winnote.) 126 Roach Industries Pty Ltd was also controlled by Mr Roach. It carried on business under the name "Sydney Business and Technology Centre" in the field of commercial research and development. 127 Winnote/Roach Industries recorded the following losses: Year ended Loss 30 June 1989 $141,615 30 June 1990 (see next paragraph) 30 June 1992 $ 31,717 128 Some time in the year ended 30 June 1990, Winnote sold its stockpile of peat to Roach Industries for $129,000. The combined results of Winnote and Roach Industries for that year showed a profit of $101,217. 129 During the 1988-93 period Roach Industries coordinated the research and development aspects of Mr Roach's business plan (J151). Development funding was provided by it or other companies in the Roach Group (J152). 130 Technical advice was obtained with a view to optimising sales into the mushroom growing market in particular. Tests were carried out, alternative extraction methods studied, mushroom farms were visited. A consultant was engaged. Trade names (Auspeat, Anything Grows, Pixie Peat) were registered. Samples were provided to Melbourne Mushrooms, the dominant producers of mushrooms in Victoria. Export markets were explored with samples being sent overseas. Newspaper advertising commenced in August 1989. By July 1990 Mr Roach was endeavouring to sell bagged, unprocessed peat to nurseries (J154, 158, 163, 166). In 1990 there were some significant sales to Melbourne Mushrooms (J162). 131 Despite all this, Mr Roach decided by September 1992 to dispose of Winnote's interest in the peat deposit one way or another. He recorded in his diary on 23 September 1992 "Organise sale of peat bog", on 11 October 1992 "sell peat", and on 14 October "resolve all matters of peat". In November 1992 Mr Roach told his solicitor, Mr Galante, that it was "a difficult product to market in the current recession…. Over the past 5 years we have not remove[d more] than about 500 cu.m. a year. Over the past year this has been almost zero". 132 A little earlier, in July 1992, Mr Falkiner of Larkins, McCarthy recorded a conversation in which Mr Roach referred to "lack of results". Mr Roach acceded to Mr Falkiner's suggestion that the solicitor might speak to Mr Sadler about agreeing to the termination of the RPL (J169). 133 In cross-examination Mr Roach admitted that, since 1990, "from my point of view and Winnote's point of view, the site peat was not commercial" (Black 296). 134 The trial judge found that these gloomy prognostications and Mr Roach's decision to sell the deposit were uninfluenced by the concerns about non-registration of the RPL. Mr Roach's real concerns were that the venture was simply uncommercial (J174, 177). These findings are challenged in the appeal, unsuccessfully in my view, for reasons given later. 135 Section 17A of the Soil Conservation and Land Utilisation Act 1958 (Vic) provided that any person who removes soil, sand or other material between the natural surface and two metres below the natural surface and, in so doing, breaks the surface to the total extent of not less than 2,000m², whether in one or more excavations, without the consent of the Director-General, or in contravention of or non-compliance with a condition to which consent is given, is liable to a penalty of $500 and a further penalty of $200 for each day the offence continues. 136 The need to comply with this statute had been drawn to Mr Roach's attention by the solicitors in August 1988. 137 It is common ground that - subject to the 2,000m² proviso - the section operated in relation to the extraction of the peat irrespective of whether a mining lease / licence had been obtained. Section 17A was a hurdle for Winnote even had it been given proper advice that would have directed it to obtain a secure mining tenement from the true owner of the peat. 138 Knowledge of the need for a s17A permit had arisen by November 1992 (J178). Mr Sadler, the lessor, also drew it to Winnote's attention. 139 In November 1992 Mr Roach made application under s17A. He told the Department of Conservation and Natural Resources (emphasis added): At this point we have not been able to compete successfully with the imported peats . This is not due to the quality of the peat, but rather due to the lack of capital in Australia for new ventures involving research and development. We have tested the site and removed some peat (about 2-3000 cu. m) (using rubber tyred scrappers) and the 2 stock piles have been used for research and test marketing. We have no continuous commercial use at present and there appears little hope that this may eventuate. We are hoping to continue over the next 8-10 months to find a commercial venture capitalist. If not, we will not be proceeding with the development. Subject to the above, we are hoping to give it one last go. 140 The attached application form stated (J180): No buildings or plant/equipment are contemplated until after the commercial feasibility has been assessed. At this stage the site/peat appears uncommercial. 141 On 20 January 1993, the Department of Conservation and Environment wrote to Mr Roach in response to the s17A application. The Department was not prepared to issue the permit for lack of information contained in the application and for other reasons including that, as a matter of policy, it would prefer the application to come from the landowner. It was further stated that if Winnote wished to continue with the application, it would need to provide an assessment of the present flora and fauna values of the area to the satisfaction of the Department and proposals and detailed plans for development, utilisation and restitution of the area. 142 Sperling J held (J184, 187): 184 To summarise, as best as can be discerned the peat mining business ran at a loss in four of the five years ended 30 June 1989 to 1993, including the last three of those years. In the last of those three years the loss exceeded $100,000. As at January 1993, the business had run continuously at a loss for some two and a half years at least, and there was no immediate prospect of improvement. 187 The fact is, of course, that the Roach group had the capacity to fund Winnote's losses up to and including the year ended 30 June 1993 out of its own resources. That presumably was out of asset sales, there being no significant bank borrowing transactions to account for the capacity. This does not mean that the business was viable. All it means is that Winnote was a drain on Mr Roach's programme to save his business enterprise from ruin by selling unproductive and other assets to reduce debt. 143 Mr Luscombe found a prospective purchaser interested in paying about $40,000 to acquire Winnote's Lease. Sometime before 29 January 1993 Mr Roach told Mr Luscombe that he would be prepared to sell Winnote and the peat stockpile for $40,000, to be paid to Roach Industries, that company having paid for the cost of extraction and the royalties. Mr Luscombe agreed and said that he would contact the prospective purchaser. 144 On 29 January 1993, Mr Groves wrote to Mr Roach with an offer in the following terms: I would like to make you an offer of $40,000 for the company Winnote Pty Ltd, the trading names Auspeat, Pixie Peat and the leases over the black peat deposit at Swan Marsh. 145 On 9 February 1993, Mr Roach and Mr Luscombe wrote to Mr Groves as follows: We would be prepared to accept your offer on the following basis: 1. $40,000 be paid for the existing stock piles of peat to our operating company Roach Industries Pty Ltd. 2. The company and its shares (Winnote Pty Ltd) transferred to you or your nominated company for $1 each. 3. The cost of all legals to complete the sale be paid for by yourselves. 4. Our current bank guarantee be replaced by your own guarantee, as per the lease conditions. A copy of the lease is attached. ... The next 5 year option has to be renewed shortly and we are currently arranging for the sale of the deposit through a broker. In this regard we have to place a time limit on your acceptance of fourteen (14) days from the above date. (The reference to sale through a broker was untrue.) 146 On 19 February 1993 Mr Groves wrote indicating that he was happy with the terms of the sale, but that his solicitor was looking over the lease document (J202). 147 Within weeks it became clear that Mr Groves had no need or intention of pursuing the agreement. This in turn led Mr Roach to abandon his pursuit of a s17A permit and, with it, any serious steps to keep the RPL alive and/or renew it beyond its expiry on 30 June 1993 (see J203-221). 148 Two days before the expiry of the RPL, Mr Roach wrote to the new owners advising them that Winnote wished to renew the Lease for a further five year period. Renewal was however said to be subject to Winnote not being liable for the payment of the $10,000 minimum royalty payment provided for in the Lease. This is hardly surprising given that it was now reasonably clear to Mr Roach that the land owner did not have title to the peat. Because of the qualification replaced on renewal, the letter did not constitute a valid exercise of Winnote's option to renew. The lessor did not agree to the renewal of the RPL and Mr Roach let the matter drop. 149 ML 4467 was granted to Mr Groves in May 1993. On 21 February 1994 he entered into a compensation agreement with the landowners. It provided for payment of $4 per ton of peat extracted, to be reviewed after two years. This satisfied his obligation under s42 of the Mineral Resources Development Act 1990 (Vic) to enter into a compensation agreement with the private landowner. Winnote would have had an equivalent obligation had it obtained a mining lease/licence. An authority to commence work was issued to Mr Groves on 25 February 1994. 150 Mr Groves conducted the business through companies he controlled, Colac Peat (Aust) Pty Ltd in the years ended 30 June 1994 and 30 June 1995 and Peat and Allied Industries Pty Ltd (PAIL) to 23 June 1996. On 23 June 1996 Pacific Agriculture Ltd (PAL) acquired all the issued shares in PAL and the Mining Licence. 151 On 12 August 1998 Exploration Licence 4310 was granted to PAL for two years. It covered an additional area of 40 km², including and surrounding the area of the Mining Licence. EL 4310 and ML 4467 covered the "hambone" area that Winnote had broadly in its sights in 1988. 152 Sperling J held that, properly advised, Winnote would have taken up in 1988 a mining lease and an exploration licence similar in terms to those later acquired by Mr Groves (J301-304). 153 The mineral licence acquired by Mr Groves required him to employ four competent people, including a mine manager holding a certificate of competency, or temporary permit. The licensee was to undertake progressive reclamation of land in the area subject to surface disturbance, in accordance with an approved rehabilitation plan. 154 The Minister could relieve against such a covenant, but there was no evidence directed to the circumstances in which this might happen. 155 The compensation agreement entered into by Mr Groves with the owners on 21 February 1994 provided for a payment of $4 per tonne of peat extracted from the ground, to be reviewed after two years. (It was common ground that this was materially equivalent to the $4/m³ specified as a royalty payable to the landowner under the RPL (J253).) 156 Mr Groves' EL 4310, covering the hambone area, included a condition requiring expenditure on exploration of a minimum of $21,720 in first year and a minimum of $23,400 per annum thereafter, unless the requirement be varied or suspended by the Minister (J260-264). The replacement ELs that were granted to PAL in 2000 contained a condition requiring $20,000 per annum minimum expenditure (J268). 157 PAL obtained a further Exploration Licence (4115) over an area of 32 km² to the north, but Winnote does not contend that the solicitors' negligence prevented it from acquiring mining rights over this additional area. 158 PAL and its subsidiary, PAIL, operated the peat mine until PAL went into administration of 21 December 1998. A new operating subsidiary of PAL was incorporated during the year ended 30 June 1999, Peat Operations Pty Ltd. 159 PAL was released from administration in November 1999. This coincided with a significant change in shareholding and management. PAL subsequently changed its name to Biogreen Ltd (Biogreen) and Peat Operations changed its name to Biogreen Products Pty Ltd. 160 Biogreen had no more success than its predecessors, despite investment of large sums of money on research and development. 161 For the period since 1993 the details of consistent losses were as follows (J336): Years Ended Entity Net Loss 30 June 1994 Colac Peat $205,266 30 June 1995 Colac Peat $79,809 30 June 1996 PAIL $128,140 30 June 1997 PAIL $351,144 30 June 1998 PAIL $412,207 30 June 1999 PAIL $595,667 30 June 2000 PAL $1,432,792 30 June 2001 Peat Operations / Biogreen Products $865,374 30 June 2002 Peat Operations / Biogreen Products $502,523 30 June 2003 Peat Operations / Biogreen Products $1,080,708

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(There are no separate accounts for the subsidiary, PAIL, for the 2000 year.) 162 Winnote submits that the judge should have recognised that past losses were due to the inexperience and lack of focus of the various operators. There were isolated quality control and management problems unlikely to be repeated. The trial judge adverted to this evidence (J340), but he made no findings in Winnote's favour on the matter. 163 Winnote starts with Mr Groves and makes much of the fact that he served time in prison in 1995 for drug and other offences. There was also litigation with Mr Luscombe over control of the mining lease. These calls on Mr Roach's attention were said to have contributed to a lack of quality control that elicited a complaint from Campbells Mushrooms during this year (Blue 25/6281) that Winnote says was an isolated one (see also Mr Derrick's evidence at Blue 1063-4). There were favourable reviews of the quality of Colac Peat in the Australian Mushroom Growers Association Journal of July 1995 (Blue 6283). The fact remains that Campbells Mushrooms did not go back to using Colac peat. 164 Control of the deposit passed to PAIL in 1996. Its managers lacked mining experience, although one must not forget Winnote's submission that mining was the easy part of the venture. There is a suspicion that unprofitability was contributed to by high drawings by the directors, but hard proof is lacking, in my view. 165 PAL's accounts for 1998/99 contain a note that: Further, during the year, production of peat was suspended and as previous customers have identified alternative sources of product, the company does not have any ongoing arrangements to sell its product. 166 In my opinion, this indicates that lack of market penetration remained the key to the venture's lack of success. There are instances of unhappy customers complaining about particular supply difficulties (eg Blue 6368, 7384), but they also reveal the presence of alternative supply sources from Winnote's local competitors. There was also a body of evidence indicating that Colac Peat was not attractive to mushroom growers because of its unacceptably high ash content (Orange 387-91). Colac peat was also more expensive than landed Canadian sphagnum peat, which was the preferred casing material used in the mushroom industry worldwide (Blue 30/7656-9, Black 2738). 167 Imported peat from other countries was also popular with Mr Van Schajik, a substantial local mushroom grower. In 2001-2 he experimented with Colac peat supplied by Biogreen and with blends using Colac peat. He formed the view that Biogreen peat could only be used in small proportions of no more than 10% of a peat blend. A higher percentage led to a significant reduction in mushroom yield (Black 7/1804, 1887). He said (Black 7/1778): I was offered the two pallets of peat to trial. I was also offered a business opportunity, which could have been fairly lucrative to me if it had worked, but it didn't work because I didn't like what I saw.

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Winnote's DCF exercise was rejected 173 A discounted cashflow (DCF) exercise is commonly used in valuing businesses with an established pattern of performance. Net earnings (income less expenditure) are projected over a period (usually 20 years). The projected net earnings are then discounted to establish a present value, for the risk associated with the kind of business involved and for any special risk associated with the particular entity (J338). 174 As Sperling J observed (J339), beginning with Winnote's net earnings prior to 1993 and/or with the net earnings of the entities which have exploited the deposit since then would have yielded nil value for the deposit, the history having been one of consistent loss. 175 DCF valuations were prepared by two witnesses called by the plaintiffs, Mr Humphreys and Mr Lonergan. Each valuer used as his base the performance projections for 2001-2020 offered by Mr B M Robertson, a mining industry consultant. 176 The key part of Mr Robertson's cashflow projection was a document (Appendix K) called Assumed production levels of fibrous and humic peat by market type. It provided projected sales by volume, in categories which included export sales, sales into the mushroom growing industry and sales into the nursery industry, for each year from 2001 to 2020. The appendix took forecasted sales for the year ending 30 June 2001 as its starting point, not actual sales in a base year (J357). The document had been prepared in consultation with Mr Farnan, the Chief Executive Officer of Biogreen. Mr Robertson had been engaged by Biogreen as a consultant to assist in the preparation of material for capital raising. Sperling J observed that "material generated for the purpose of making a company an attractive object for capital investment cannot be regarded as unbiased" (J419). 177 There were findings that the sales projections were speculative and unreliable (esp J368). In particular, the projections assumed substantial market penetration with no evidence to support it and a good deal of negative evidence to cast doubt on it. Some of these findings were challenged in the written submissions (Orange 143-5). I am unsure whether the challenge was maintained in oral submissions but I am satisfied that the judge was entitled to reach the conclusions he did. 178 Mr Robertson had not checked his forecasts against Biogreen's performance during the years between 2000 and the trial which commenced in August 2003, a time when actual performance had fallen well short of the projected figures (about one quarter of Mr Robertson's forecast) (J369-71). There were conceded flaws in the projected sales volumes and other major errors (J372). The trial judge concluded that Mr Robertson's projections did not provide a reliable basis for a DCF valuation of the peat deposit (J375). 179 The Humphreys and Lonergan valuations were found to be flawed because they were based on and assumed the correctness of the Robertson figures (see esp J365, 393, 396 and 408). 180 Mr Lonergan's valuation was substantially less than that of Mr Humphreys, principally because it did not take into account the export sales in the Humphreys' model. Nevertheless, the errors in the Robertson projections for domestic sales meant that the opinion could be given little, if any, weight (J402-3). 181 There were independent bases for rejecting the Lonergan opinion (J404-426). It is unnecessary to dwell upon them since his Honour's conclusions rejecting Winnote's DCF case are unchallenged.

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Mr Bryant's evidence was accepted 182 Mr Bryant is a chartered accountant and valuation expert who was called for the defendants. He produced seven reports that were admitted into evidence. He was highly critical of some of the reasoning of Messrs Humphreys and Lonergan. Much of his evidence addressed aspects of the case that are no longer in issue. He was cross-examined extensively. 183 Sperling J preferred the evidence of Mr Bryant and accepted it generally (J456), as well as in its criticism of Mr Lonergan's 16.5% discount rate (J429-30) and other points (J409). 184 Winnote tended to avoid Mr Bryant's evidence in this Court. It propounded a valuation exercise that focussed almost exclusively upon the 2002 Whinners transaction (below) while ignoring the negative impact of the failure at trial to make any headway with the DCF case presented by the plaintiffs and the judge's acceptance of Mr Bryant's evidence of "negative" value. 185 When the matter was drawn to his attention, senior counsel for Winnote submitted that the Bryant evidence really went no further than supporting the trial judge's rejection of the Humphrey/Lonergan valuations. I do not accept this, for reasons that follow. 186 Concerning Mr Bryant, his Honour said (J429-431, 456): 429 According to Mr Bryant, the appropriate discount rate was between 30 and 40 per cent. On that basis, he calculated that, excluding export sales, but using the incorrect average selling price assumed by Mr Lonergan, the valuation figure would be between $200,000 and $700,000. This calculation demonstrates the huge difference between adopting Mr Lonergan's discount rate of 16. 5 per cent and Mr Bryant's discount rate of 30 to 40 per cent. Of course, as mentioned above, if one takes Mr Lonergan's assumed average selling price, adjusted for deletion of exports, the forecasted revenue stream is negative and the DCF exercise yields a nil return in value. 430 Mr Bryant gave cogent reasons for adopting a 30 to 40 per cent discount rate. I reject Mr Lonergan's 16.5 per cent rate for the reasons I have mentioned. Shortly put, it does not meet Mr Lonergan's own criteria. That leaves Mr Bryant's opinion on the matter as the only opinion with credibility. I have no reason to reject it. I accept it. 431 It does not follow, however, that the deposit is shown to have had a value of $200,000 to $700,000. That calculation was made on an assumption favourable to the plaintiffs as to average selling price which has not been made out. … 456 Mr Bryant's DCF valuation exercise, which I have accepted in preference to those of the plaintiffs', attributes no value to the deposit. 187 Mr Bryant's evidence clearly supports the judge's conclusions. 188 The first three of Mr Bryant's reports addressed Mr Humphreys' valuation. The variations responded to revisions in Mr Humphreys' evidence. Accordingly, the first two reports can be disregarded for present purposes. So too can the discussion about reliance damage that is no longer pertinent. In his third report, Mr Bryant summarised his conclusions on what he referred to as Opportunity Damage as follows (Blue 1406-8, 1437): Opportunity Damage 17. Mr Humphreys calculates the Plaintiffs' revised Opportunity Damage claim using Model 3. 18. The methodology that Mr Humphreys employs in Model 3 has not changed from the models appended to his first and second reports; he has only changed some of the assumptions relating to the cashflows. 19. In our opinion, the calculation in Mr Humphreys' third report greatly overstates the Opportunity Damage (if any) in this matter. 20. First, Mr Humphreys assumes that the results that would actually have been achieved by Winnote from 1993 are those that Biogreen forecast from 2001 onwards. Mr Humphreys thus transposes them back by 8 years. However, as stated in our second report, the entities that have attempted to exploit the Swan Marsh Peat Mine over the period 1989 to 2000 recorded combined losses totally $4.7m (or, $6.1m if the Reliance Damage claim is correct; that is, $4.7m plus $1.4m claimed by the Plaintiffs as Reliance Damage). In the 16 months to October 2001, Biogreen has recorded further losses of $2.3m. 21. Secondly, Mr Humphreys relies on Biogreen's forecasts included in Mr Robertson's Supplementary Report. We believe that these forecasts of Biogreen are unrealistic because Biogreen's reported actual sales revenue: • for 2001 is less than one-third of the forecast; and • for the seven months to 12 February 2002 is less than one-fifth of the forecast. 22. Thirdly, Mr Humphreys reduces the amount of Marketing Costs, Administration Costs and Working Capital Costs, particularly in the early years, of Model 3 (as compared with the Second Amended Model) without explanation. 23. Fourthly, Mr Humphreys relies on Biogreen's forecasts of sales volume that appear to greatly overstate the potential peat available. If the peat from the Swan Marsh Peat Mine had been sold (from 1993) and continued to be sold at the rate Mr Humphreys assumes in Model 3, there is evidence that Fibrous peat reserves would be exhausted by 2006 and Humic peat reserves by 2027. 24. Fifthly, Mr Humphreys relies on the assumption that all peat mined is capable of being sold in the same financial year. This is inconsistent with evidence that suggests that the seasonal nature of mining and sales, as well as the time it takes to process the peat, would result in some peat being sold a year later. 25. Finally, Mr Humphreys uses a discount rate that appears to be too low as it does not adequately reflect the risks inherent in the hypothetical peat mine that Winnote claims it would have operated. 26. We recalculate Mr Humphreys' Model 3, amending some of his assumptions as follows: • replacing the sales revenue estimated by Mr Humphreys with our recalculation of the sales revenue, based on available peat resources; and • deferring 50% of sales as estimated by Mr Humphreys (and recalculated by us as above) one year, based on the timing of cash outflows (for production) and cash inflows (from sales). 27. Changing only these two assumptions, and using a discount rate of between 30% and 40% (in our opinion the range of appropriate discount rates) results in the Plaintiffs' Opportunity Damages reducing to a range of $nil to $441,879. 28. The calculation referred to in paragraph 27 above does not make any allowance for other changes in the calculations suggested by our paragraphs 20 to 22 above. All of those changes would further reduce the potential loss. For example, when we adjust sales revenues and costs in ways that we consider to be conservative, Mr Humphreys' Model 3 calculates that there would be no loss (even using Mr Humphreys' discount rate). 29. These considerations lead us to conclude that it is unlikely that the Plaintiffs have suffered any Opportunity Damage: the "opportunity" was much more likely to be loss-making than profit-making. Mr Humphreys' calculations reach the contrary conclusion because they are based on hypothetical results, that are now shown by both the history of the mine and by Biogreen's current performance to diverge from reality. … Conclusion 179. These considerations lead us to conclude that it is unlikely that the Plaintiffs have suffered any Opportunity Damage: the "opportunity" was much more likely to be loss-making than profit-making. Mr Humphreys' calculations reach the contrary conclusion because they are based on hypothetical results, that are now shown by both the history of the mine and by Biogreen's current performance to diverge from reality. 189 In his fourth report Mr Bryant made various criticisms of Mr Lonergan's data and methodology. He referred to certain comments made by Mr Lonergan and continued (Blue 6/1468): 57. These comments ignore reality: those attempting to operate the asset appear to have lost at least $8.3million doing so; and there have been serious commercial difficulties in selling the peat - at all, let alone at a profit. (Section D of our second report set out some of the difficulties said to have been encountered). 58. It appears that Mr Lonergan is valuing a hypothetical business that bears no relationship to the one that has operated. The assumption that the Plaintiffs would have achieved this hypothetical business appears to have little basis other than Mr Roach's assertion. 190 Mr Bryant continued to be of the opinion "that it is unlikely that the Plaintiffs have suffered any Opportunity Damage: the 'opportunity' to operate the mine in (1988 or 1993) was much more likely to be loss-making than profit-making". 191 Mr Bryant's fifth report factored in additional data suggested by the plaintiffs. It included an alternative calculation based on the following assumptions: the value as at 30 June 2002 of the asset of which the Plaintiffs have been deprived was $6.5 million; prior to that date the Plaintiffs would have expended amounts equal to those actually spent by Biogreen to 30 June 2002; losses are to be expressed at 30 June 1993 (in accordance with Mr Lonergan's approach); and discounting back to 1993 should occur only at an inflation rate, assumed to be 3% p.a. 192 The $6.5 million assumed loss as at 30 June 2002 was based on the Whinners transaction case being advanced by the plaintiffs (see below). 193 On this basis, the value of the losses of 30 June 1993 was calculated by Mr Bryant as negative $1.7 million "that is, the plaintiffs are better off through not attempting to develop the mine" (Blue 6/1490-1). 194 Mr Bryant recognised that the plaintiffs were contending, through Mr Lonergan, that Mr Roach would have incurred lesser operating expenditure than Biogreen. On the basis he had modelled, he calculated that the plaintiffs' losses were negative unless total expenditure was reduced by $2 million or 26% of that actually incurred by Biogreen. He added that none of the calculations made an allowance for vicissitudes (Blue 6/1491. See also Black 2197). 195 At several places in his reasons, the primary judge effectively concluded that a business that runs consistently at a loss, despite very substantial expenditure on research and development and several changes of management, is not a business that has any value. For example, he said (J339): In the present case, beginning with Winnote's nett earnings prior to 1993 and / or with the nett earnings of those entities which have exploited the deposit since then would have yielded a nil value for the deposit, the history having been one of consistent loss. To support a DCF valuation which would attribute a positive value to the deposit, it was accordingly necessary for the plaintiffs to put forward a projection of revenue and expenditure based on a business operation which was different from any which had actually occurred.

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See also J453. 196 This view is implicitly based on assumptions that one is dealing with a product that is comparatively easy to produce and for which there are no significant start-up costs that a prudent investor would expect to carry for longer than the years of consistent loss factored into the opinion. In the present case, there was much evidence to indicate that Colac peat was of this nature in that the constant difficulty in profitability was associated with market penetration as distinct from high production costs. Mining the peat was the easy part. 197 One matter debated between the experts was the appropriate discount rate to apply, even with reference to agreed cash-flow forecasts. A discount rate reflects the risks and uncertainties inherent in the projection of cashflows. It represents the expected rate of return that an investor would require to commit funds to an investment instead of available alternative investments that are comparable in terms of risk and other investment characteristics (Blue 1426). 198 The experts disagreed at several levels (eg Blue 1426-31). The critical issue focussed on the risks inherent in the hypothetical peat mine that Winnote claims it would have operated. Mr Bryant concentrated on the uncertainties of market penetration that was essential to reverse the unbroken trend of losses. 199 Mr Bryant's criticism of the 16.5 per cent discount rate proposed in the Humphreys and Lonergan valuations (J390, 430) was accepted by the trial judge. His Honour also accepted Mr Bryant's 30%-40% discount rate, describing the valuer's reasons as "cogent" (J430). Those reasons may be found at Blue 1426-31 and 1464-8. This conclusion was well open to the primary judge. 200 Mr Bryant drew further support for his conclusions by comparing Biogreen's actual average selling price for peat with the figure calculated by Mr Lonergan as a break-even price (J406, 409). The trial judge held that this calculation provided support for the conclusion of minimal value (J431, set out above).

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Winnote's alternative valuation exercise 201 This exercise was presented by counsel for the plaintiffs at the suggestion of the primary judge (J457). His Honour asked whether the plaintiffs were in a position to lead evidence of actual lines of business conducted in the years 1988-1993 which were profitable or likely to become profitable. 202 The suggestion led to the filing of a large volume of argumentative material without, as his Honour observed (J462), any expert evidence to support the exercise or to assist the Court to understand and evaluate it. Furthermore, the material adduced did not cover the requested 1988-93 period, but rather proceeded from actual sales of Colac peat in the year ended 30 June 1995 but not exclusively from this starting point. Various increases were simply assumed, basing themselves upon market penetration that never occurred for Colac peat. The details are summarised at J466-478. 203 The judge concluded that the plaintiffs had not established by this alternative evaluation exercise that the Colac deposit had any commercial value as at 1993 (J495). The whole exercise suffered from "one of the fundamental flaws in the plaintiffs' major DCF exercise. Assumed sales are speculations" (J492). Other and more detailed criticisms are set out at J480-494. 204 In this Court, Winnote placed very little reliance on the alternative evaluation exercise (CA Tr p124). 205 Winnote in its written submissions re-presented its first instance arguments on this issue, submitting that the trial judge misunderstood it in part and otherwise failed to give it sufficient weight (Orange 127-145). 206 I am not persuaded that this material establishes a positive value as at 1992 or that Sperling J erred in rejecting it for the reasons he gave. At the end of the day, the methodology was not supported by any of the experts and the raw data rested largely upon assumptions that included the discredited forecasts of Mr Robertson. There is the additional difficulty in that the exercise ignores Mr van Schajik's evidence about the particular unsuitability of the Colac peat he was presented with by Biogreen.

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The Whinners transaction 207 The principal way by which Winnote now contends that the lost investment had a value in 1993 is based on a transaction completed on 5 August 2002 in which Whinners Pty Ltd subscribed for 5,336,465 shares in Biogreen. The acquisition price was $1m paid in cash and the shares represented a 16.66 per cent stake in the company. 208 Biogreen's principal assets at the time were the Mining Licence and an appurtenant Exploration Licence that the trial judge held would have been obtained were it not for the negligence of the solicitors. Winnote submits that this transaction provides evidence of the value of the peat deposit in 2002. This in turn is relied upon to indicate the investment's value in 1993 given what is said to be the absence of evidence indicating that imported peat of this quality fell in price over this period. 209 Winnote submits that Sperling J erred in concluding (J455) that the Whinners transaction did not show that the deposit had a value in 1993. 210 Winnote goes further and asks this Court to value the investment as at July 2002 in the sum of $9,295,000, basing this valuation largely upon the Whinners transaction. Particulars were given as follows: 1. The Appellants' damages should be computed by reference to evidence of the completed arms-length market transaction in respect of the Mining Licence and appurtenant Exploration Licences which the trial judge held would have been obtained (but were not) by reason of the Respondent's negligence. 2. The Court should accept that, in 2002 dollar terms, the value of those Licences in respect of the peat deposit was at least $6.5 million but was in fact greater because Biogreen Ltd ("Biogreen"), relevantly the vendor in the market transaction, was "anxious" for the transaction to proceed because of its need for cash. 3. At [J14], the trial judge recorded that the Plaintiffs sought damages of $7.5 million, subject to grossing up for tax and interest, as recorded by the trial judge at [14]. 4. Grossing up for tax at the prevailing company tax rate of 30% is justified to reflect the fact that any award of damages will be taxable in the hands of Winnote and that, but for such grossing up, the purpose of the award of compensation would be otherwise undermined. For every dollar of loss, the gross up equivalent is $1.43 (Blue 4/952[20). 5. There should be added to this grossed up amount interest from July 2002 to the date of judgment/entry of orders (21 January 2005) at Supreme Court interest rates which at all material times have been 9% per annum. 6. Taking $6.5 million in July 2002 dollars as a base case results in a loss of $11,376,061.37 as at the date of judgment. Pursuant to s101 of the Uniform Civil Procedure Act, the Appellants would then be entitled to interest on that amount at the scheduled rate which is also 9% per annum from 21 January 2005. 7. The calculation of this figure is as follows: (i) $6.5 million grossed up for tax at 30% - $9,295,000.00 (ii) Interest on $9,295,000 at Supreme Court rates from 29 July to date of Orders (21 January 2005) - $2,081,061.37 (iii) Total $11,376,061.37 8. Support for this figure is also provided by reference to other market transactions as well as by the fact that, in Biogreen's audited accounts for the year ended 20 June 2002, the directors of that public company placed a value on the Licences of $7.5 million. These accounts were tendered without limitation by the Respondents. The Appellants' Alternate Valuation Exercise also demonstrated, by way of confirmation of this analysis, that even on the least optimistic of the scenarios, the peat deposit had a substantial value. 211 Whinners was the private company of Mr G B White who is Chairman, Chief Executive Office and founder of White Industries Ltd. Mr White had over 40 years experience in civil and mining engineering and construction. Prior to making the investment, Mr White inspected the site. He stated himself "very impressed with the resource", being of the view that "the extraction costs were extremely cheap and the extraction process was simple and inexpensive". 212 The Whinners acquisition contemplated a further subscription of $1m for convertible notes and this was implemented by a loan secured by a charge over Biogreen's assets that was made in February 2003. On 10 June 2003 Whinners subscribed a further $151,554 for its pro rata entitlement to a further 757,773 shares to maintain its one-sixth interest in Biogreen. These further transactions add little to the equation, because they took place at a time when Whinners had ceased to be at arms-length and were, in part, for services rendered (Blue 6/1471-2). 213 Biogreen's financial statements show that:-

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• Mr Lonergan had ignored the fact that Biogreen had already spent $2.8 million funding capital expenditure and operating losses. 220 The plaintiffs called evidence addressing these reservations. It included evidence of the simplicity of peat mining operations and as to how a 2002 value could be extrapolated back to 1993. 221 The primary response to Mr Bryant's first two caveats was the adduction of evidence from Mr White himself. The plaintiffs read an affidavit of Mr White sworn 28 July 2003 (Blue 2/289) and sought to tender a supplementary statement of the same witness that became MFI 5 (Blue 32/8065). The evidence detailed the steps that were taken by Mr White as an experienced businessman in July 2002 to investigate his prospective investment. Evidence was also proffered concerning the subsequent Whinners transactions and Mr White's satisfaction with the investments his company had made. These events of 2002-2003 took place not long before the trial itself, which was heard between the months of August 2003 and February 2004. 222 At the end of the day, senior counsel for the solicitors at trial conceded that Mr White's evidence showed that the 2002 transaction was of an arms-length nature (Black 4/1045) and Mr Bryant effectively accepted that his first caveat no longer stood (Black 8/2193). 223 Mr Bryant's concerns expressed in his second caveat were also addressed. Mr White's affidavit contained unchallenged evidence that he understood he was spending Whinners' money on the acquisition of a peat extraction business at the subject land. In his mind, the tangible assets of the company were the Mining Lease and the small factory with its plant and equipment. More to the point, in my view, the balance sheet demonstrated that this was all that Biogreen owned at the time. 224 In sum, the unchallenged parts of Mr White's affidavit laid to rest the first two of Mr Bryant's caveats. 225 Various objections were taken to the affidavit in the course of which certain concessions were stated. In the upshot, portions of Mr White's affidavit were rejected or admitted on limited grounds. Mr White was permitted to describe what he saw and was told, but the things said as to the size and value of the deposit were not admitted as to the truth of the facts represented. Mr White said that he personally thought that the resource would have a value of about $2 per tonne of peat or approximately $30 million (on estimated reserves of 15 million tonnes), but this information went into evidence only as to Mr White's state of mind, not as an expert opinion. 226 Mr White stated that extraction costs were extremely cheap and the extraction process was simple and inexpensive. 227 He also referred to and annexed to his affidavit a valuation dated 1 January 2002 by Chris Young a consulting geologist. Mr White mentioned in particular that there were included in the Young valuation "extracts from previous valuations which supported my belief as to the inherent value of the resource". The Young valuation was never tendered as an expert opinion, but this evidence from Mr White demonstrates the particular impact that it had on his thought processes. 228 In the relevant section of the Young valuation (Blue 1/339-341) two valuations are identified, one by A J Murphy & Associates commissioned in 1994 by Colac Peat (Aust) Pty Ltd, the other by Robertson Business Management Pty Ltd provided to Biogreen in December 2000. Each valuation was based on the net present value method (NPV method). The Young valuation does not indicate the data to which the NPV methodology was applied. One may however infer that the Robertson valuation used the estimates that Mr Robertson offered in his testimony at the trial that were rejected by his Honour. 229 The summary in the Young report does however indicate that Murphy's NPV for the project was calculated using both a 10 per cent and a 15 per cent rate of investment (discount rate) over a 20 year period, this producing a minimum value in the range of $25-30 million. The Young report stated that the Robertson valuation had used discount factors in the range of 10 per cent to 20 per cent. This material shows that Mr White was supported in his belief as to the inherent value of the resource by valuations that had used discount rates that were rejected by Mr Bryant and the trial judge (see above). 230 Mr White concluded his affidavit stating (Blue 1/292): …The essential reason I considered at the time of my investment that the Colac peat deposit was a good investment was my perception at the time of the very real value in that resource…. Although I was aware that Biogreen had a number of other dimensions and was pursuing related projects, the fundamental and driving reasons for my investment was my perception and assessment of the value of that resource and its potential for exploitation both as a result of import substitution and the then export market. 231 Mr White's affidavit does not indicate his mental processes in relation to marketing beyond the statement that he considered the resource would have a value of about $2 per tonne of peat or approximately $30 million. No expertise grounding that opinion was asserted or proved. It was not shown whether Mr White was thinking in terms of gross or net profit. Nor was the time frame in which $30 million would be returned disclosed. The evidence in the trial showed the estimated size of the deposit to be 13.34 million m³. I am unaware of evidence as to the weight of a cubic metre of peat, but the parties appeared to assume (as did Mr White: see below) there was a rough equivalence. 232 Mr White makes no reference to having read or relied upon that portion of the Young valuation that states (Blue 1/329): Marketing-Overview The ultimate value of the Swan Marsh peat deposit is more a function of marketing than any other factor. A detailed analysis of market potential is, however, beyond the scope of this report and a summary only of the peat market is included… The cash flow models in this valuation recognise the value of the Swan Marsh peat deposit is almost wholly dependent on the success of marketing. 233 Mr White's supplementary statement that was tendered and rejected was dated 29 August 2003, ie the very date that the White material was being considered for admission at the trial. His Honour's practice seems to have been to consider objections to affidavits and statements immediately before the witness in question was called for cross-examination. 234 In paragraph 3 of the supplementary statement Mr White set out eight assumptions that he made in forming the opinion stated in par 7 of his earlier affidavit. These included particular assumptions as to the simplicity of the extraction process for peat ((5)) and the methodology used by him in arriving at his $2 per tonne estimate of value ((8)). On the latter point he referred to his:- … broad brush, rule of thumb basis to arrive at a quick estimate in my own mind (which I acknowledge is not a scientific approach) I use a round figure per tonne to give me a rough guide to the value of the resource. In this case I considered $2 per tonne as appropriate, and I assumed (again not on a scientific basis) a broad equivalent of 1 tonne of peat which would be recovered per cubic metre …. 235 This assumption contained no stated understanding as to marketing. Indeed Mr White made this plain in his acknowledged assumption that: (6) the peat mined from the deposit was capable of being and would be sold (I was not considering any particular quantity). 236 I draw attention to these matters to explain why there would be no miscarriage stemming from ignoring MFI 5, were it to have been wrongly rejected. On the contrary, MFI 5 spelt out in detail what was already implicit from the affidavit itself, namely that Mr White did not receive or use information relevant to the marketability of the Colac peat in his thought processes. 237 Sperling J rejected the tender of the supplementary statement (MFI 5) in view of the concession made by senior counsel for the defendants at trial that the state of mind conveyed in the second sentence of par 7 of Mr White's affidavit (ie that "the extraction costs are extremely cheap and the extraction process is simple and expensive") was not disputed (Black 1048). 238 In light of these and other rulings, senior counsel for the defendants elected not to cross-examine Mr White. 239 Winnote has a ground of appeal (30(a)) complaining of the rejection of that portion of Mr White's affidavit in which he stated: "I still consider it to be a good investment". This ground should be rejected if only because Mr White's state of mind was irrelevant. The excluded sentence had no probative weight, in any event. 240 The real gravamen of Winnote's complaint about the evidentiary rulings is the submission that the trial judge ought not to have proceeded to make critical comments about Mr White's business acumen in circumstances where he had confined the effect of the affidavit and excluded entirely the supplementary statement. To have done so was said to contravene the principles in Brown v Dunn (1893) 6 R 67 (HL). It is submitted that the matters raised by the respondents to challenge the case based on the White evidence were required to be taken to Mr White in cross-examination. I do not agree. 241 The focus of this appeal must remain upon the fairness of the trial. As Basten JA remarked in State Rail Authority of New South Wales v Brown [2006] NSWCA 220 at [53]: Although the case-law is replete with reference to the unfairness to a witness in not putting to him or her potentially contradictory material, so that, if there is an explanation for any discrepancy, that can be given, the real issue is the fairness of the trial, as between the parties. 242 In concluding that the Whinners transaction did not establish that the deposit had any value in 1993 (J446), Sperling J gave the following reasons: 447 The Whinners transaction establishes that in [2002], Biogreen had the capacity to raise $1m in equity finance for a 16.66 per cent share in the company and to raise a further $1m by secured loan. It does not establish that Biogreen as a whole had any particular sale value at that time. 448 The transaction was for an interest in Biogreen as distinct from an interest in the deposit. As at [2002], Biogreen had expended a substantial amount of money in capital works (significantly more than the $0.5m assumed by Mr Lonergan), in establishing a market for Colac peat, and in research and development. There was, accordingly, a significant difference in timing (1993 rather than 2002) and in what is to be valued (the deposit rather than Biogreen). 449 Mr White understood that the extraction process was simple and inexpensive. It appears that he failed to take into account - presumably because he did not know - that the product had been dogged by inadequate quality control and that the prospect and cost of securing satisfactory quality control were unknown. 450 Mr White relied on the Young valuation. It was based on inflated assumptions as to revenue relative to Biogreen's own adjusted budget forecasts at that time. (The report has no standing as valuation evidence in these proceedings. It was not admitted as expert opinion evidence.) 451 Mr White's understanding that Colac peat was or would be readily saleable as an import substitute in the domestic market and for export sale is not borne out in a practical sense by the evidence. Profitable trade in these areas has not eventuated. 452 Albeit under the pressure of a salvage programme, Mr Roach was prepared, in 1993, to let Winnote and the deposit go for a mere $2. Whilst that offer was not accepted and is, accordingly, not strictly evidence of value, it is not unreasonable to have regard to the episode in evaluating the significance to be accorded to the Whinners transaction, which is not direct evidence of the value of the deposit either. 453 No-one has made money in their attempts to exploit the deposit in the 15 years or so prior to 2002 and Biogreen's performance after the Whinners transaction did not fulfil Mr White's expectations. 454 It appears that Mr White was not fully informed concerning Biogreen's history and true financial position. The evidence certainly fails to establish that he was.

[94]

(ii) "The judge ignored Mr White's unchallenged evidence and/or contravened Brown v Dunn " 247 In valuation parlance, comparable sales refer to arms-length sales of properties with comparable characteristics and which occur in similar market conditions to the property to be valued. A sale of the property to be valued itself may be the best comparable if market conditions have not significantly changed between the date of the sale and the date of the valuation. Valuation disputes usually proceed on the basis that each of (often many) sales of comparable properties are the consequence of unflawed judgment operating in a free market. However, the sale of a comparable property can be impugned if it is not at arms-length or if there is evidence to show that the judgment of either buyer and/or seller was flawed in some material way in the sense that one or other (or both) were not prudent or in possession of all relevant information (Spencer v The Commonwealth (1907) 5 CLR 418 at 441). 248 The decision not to cross-examine Mr White did not change the nature or weight of his evidence. Nor did it entail waiving the right to draw attention to the limited basis of his testimony or to impugn the Whinners' sale according to the evidence. After all, Mr Bryant's third and fourth caveats were on the table before Mr White was called. 249 It was crystal clear that the defendants were contending that a lot of water had flown under the bridge since 1993. A huge amount of evidence concerning quality control and "wasted" expenditure on research and development during the PAL/Biogreen eras needed to be factored in, at least according to the defendants. The plaintiffs had responded with evidence asserting deficiencies in the way that the business had been run by Winnote's successors and problems of quality control (J340, 343). 250 More to the point, Mr White was not called as an expert as to value. His testimony entered the fray very late in the piece, responsive to issues raised by Mr Bryant and doubtless long after the time when the plaintiffs' evidence in chief had been directed to be filed. The White evidence was admitted as going to what was in Mr White's mind in 2002 and on the basis that the genuineness of his beliefs was not in issue. 251 The decision not to cross-examine Mr White signalled acceptance that he was an arms-length purchaser who believed he was acquiring a valuable asset the worth of which was calculated in his mind in the manner disclosed. He acknowledged that his estimate of value was not scientifically based. He did not profess any valuation expertise. Indeed, it would probably have been unfair if he had done so, given that his statement was produced very late in the proceedings. 252 Written submissions were filed on behalf of the defendants inviting the judge to infer that the White transaction proceeded on an incomplete and insufficient understanding of Mr White of the Biogreen business, the Colac deposit and the commercial history of attempts to exploit the deposit. 253 In my view, it was open to the judge to examine the matters taken into account in assessing the extent to which the Whinners investment was a true pointer to value of the resource in 2002.

[100]

• Mr White viewed the "extracts from previous valuations" in the Young valuation as supporting his belief as to the inherent value of the resource. 261 These, in effect, were the matters addressed in the presently critical passage of the reasons (J447-455). 262 In my view, the judge was entitled to conclude that the Whinners material had no persuasive weight referable to the value of the peat deposit in 1993. I cannot accept Winnote's case in this Court that seeks to derive a substantial 1993 value for the peat deposit from the Whinners transaction (virtually to the exclusion of the other data pointing in the opposite direction). 263 I also agree with the trial judge that a major problem with an attempt to put near-exclusive weight on the Whinners material is that it ignores the more limited use of this material proffered at trial. Sperling J said (J445): Mr Lonergan did not say that the Whinners transaction provided the basis for an opinion by him as to the value of the deposit independently of the major DCF valuation exercise which he presented to the court. Nor was there any other expert valuation evidence to that effect. Accordingly, the question which now arises for me is whether I should use the Whinners transaction as an independent basis for attributing a value to the deposit without expert evidence to that effect. 264 J449-451 can be addressed together, because the three paragraphs address a common theme, ie the marketability of the peat. J449 correctly observes that Mr White (a mining engineer) proceeded from a (correct) starting point about the extraction process being "simple and inexpensive" to the entirely unjustified conclusion that the peat was readily marketable and that it would yield a particular profit. The factors taken into account by Mr White involved no enquiry as to the past marketing experience of the successive owners of the deposit, including the quality control problems that had from time to time arisen. The admitted affidavit and (for what it is worth) the excluded supplementary statement made this clear both by what was said and by what was not said. 265 There was no evidence that Mr White examined Biogreen's financial statements or concerned himself about the possibly positive or negative inferences to be drawn from significant expenditure on research and development over many years coupled with no signs of favourable market penetration. 266 His Honour's conclusion in J451 was accurate as to Mr White's understanding and as to the fallacy of that understanding as regards marketing and profitable trading. It was both accurate and relevant to say that no one had made money in their attempts to exploit the deposit in the 15 years or so prior to 2002 (J453). Winnote's attempt to show that 15 years of unprofitable trading under changing managements was a run of bad luck unlikely to be repeated is highly unpersuasive. 267 The financial statements of PAL and Biogreen showed that very substantial capital was spent in an endeavour to exploit the resource. PAL's financial report for the year ended 30 June 2000 referred to $2.3m having been spent "to allow [PAL] to recommence the development of the markets and opportunities associated with its peat deposit" (Blue 5348). The report contemplated raising a further $1.8m to underwrite development in the current financial year "including the relocation of the processing factory from Geelong to the mine site at Colac, the continuation and commercialisation of research and development associated with peatbased fertiliser and insecticide bait products, sale support for the development of bulk and packaged peat sales and the development of environmental opportunities". 268 Biogreen spent $362,484 in 2001 and $315,233 in 2002 on research and development (Blue 5/428). Biogreen's financial statements for the year ended 30 June 2001 disclose the revaluation of "mining tenements" from the company's acquisition price at cost to a valuation of $7.5m. The report states that the tenements had been independently valued by Mr Chris Young on the basis of attributing a value to the underlying peat resource upon which the mining tenements had been granted. Future cashflows were estimated and discounted to a net present value (Blue 5/406). Mr Young was a consulting geologist and no attempt was made to prove his valuation or that he had valuation expertise. As indicated, his report was considered by Mr White before buying into Biogreen in 2002. 269 Biogreen wrote off its considerable expenditure on research and development, treating it in effect as yielding nothing of lasting value. It did this while adhering to the Young valuation without qualification or amendment, despite continuing trading losses. 270 Winnote did not call Mr Young nor establish his expertise as a valuer. He had relied on the discredited Robertson valuation materials. It is also clear that he applied discount rates rejected by Mr Bryant and the trial judge. In these circumstances, I cannot accept Mr Gageler SC's submission in support of ground 28 that there was probative value in the statement from Biogreen's directors expressing their opinion that the financial statements of the company gave a true and fair view of its financial position (Blue 5/416). The fact that the annual reports were tendered by the respondents at trial to prove other matters does not alter this conclusion having regard to the way the trial was conducted as a whole. 271 At J450 his Honour said: Mr White relied on the Young valuation. It was based on inflated assumptions as to revenue relative to Biogreen's own adjusted budget forecasts at that time. (The report has no standing as valuation evidence in these proceedings. It was not admitted as expert opinion evidence.) 272 The first sentence accurately reflects Mr White's evidence, as does the implicit criticism of the second sentence which focuses upon the reliance placed by Mr White upon Mr Young's valuation extracts rather than Young's market penetration warnings. Those valuations in turn rested on the insecure foundations of a discount rate that was too low and, in the case of the Robertson valuation, upon the many deficiencies explained elsewhere in the judgment. 273 The next broad theme of his Honour's reasons referable to the Whinners transaction is the comparison of what is extrapolated from the Groves' transaction (J452), the sad past history (J453) and the Bryant DCF valuation exercise (J456). The judge was entitled to look at these other matters as part of the process of deciding whether and if so what weight could be placed on the Whinners material. A judicial valuer ought to test competing hypotheses against each other (see Turner v Minister of Public Instruction (1956) 95 CLR 245 at 268, Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547 at 563). 274 This leaves the material at J448. The reasoning is extremely compressed, but ultimately discernible and sustainable. 275 The first point being made by his Honour was that large scale expenditure in research and development, particularly with reference to marketing, raised a question as to profitability. This point had been made by Mr Bryant and it had been accepted by his Honour earlier in his reasons. 276 The last sentence of J448 referred (again tersely) to the evidence and findings about the difficulty of translating anything derived from a transaction in 2002 backwards in time to 1993. Mr Bryant had made this point. (The difficulties are exacerbated further if the correct date for valuing the loss was 1988.) One of those difficulties (for Winnote) stems from the very need to factor in any lessons derived from long years of unprofitable trading. This explains the juxtaposition of the second and third sentences in J448. 277 Mr Bryant's third and fourth caveats about the Whinners material were: • With the lapse of time between 1993 and 2002 "very many factors that are irrelevant to the Plaintiffs' claim (specific to this asset, and generic in relation to financial and peat markets) could have influenced share value" .

[101]

• Mr Lonergan had ignored the fact that Biogreen had already spent $2.8 million funding capital expenditure and operating losses. 278 These views were adhered to by him in cross-examination and were, in effect, accepted by the trial judge. 279 The parties tended in the main to agree that the market for Colac peat had changed little between 1993 and 2002. Each sought to draw opposing conclusions from this starting point. 280 The respondents argued that the 2002 extrapolation was flawed because it overlooked the long history of unsuccessful attempts at market penetration. Winnote sought to draw the opposite conclusion, that the 2002 extrapolation was a fair reflection on the high value of the deposit in 1993. 281 The parties also presented alternative arguments on this time lapse issue. Winnote submitted that things were more buoyant in 2002, pointing to evidence suggesting a fall in the average price of imported peat between 1993 and 2002 (Mr Lonergan at Black 1476) and repeating (in this context) the arguments about quality control problems and problems with the makeup of Colac peat being a thing in the past by 2003. 282 In the same context, the respondents pointed to evidence about the depressive effect of the recession of the early 1990s upon the marketability of peat at what was chosen as the critical valuation date. There was a "recession" in Australia in the early 1990s (J140). Mr Roach perceived that this impeded the marketing of his peat (J173). In my view, the existence of an economic downturn around the time when Mr Roach was considering abandoning the deposit is not without its significance. Winnote has chosen to value its loss as at 1993. There was no similar recession in 2002, the date of the Whinners transaction upon which much reliance is now placed. 283 Mr Bryant considered the lapse of time to be important, because very many factors that were irrelevant to the plaintiffs' claim (specific to this asset and generic in relation to financial and peat markets) could have influenced value (Blue 6/1473). This went beyond acknowledging a mere hypothetical possibility. Elsewhere, he emphasised that one of the matters giving support to his view of negative value was the evidence that attempts over the years to establish and develop a market had failed, despite very significant expenditure (Black 6/2212, 2215, 2226, 2227). Mr Lonergan's approach to the Whinners transaction was criticised for ignoring the impact of these consistent trading losses in his assessment of what could be derived from the raw data of the Whinners transaction. 284 Mr Bryant's approach on this matter was, in my opinion, well open to be accepted, as it was, by the judge. 285 Notwithstanding his rejection of the relevance of the Whinners transaction, Mr Bryant calculated the value of the lost asset as at 30 June 1993 proceeding from an assumption that it was worth Mr Lonergan's $6.5m as at 30 June 2002 (Blue 6/1490, 1530). Mr Bryant arrived at a negative $1.7m. In doing so, he brought into account the amounts spent by Biogreen (essentially on research and development) and its predecessors in the period 1997 to 2002. Discounting back to 1993 was done at an inflation rate assumed to be 3% per annum. 286 This methodology was criticised by senior counsel for Winnote. Mr Gageler contended that the same asset was sitting there in 1993 and 2002 and that there was no significant change in the market for the products over that period. On this basis it was fallacious, he submitted, to treat the "wasted expenditure" as having any relevance. In my view, this reasoning is essentially circular. Like the trial judge, I would (with the corroboration of Mr Bryant's evidence) infer that substantial expenditure to sell a product that fails to find a "market" shows that in truth the product has little or no commercial value no matter how easy it is to produce. It also shows that the product may have inherent problems that are not shared by competitors' products. Mr Lonergan agreed that the trading history of a company, expected cashflows, markets and customers were relevant to assessing the true value of a company's shares. He added that purchasers substantially discount the value of money spent on research and development (Black 6/1471-2). 287 Mr Gageler sought to draw support from the fact that Biogreen itself had written off the millions of dollars spent on research and development without treating it as adding or subtracting to the net tangible assets of the company. I do not see how this requires the Court to disregard inferences as to value capable of being drawn from a prolonged history of loss despite earnest and expensive attempts to make the most of the resource. 288 No error of any materiality affected the trial judge's approach to the Whinners material.

[107]

(a) Winnote was trading at a loss. (b) There was an ongoing liability to pay a minimum royalty of $10,000 per year to the landowners. Complete cessation of business activity would not avoid that. (c) It was now known that a s17A application would have to be made, in order to retain the business, which was likely to be expensive. (d) The Roach group, which had funded Winnote's losses was engaged in a survival operation, realising assets to reduce debt. Retaining a loss-making business impeded that programme. 224 These reasons are sufficient to account, objectively, for the decision to sell. 225 The plaintiffs say, on the other hand, that concern about non-registration of the lease and consequent insecurity of title to the peat deposit was the reason for Winnote's business not being developed as Mr Roach had planned, and that the same concern contributed materially to the decision to sell out to Mr Groves. It is the plaintiffs' case that, if the correct advice had been given, Winnote would have had secure title to the peat deposit, the business would then have been developed as planned, and Mr Roach and Mr Luscombe would not have decided to sell out to Mr Groves as they did. 226 I am satisfied that Mr Roach was not genuinely concerned about security over the peat deposit by reason of non-registration of the real property lease. The case that such concern was the cause of Winnote being under-funded by the Roach group and, for that reason, being a loss-making business then falls away. So too, the case that such concern materially contributed to the decision to sell out to Mr Groves in January 1993. 227 There is no doubt that Mr Roach wanted the lease to be registered, but thinking that was necessary to secure Winnote's interest over the peat deposit is another matter. Mr Roach's conduct is inconsistent with such a concern. Where such a concern was stated, I believe that was done by Mr Roach for reasons other than expressing his true state of mind. I will elaborate. 228 Complaint to Mr Lewis about delay in registering the lease, in January 1989, was made in the context of having received an account for fees in December 1988 which remained unpaid until August 1989. 229 When, in April 1989, FS conveyed to Mr Roach a revision of the property description formulated by Larkins McCarthy and which was said to be necessary to register the lease, Mr Roach opted to make his own enquiries to assess the proposal rather than instruct FS to carry out further searches to clarify the situation. He then did nothing about making such enquiries for five months. That was when he attended at the Colac Shire Council offices in late August or early September 1989, at a time when he was in the district for other reasons. 230 Mr Roach says he wrote to FS on 4 September 1989, acknowledging that a search could be required after all, but querying whether that should be delayed in view of the new subdivision application which was pending. That letter might not have been sent. Assuming that it was, FS were remiss in not responding to it. But nothing further was done by Mr Roach to advance registration of the lease until he wrote to FS on 31 May 1990 complaining that registration needed to be resolved urgently. That was a further lapse of six months. 231 On FS's recommendation, FM were eventually instructed to carry out further searches, which they did. In consequence, they formulated a rewording of the property description in terms which seem to me to have been sufficient to meet the situation. 232 Mr Roach received FM's advice on 12 July 1990. Meanwhile, FS had sent a further account on 5 July 1990. That now became the focus of Mr Roach's attention until FS ceased to act in December 1990. During those five months, Mr Roach did nothing further to advance registration of the lease. He did not instruct FS to implement the proposed rewording of the lease to enable it to be registered. That is explicable in view of the dispute over fees. But he did not instruct other solicitors to attend to the matter either at that stage. 233 No further action was taken by Mr Roach to obtain registration of the lease until 19 February 1993, when Mr Roach wrote to Mr Galante. That was a further delay of two years since FS had ceased to act in December 1990. Mr Roach went to Mr Galante because the landlord was asserting default under the lease at a time when Mr Roach was endeavouring to conclude a sale of Winnote to Mr Groves. It was not the perception of a need for registration of the lease which took Mr Roach to Mr Galante. 234 This course of conduct is utterly inconsistent with a concern on Mr Roach's part that Winnote lacked security over the deposit because the lease was not registered. 235 Mr Roach says his state of mind concerning the registration issue is confirmed by a letter he drafted in mid-1990 addressed to Mr Sadler. (The letter was not sent.) In that draft, Mr Roach wrote: Dear George, RE: LEASE BETWEEN GM SADLER & WINNOTE PTY LTD I refer to our telephone conversation today regarding the above lease. As you are aware we have not received a signed and registered lease for the peat deposit. This matter has been going on for 2 years on a continuous basis at considerable cost to ourselves. It now appears that the reason why the lease was not registered was that shortly after its signing you lodged a new sub-division which negated the previous titles. The description of the property, as outlined on the lease, was not accepted to the Land Titles Office. This was not of our doing. Another complication has now arisen because a further sub-division and change in titles has occurred. Again this latest sub-division was not of our doing. The bottom line is that we have no registered lease, and probably never will have. The solicitors have been playing ducks and drakes at my company's cost and we are no longer prepared for this to occur. If I as an Engineer, designed a bridge and it fell down, or couldn't be built, and you suffered injury or financial loss as a result, your solicitor would sue me for massive damages. Without a registered lease, there is no commercial value in the deposit. In other words the money spent to date on the deposit is worthless. The fault for the lease not being registrable, as initially signed, is in our opinion the fault of either or both solicitors involved, and yourself (as you instructed your solicitor). It is our intention to recover the money spent to date and our loss of potential profit, unless we get a registered lease. It is not our intention to pay for the cost of achieving this result as we have, in good faith, already paid for that result. Furthermore this matter is being referred to the … 236 The draft letter is of no weight as evidence of Mr Roach's true state of mind about the need for registration. It is consistent that the letter was drafted with the thought of persuading Mr Sadler to assume responsibility for the costs of obtaining registration of the lease. It is also consistent that Mr Roach was insufficiently concerned about registration to send the letter. 237 As against the draft letter, there are other contemporaneous documents which evidence a very different state of mind. First, there is the application for a s17A permit in which Mr Roach contended that the deposit was not a commercial proposition. There was no suggestion there that this was due to the lease not being registered. It was the deposit itself which was said to be uncommercial. Mr Roach sought to explain what he said in that application as follows: When I filled out the application form, I deliberately underplayed the viability of the Deposit, on advice, as I did not wish to be put in a position by the Department that would require an expensive Environmental Impact Statement which may have cost in the order of $500,000 as I still did not have control of the Peat Deposit. My statements to that effect that the Peat Deposit was uncommercial were correct in the context where I lacked control of the Peat Deposit and had great uncertainty over the security of that control which I did have, circumscribed as it was by Sadler's control of the land outside what was defined as the "Peat Area" in the lease and his various subdivisions. 238 The suggestion that Mr Roach could and would have found $500,000 for an environmental impact statement in November 1992, but for a perception of insecurity of tenure, is fanciful in view of the financial state of the Roach companies at that time. On the other hand, I recognise that Mr Roach may have exaggerated the poor potential scope of the peat mining operation in the hope of persuading the department to withdraw the requirement for an environmental impact study. 239 No such explanation is available in relation to Mr Roach's letter to Mr Galante dated 19 February 1993. As appears from the passages emphasised earlier in this judgment, Mr Roach requested that Mr Galante attend to registration but also said: As with all leases the transfer of the property should not affect the lease.

[108]

This observation disclosed a correct understanding of the Victorian law that a tenant in possession was protected when registered property was sold. Registration was only ever for more abundant caution. It was not a critical consideration in Mr Roach's mind and never had been. 240 Mr Roach cast the net somewhat wider. His state of mind when deciding to sell out to Mr Groves is said to be reflected in what he asserts he told Mr Luscombe at that time. That is said to have been as follows: I would be prepared to sell the Company and the peat stock pile provided that I received $40,000 paid to Roach Industries Pty Ltd as it has paid for the cost of extraction and the Royalties. We could apportion that amount of money for purchase of the existing stock piles of peat. It is my view that the lease that Winnote has in relation to the peat deposit is worthless in view of the fact that it has never been registered, we have no Extractive Industries Licence, and the property has now been sold. The clauses within the lease enable the farmer to allow anybody else to mine peat in the area outside the designated peat work area and if we didn't meet our conditions, then he would be able to authorise other persons to operate within our area. As you know I have just received a letter from the Department indicating that I would have to obtain an EIS report before I can get consent to extract peat. This could cost up to ½ million dollars. The lease has to be renewed before 30/6/93. If I renew the lease I will have to pay the royalty payment of ten thousand dollars each year. 241 I give no credence to Mr Roach's capacity to recall such a conversation in such detail so long after the event. It is the product of what Mr Roach now believes his state of mind to have been at the time. Genuine recall of his state of mind, in such detail, so long after the event, is equally implausible. 242 The critical consideration is that I am unpersuaded by Mr Roach's contention that he did not fund the business because of the problem about registering the lease or that this actuated the decision to dispose of the business to Mr Groves in 1993. Not funding the business had nothing to do with that. Nor did the decision to sell to Mr Groves. 243 A mining lease and / or exploration licence in 1988 would have made no difference. Winnote would still have operated at a loss. The Roach group would still have gone into survival mode, selling unproductive assets and other assets to reduce debt. Further funding of Winnote's losses would still have been inconsistent with that programme. Holding the business would still have involved continuing expenditure in order to comply with the terms of a mining holding under the legislation. A s17A permit would still have been required with whatever expenditure that involved. Forty thousand dollars payable to Roach Industries to recoup some of the Roach group's losses in funding the business over the period 1988 to 1993 was better than the Roach group continuing to fund further losses or walking away with nothing at all. 244 Mr Roach's true reasons for not funding Winnote to a greater extent than he did were that he did not believe the business was capable of profitable development and because he was not willing and able to provide or procure further funding. 245 Mr Roach's true reasons for deciding to sell out to Mr Groves - which, I would infer, were shared by Mr Luscombe - are best encapsulated by Mr Galante's note of his telephone attendance on Mr Roach which I have mentioned. Referring to renewal of the real property lease, Mr Galante recorded (as quoted earlier): … now appears that Roach are in salvage mode in relation to this investment and are not likely to proceed.

[109]

In the context of Mr Roach's letter to O'Brien and Galante of 19 February 1993, the transactions with which Mr Galante understood Mr Roach was unlikely to proceed were the renewal of the lease and the related s17A application. 246 Mr Roach had given up on the project. As part of his strategy to reduce debt by disposing of unproductive assets, the peat mining business was to go for whatever he could get for it. A mining lease, with or without an exploration licence, would have made no difference. 247 Mr Luscombe had no choice other than to go along with what Mr Roach wanted to do. Since 1989, Winnote's business had been conducted by Roach Industries, and the Roach group of companies had funded its losses. Mr Luscombe had no leverage. Besides, Mr Luscombe was running his own race. He introduced Mr Groves. He agreed to the sale on Mr Groves' terms. He gave up his interest in Winnote to Mr Roach. He went in with Mr Groves, as Mr Groves' application for a mining lease demonstrates. 248 I find that the poor financial performance of Winnote during the years 1988 to 1993 was unrelated to the problems concerning the registration of the real property lease, as the plaintiffs assert, or to concerns about security of tenure in that regard or to anything else arising from the lack of a mining lease and / or exploration licence. It was unrelated to the breach of duty on the part of FM which I have identified. The fortunes of Winnote would have been no different if the correct advice had been given. 249 I also find that the decision to sell to Mr Groves on the proposed terms was unrelated to the problems concerning registration of the real property lease, to concerns about security of tenure, or to the breach of duty by FM. The decision to sell to Mr Groves would have been no different if the correct advice had been given. 294 Winnote accepts many of these findings, but challenges aspects of J223, 226, 227, 234 and 242-9. Its criticism of the trial judge proceeds from the correct starting point that, had proper advice been given, Winnote would have held a mining lease (with an additional exploration licence for the surrounding area) and not the RPL. I do not, however, accept that the judge overlooked this distinction when finding that nothing would have changed if Winnote held mining tenements as distinct from the RPL. 295 The judge appreciated the qualitative difference between a mining lease and exploration licence, on the one hand, and the RPL that was obtained, on the other. His Honour recognised the incidents and advantages of mining tenements (J21-34), but held nevertheless that Winnote would still have disposed of them in the circumstances prevailing in 1992-93 (J243, 246, 248). In Mr Roach's mind, "it was the deposit itself which was said to be uncommercial" (J237). In reaching these conclusions on an essentially hypothetical issue the judge considered the probabilities in light of the contemporaneous documents and his assessment of Mr Roach's credibility. His Honour properly recognised that mining tenements over private land had their own costs, in the form of royalty obligations to the Crown and obligations to compensate the landowner. It is true that the RPL had its unique minimum royalty obligation ($10,000 pa). But the mining tenements also had unique and onerous requirements concerning employment and minimum expenditure, as recognised by Sperling J (J243). No evidence had been led to explore the circumstances in which these might be waived by the Crown. 296 There was a ground of appeal (22) asserting that the trial judge failed to deal adequately with the entirety of the plaintiffs' case and/or permitted too long to elapse between the conclusion of Mr Roach's oral evidence and delivery of the judgment, with the consequence that the proceedings at first instance miscarried. This matter was neither abandoned nor pressed with any vigour. 297 This was an immense and protracted trial. The parties chose or were content to seek several months from the close of evidence to prepare extensive written submissions of incredible complexity, spanning a wide range of issues many of which were not pressed on appeal. There were occasions in mid 2004 when the barristers returned to present further arguments. I am not persuaded that the delay occasioned miscarriage. 298 The plaintiffs' tardy claim raised only a handful of truly critical factual issues surrounding Mr Roach's motivation in attempting to sell out to Mr Groves in 1992. There was a good deal of contemporaneous documentary material. Resolving key issues such as the impact of non-registration of the RPL was not impeded by the time taken to come to final judgment. Unlike the situation considered in Moylan v The Nutrasweet Company [2000] NSWCA 337, the judge's reasons are detailed in their factual and critical analysis. 299 A particular complaint in this regard was directed at the terseness of reasoning touching the Whinners transaction that was promoted to the front rank of Winnote's case in this Court. As indicated, I have examined with added care the factual material lying behind the judge's conclusions on this topic. In my view, they are not attended by any substantial error. 300 The respondents support the trial judge, submitting that the professed concerns based on non-registration were feigned or exaggerated; and that they did not impact on Mr Roach's informed perception that the deposit was near worthless in 1993. 301 There was a hard-fought issue at trial as to the reasons moving Mr Roach to become agreeable to sell to Mr Groves on the terms discussed. It became common ground, certainly by the appeal stage, that the issue is relevant only so far as it reinforces or undermines the inference that Mr Roach perceived that the deposit had the sale value being negotiated. 302 Winnote submits, in brief, that Mr Roach was willing to sell well below what he thought the deposit to be worth because of problems stemming from non-registration of the RPL and the threats of forfeiture emanating from the lessor in the context of the non-existent s17A permit. It is further submitted that to focus on the RPL as representing the deposit is fallacious because, had negligence been absent, Winnote would have had a mining lease which would not have carried the RPL's $10,000 pa minimum royalty payment and would have been easier to retain during and beyond the difficult days of the recession of the early 1990s. 303 The submissions based upon the hypothetical burden of the $10,000pa provision in the RPL do not lie easily with Mr Roach's initial concerns expressed to FS in 1988 about the RPL then under consideration confining him to a "backyard operation" (Blue 11/2619). 304 Issues of credibility were significant. Mr Roach swore that, if he had held an exploration licence and a mining lease instead of the RPL, he would not have agreed to sell out to Mr Groves for $40,000 or at all in late 1992/93. He said that he would have continued to hold the mining tenements until such time as he regarded the economic climate right for the full exploitation of the peat resource. The climate was not appropriate in 1992/93 (Blue 72, 114, Black 344). This evidence was bolstered by reference to the fact that the RPL contained the $10,000 minimum royalty obligation, something that would have been absent under a mining tenement. The trial judge was aware of these matters (see J223). 305 Mr Roach also swore that he concluded it was no longer feasible to continue to plough his own money into the project because the RPL was unregistered. He adopted the strategy of entering into something of a "holding pattern" (Blue 71). 306 He also stated that the representations made in the s17A application form "deliberately underplayed the viability of the Deposit, on advice, as I did not wish to be put in a position by the Department that would require an expensive Environmental Impact Statement which may have cost in the order of $500,000 as I still did not have control of the Peat Deposit" (Blue 79). 307 In my view, it was well open to the judge to reject this testimony of Mr Roach whose evidence on the topic was vigorously challenged in cross-examination, as well as by reference to the inconsistent contemporaneous documents. (The detailed transcript references are set out in a Schedule provided by the respondents in the appeal.) 308 Mr Roach's evidence given many years after the event did not explain his large expenditure on research and development in the early years (when the RPL was also unregistered). The evidence was also at odds with statements Mr Roach made at the time to the effect that he regarded the caveat as protecting Winnote's legal title under the RPL. There were long periods during which Mr Roach did not respond to letters asking for information needed by the lawyers to hasten the registration process. The "holding pattern" assertion did not fit with his (unsuccessful) endeavours in the early 1990s at the time to create a stockpile of peat and extend Winnote's market penetration. 309 Mr Roach's attempts to falsify his own statements to the Department of Conservation were themselves unconvincing and discrediting (Black 1/294-298). For a time he sought to distinguish between his and Winnote's view, before conceding that each considered the site was not commercial. He asserted that non-registration of the RPL had impeded taking the project to a venture capitalist, then conceded that his own company was the venture capitalist in contemplation (Black 297). 310 Mr Roach identified his lawyer, Mr Galante, as the person who advised him to deliberately underplay the viability of the deposit. It was put to him that this was a lie (Black 474). Mr Galante was not called. 311 Sperling J made specific adverse credibility findings against Mr Roach on two matters, one of which reflected badly on his professed capacity to recall, the other reflecting on inconsistencies in his evidence and on his commercial morality (J240-1, 276-9). And his Honour expressly rejected Mr Roach's testimony as to the impact of the non-registration concerns on his true reasons for being eager to sell the deposit (J227). In my view, it was well open for the judge to do so, in light of the matters conceded in cross-examination, the lapse of years between the events in question and the date of trial, and the contemporaneous documents. One may be prepared to accept Mr Roach's assertion that a registered RPL would have been necessary before a bank or venture capitalist bought into the venture. But it is a different thing altogether to say that a registered RPL would have had value. In pressing the case that it did, Mr Roach and Winnote at times came close to the fallacy that the judge was accused of committing, namely overlooking that what Winnote claims to have lost were the mining tenements it would have acquired (in 1988) had negligence not occurred. 312 The Groves negotiations did not culminate in a sale and their evidentiary status as a direct indicator of precise value is problematic, as the trial judge recognised (J452). Winnote submits that evidence of an offer is not evidence of value (McDonald v Deputy Federal Commission of Land Tax (NSW) (1915) 20 CLR 231). The respondents deny any such principle (see MMAL Rentals Pty Ltd v Bruning [2004] 63 NSWLR 167 at 182[84]-[99]). This legal controversy need not detain us, because the Groves negotiations are, in my view, available to be used as admissions against Winnote. These negotiations were the conduct and statements of Winnote and of the company's two shareholders and directors, Messrs Roach and Luscombe (Black 422, 425). It was the conduct of people under a degree of pressure due to financial stringencies (as the judge recognised), but it was the conduct of informed participants, based upon knowledge acquired over the previous five years. 313 More to the point, it is wrong to focus on the Groves negotiations in isolation. It is, I believe, important to observe that the proposed sale to Groves was the culmination of a process that came to a head in late 1992. Mr Roach formed the view that the deposit was uncommercial, largely because Colac peat had difficulty competing with imported peat. Considerable expenditure on research and development had only confirmed this prognosis. In September 1992 Mr Roach wrote in his diary "organise sale of peat bog". He was willing to surrender the RPL. He knew that, if the venture continued, the cost of complying with s17A would become significant over time. In the hypothetical calculus, he must be taken to have known that, if he had held tenements under the Mines Act, he would have been obliged to incur considerable expenditure in meeting the minimum expenditure and employment conditions they entailed. 314 As indicated, Winnote's peat mining business was not profitable in the years 1988-1993. This, despite Mr Roach and his company Roach Industries putting considerable money into the venture for research and development, including market development. 315 By November 1992, Mr Roach had it firmly in mind to dispose of Winnote's interest in the peat deposit one way or another. His view was that the venture was uncommercial. He had been unable to compete successfully with the imported peats. He advertised without success in The Age for a joint venture partner and distributor for some time before November 1992 (Black 2/333). 316 It was not until well into 1993 that Mr Roach perceived that Winnote's interests under the RPL had failed to secure the arrangement he had negotiated with Revili and Mr Sadler to acquire long-term rights over the deposit in 1988. In other words, his actions were not the product of any subjective perception based on the inadequacies of the RPL compared to mining tenements. 317 Given his perception that the right to mine on terms agreeable to Mr Sadler was embodied in the RPL, Mr Roach was anxious to secure registration of the RPL, to prevent its forfeiture, and prepared (unless sale eventuated beforehand) to exercise the right of renewal that would extend the RPL beyond 30 June 1993. He also knew that his rights under the RPL were protected by Winnote being in occupation and by the caveats that were in place. 318 The trial judge summarised the position at the beginning of 1993 (J184): To summarise, as best as can be discerned the peat mining business ran at a loss in four of the five years ended 30 June 1989 to 1993, including the last three of those years. In the last of those three years the loss exceeded $100,000. As at January 1993, the business had run continuously at a loss for some two and a half years at least, and there was no immediate prospect of improvement. 319 His Honour found in effect that Mr Roach was eager to sell out (J188). 320 I am therefore unable to find error in the conclusion that the events of 1992-93 were a significant pointer to the absence of value in the lost deposit (as at 1993). 321 Winnote's challenge to the conclusion that nothing of value was lost therefore fails.

[110]

Remaining issues 322 The primary judge found breach against FM, but not FS. As to FS he held that Mr Cottee properly sought advice from FM on the question whether peat had been brought within the ambit of the Victorian legislation by proclamation. Mr Cottee was advised orally by Mr Eager (FM) that the Victorian Mining legislation did not apply (J70-79). His Honour concluded that, in view of that advice and Mr Eager's standing, Mr Cottee was entitled to treat FM's earlier letter of 23 August 1988 as being unreliable in so far as it expressed a doubt in that regard (J91). 323 Winnote submits that this point was neither pleaded nor contended for at trial. Nor was it raised by the judge during oral address. 324 Winnote is wrong on the pleading point, because breach of duty was specifically denied, but otherwise correct about the matter not having been debated. The parties agree that the possibility of distinguishing between the two firms on the issue of breach was not ventilated at trial. 325 FS nevertheless supports the reasoning of Sperling J. 326 I see difficulties with the finding that FS was not in breach, although it is unnecessary to resolve them in light of the earlier conclusions. FS had held itself out to Mr Roach as having general expertise in mining law and as able to accept the retainer. Mr Cottee adverted in his mind to the question whether or not the peat deposit fell under any of the Victorian mining legislation. Mr Eager's letter of 23 August 1988 expressed no "concluded opinion" on the critical matter, while discussing the "practice" of the Victorian mines department. There is much to be said for the submission that the solicitor who was dealing with the client pursuant to FS's contractual retainer ought to have taken the matter further before proceeding down the RPL track. As Sperling J observed, the advice in the letter from FM was far from definite (J67). 327 I also record that Winnote further submits that FS was vicariously liable in any event for the negligence of its agent, FM (see Ex parte Colonial Petroleum Oil Pty Ltd (1944) 44 SR(NSW) 306 at 308). FS contends that this basis of liability was never pleaded. This prompted a late proposed amendment, without admission that it was required (CA Tr p376). The amendment was opposed. 328 In the upshot, it is unnecessary to resolve these issues just as it has been unnecessary to address all of the respondents' arguments in the appeal. 329 The respondents submitted that costs should be awarded against both appellants if the appeal is generally dismissed. 330 Three broad reasons are advanced. I agree with them, subject to the comments added below. 331 The first is the overlapping nature of the grounds of appeal which mean that almost all of the appeal was brought substantially for the benefit of both appellants. Mr Roach acquired all of the shares in Winnote on 5 March 1993 (J209). Grounds 1-6 of the Notice of Appeal refer expressly to both appellants. Ground 7 only concerns Winnote and ground 8 is concerned only with Mr Roach. However, ground 8 is to the effect that the trial judge erred in holding that Mr Roach suffered no loss or damage. This brought into play, so far as Mr Roach was concerned, most of the other grounds of appeal, which (save for those concerning reliance damages) addressed the value of the opportunity to exploit the deposit or the value of the deposit itself. 332 Massive written submissions were exchanged prior to the hearing of the appeal. It was only on the first day of the appeal that the Court and the respondents were informed that the grounds of appeal relating to Mr Roach were not to be pressed. 333 Secondly, regardless of the fact that Mr Roach's grounds of appeal were ultimately not pressed, he stood to benefit indirectly if Winnote's appeal was successful. This had been common ground on the respondents' application for security for costs referred to below. It is true, as the appellants submit, that any benefit that Mr Roach might have received would depend upon the costs of the liquidation and the nature and extent of other claims. But it is difficult to imagine that Winnote's liquidation would not have produced a most substantial return to Mr Roach, as the sole shareholder, had damages been awarded in the range of what was claimed. 334 Thirdly, the respondents' application for security for costs against Winnote was refused for the sole reason that it was highly likely that costs would be awarded against both appellants if the appeal failed (see Winnote Pty Ltd v Page & Ors [2005] NSWCA 362, 62 NSWLR 244 at [43]). The relevant part of my reasons for judgment on that application was as follows:

[116]

Liberty to apply within 7 days as regards the costs of the cross-appeal. If that liberty is exercised, the moving party or parties should, within a further 14 days, file and serve written submissions in support of the proposed orders and the other party or parties should file and serve submissions in response within a further 14 days. 339 There is an outstanding Summons for leave to appeal filed by the solicitors in relation to a costs issue (CA 40075 of 2005). It should be listed for directions on a date not less than 28 days from the pronouncement of the above orders in the main appeal. 340 TOBIAS JA: I agree with Mason P. 341 BASTEN JA: I agree with the orders proposed by the President, on the basis that no material error was established in relation to the conclusion reached by the trial judge that nothing of value had been lost as a result of the negligence of the Respondents. However, I would not join in the reasons relating to the limitation issues at [33]-[111] and the conclusion that the appeal should be dismissed because all claims were statute barred: at [112]. 342 For the purposes of the Limitation Act, to be maintainable in these proceedings the relevant cause of action had to accrue after 15 November 1989. If it did not, the conclusion reached by the President must be correct. At the heart of this aspect of the Appellants' case were two propositions. The first was that relevant measurable damage, as opposed to contingent or prospective loss, did not occur until 1993, when Mr Groves obtained a mining lease over the peat deposit, thus precluding the acquisition by the Appellants of the appropriate mining tenement, giving title to the deposit. Secondly, they contend that, even if there had been measurable damage prior to November 1989, the Respondents were under a continuing duty, breach of which continued until 1993. 343 The Respondents contend that any cause of action for their negligence must have arisen in 1988, when the Appellants obtained a real property lease which was worthless in legal terms and was derisively characterised by counsel as a "lemon", or, in the metaphor adopted in English authority, "damaged goods". 344 Metaphors can be misleading because they may conceal significant distinctions: see Law Society v Sephton & Co [2006] 2 WLR 1091 at [51] (Lord Walker of Gestingthorpe). Some of the cases relied upon by the Respondents and discussed by the President are distinguishable. Thus, where the negligence gives rise to a contractual relationship, legal interests are created in two parties, which cannot be varied except by consent. Examples may include entering into a mortgage, as in Forster v Outred & Co [1982] 1 WLR 86 and entering into a contract of employment without restrictive covenants: see D W Moore & Co Ltd v Ferrier [1988] 1 WLR 267. However, an inflexible approach based on the creation of a legal obligation is not the law in Australia. If it were, entering into a guarantee as a result of negligent advice would start the clock running for limitation purposes. In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, the High Court held that that was not the case. Of the English cases, the joint judgment of Mason CJ, Dawson, Gaudron and McHugh JJ, stated at 532: "If, contrary to the view we have just expressed, the English decisions properly understood support the proposition that where, as a result of the defendant's negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them. In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred." 345 At [45] above the President sets out a passage from the opinion of Lord Mance in Law Society v Sephton & Co [2006] 2 WLR 1091 at [67] which commences: "There is considerable case-law concerning situations where a person's legal position has, through negligence, been altered to his immediate, measurable economic disadvantage, and it has been held that a cause of action accrued although the beneficiary neither knew nor had any reason to know about its existence."

[118]

As will be noted below, that statement is not consistent with some authorities in this Court. 347 Lord Mance continued at [70]: "In all these cases except Forster v Outred & Co [1982] 1 WLR 86 the defendant failed to preserve or procure for the claimant an asset (including a particular chose in action) which could and should have been preserved or protected by proper performance of the defendant's duty in relation to the transaction affecting the claimant's legal position. In Forster v Outred & Co the claimant's case was that, but for the defendant's negligence, she would never have entered into the transaction at all. But in that case, by doing so, she clearly depreciated the value of her house in a measurable way. However, while a defendant's failure to preserve or protect a particular asset by proper performance of his duty in relation to a particular transaction may readily be seen to have caused measurable loss, negligence causing a claimant to enter into a transaction which he would not otherwise have entered may not immediately, or indeed ever, cause measurable loss to any particular asset." 348 A similar point was made by Lord Hoffmann at [21]; the underlying rationale appears to have been that the alternative benefit was no longer, in practical terms, available. All of their Lordships appear to have accepted the approach adopted in Wardley that Forster turned on the fact that the registration of the mortgage immediately lowered the value of the specific property affected: at [17]-[18] (Lord Hoffmann); at [49] (Lord Walker of Gestingthorpe; at [33] (Lord Scott of Foscote); at [36] (Lord Rodger of Earlsferry); at [74]-[75] (Lord Mance). 349 Sephton was, in a sense, an easier case than Wardley. It involved a claim by the Law Society against an accountant who had been negligent in auditing trust account records of a solicitor and who had thus failed to identify defalcations as they occurred. The liability of the Law Society to the solicitor's clients arose under a statutory scheme, their Lordships holding that no measurable loss was suffered until a claim was made under the scheme. 350 Bell v Peter Browne & Co [1990] 2 QB 495 post-dated Wardley. On separation from his wife, Mr Bell agreed to transfer to her his interest in the matrimonial home, in return for a one-sixth share of the net proceeds of sale, when the house was sold. His solicitor failed to protect his interest, either by obtaining his wife's signature on a declaration of trust, or by lodging a caveat over the title: p 502D (Nicholls LJ). The transfer took place in 1978, his former wife selling the house, without accounting to him for any part of the proceeds, in 1986. By the time he learned of the sale, she had spent the proceeds: p 505B. The first failure of duty identified by Nicholls LJ was the solicitor's failure to obtain the wife's signature on a declaration of trust with respect to the husband's interest: p 502D. Damage was sustained in relation to that breach when the transfer of the husband's interest was executed and delivered. The second breach of duty arose from the failure to lodge a caveat on the title, a breach which was remediable until the sale of the house. Damage was held to have accrued, consistently with Forster v Outred & Co, at the time the solicitors allowed Mr Bell to transfer his share of the property, without protecting his residual interest. Accordingly, the case was treated in Sephton as one falling within the same principle as Forster v Outred & Co: at [22] (Lord Hoffmann); [45] (Lord Walker) and [67] (Lord Mance). 351 A clearer case, with a similar result, in this Court was Scarcella v Lettice (2000) 51 NSWLR 302. That was a case in which two clients purchased a property, with the assistance of a solicitor, but failed to obtain the benefits which they sought. The property was divided by an escarpment so that access to the rear section of the property required a right of way from a public road over neighbouring land. Despite the existence of a marked carriageway, there was no right of way over the adjoining land to the rear section of the property, and the negligence of the solicitors failed to identify that defect. Once the purchase had been completed, it was a defect which was not capable of being remedied. It followed that, although the purchasers may have been unaware of the fact, they suffered a loss upon completion of the purchase. 352 Scarcella may in turn be distinguished from the later decision of this Court in Segal v Fleming [2002] NSWCA 262. In that case, Mr Fleming and his sister owned lots 1 and 2, 82 Wolseley Road, Point Piper. Lot 1 had a thin strip of land running down the side of lot 2, which was a means of access from Wolseley Road to lot 1. In 1976, a right of way in favour of lot 2 was created over that slip of land. In 1983, Mr Fleming (and his sister) purchased lot 2. In September 1986, Mr Fleming told his solicitor (Segal) to extinguish the 1976 right of way over the thin strip of lot 1 adjoining lot 2. In October 1986 Mr Fleming (and his sister) sold lot 2 to a Mr Toltz. The contract of sale acknowledged that the right of way in favour of lot 2 was to be extinguished. In April 1994, Mr Toltz inquired of Fleming as to the extinguishment of the right of way, which he said had not been removed from the title. In September 1994 Mr Toltz entered into an agreement for sale of the land to Mr Smouha and Ms Ho. In July 1996 Mr Smouha and Ms Ho commenced proceedings seeking a declaration that they were entitled to the 1976 right of way over the strip of lot 1 which adjoined their block. 353 In Segal Hodgson JA held that although the solicitor had failed to act as instructed in September 1986, so long as Mr Toltz owned lot 2 the error could have been rectified and the loss, up until September 1994, was only contingent or prospective: at [33] and [34]. Accordingly the proceedings, commenced in June 2000 against the solicitor, Mr Segal, were within time. The effect of the failure to remove the right of way was not to diminish the value of the property retained by Mr Fleming and his sister, but to deny a beneficial increase in value. So long as that beneficial increase could be obtained, the loss of the benefit remained contingent. 354 That analysis was confirmed in Lee v Brand [2003] NSWCA 198 (Hodgson JA at [71], Sheller and Tobias JJA agreeing). It was applied in Wardman v Hatfield [2003] NSWCA 283 at [12] (Tobias JA, Meagher JA and Foster AJA agreeing). 355 By similar reasoning in the present case, it is arguable that, so long as the mining tenement was available, the Appellants did not suffer a loss through the failure of the solicitors to obtain it. That conclusion was resisted by the Respondents on the basis that, despite the availability of the mining tenement until 1993, the Appellants had suffered a loss in 1989 when they obtained a real property lease. 356 With respect to this argument, the mere entering into an agreement providing benefits less valuable than those which should have been obtained, absent negligence, does not demonstrate financial loss: see Wardley, 175 CLR at 530-531. The joint judgment noted the remarks of Dixon J in Potts v Miller (1940) 64 CLR 282 at 297 that the measure of damages in deceit consisted of "the loss or expenditure incurred by the plaintiff in consequence of the inducement upon which he relied, diminished by any corresponding advantage in money or money's worth obtained by him on the other side". The joint judgment continued (p 530): "It is that amount that, in such a case, represents 'the prejudice or disadvantage' the plaintiff 'has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant' ( Toteff v Antonas (1952) 87 CLR 647 at p 650), subject to any consequential damage. Putting aside the incurring of expenditure, these statements might be thought to indicate that a plaintiff does not sustain loss until that loss is ascertained or, at least, is capable of ascertainment." 357 In the present case, the Appellants incurred expenditure of two kinds. The first were the legal costs involved in the preparation and execution of the real property lease. However, they should not be treated separately: were it otherwise, the guarantor in Wardley could not have succeeded. The reason for that approach is that legal costs should be seen as part of the second category of financial expenditure, namely the whole of the expenditure which resulted from the execution and carrying into effect of the real property lease. The expenditure on exploitation of the peat deposit was expenditure which would have been incurred in any event, had the mining tenement been obtained. If the mining tenement had proved to be of value, it was not demonstrated that this expenditure was "wasted" and the exposure to a claim in conversion by the State of Victoria, referred to by the President at [61] above, was a matter for speculation. Had such a claim been brought, Winnote might have been able to recoup payments from the lessor: at the very least, no actual loss has been demonstrated, despite the position as to the exploitation of the peat having become known to the Victorian Government, through the application for a licence under the Soil Conservation and Land Utilization Act 1958 (Vic), s 17A, in 1993. It is difficult to see this potential loss as falling into a different category from the trust account defalcations in Sephton, which were held not to constitute loss incurred by the Law Society, at least until a claim was made on the statutory fund by the third party clients of the solicitor. 358 In this case, the limitation argument may be tested by the hypothesis that, after 1993, Winnote proved that the loss of the mining tenement involved actual financial loss to it. Actual financial loss could only be assessed by taking account of expenditure as well as revenue. Relevant expenditure would have included that incurred before 1993 which, accordingly, could not be dismissed as "wasted expenditure".

[119]

Breach of continuing duty 359 The alternative basis upon which the Appellants sought to avoid the limitation defence was that the Respondents continued to breach their duty to take reasonable care in the provision of advice concerning the appropriate means for obtaining access to the peat throughout the period of the retainer, which continued after November 1989. Because it is not necessary to determine this issue, I do not join in the analysis of the President at [68]-[112]. It may be correct that there is a distinction to be drawn between a case of "simple non-feasance", being the failure to take appropriate steps to give effect to one's instructions, and a case where the practitioner is specifically asked to advise and then take appropriate steps based on that advice: see, eg, Bell v Peter Browne & Co [1990] 2 QB 507D (Beldam LJ). However, the formulation of the distinction, and its operation in particular circumstances, may require careful attention, although the distinction is drawn from the long-standing judgment of Oliver J in Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp [1979] Ch 384 at 435, set out at [99] above. 360 Further, it will be necessary to address in this context the distinction which appears to arise from cases in this Court concerning the occurrence of actual loss resulting from a failure to issue timely proceedings. Thus, it was held in Argyropoulos v Layton [2002] NSWCA 183 that a continuing retainer (to take, for example, legal proceedings) can involve a continuing duty, with further breaches, after the limitation period expires and where no steps are taken to make an application for an extension of time: see Argyropoulos at [6] (Handley JA), [12]-[13] (Hodgson JA) and [64] (Santow JA) (with whom Hodgson JA also agreed). The Court adopted a similar approach in Wilson v Rigg [2002] NSWCA 246 at [47]-[54] (Giles JA, Santow JA and Foster AJA agreeing). Although Giles JA expressly distinguished the question of continuing duty - at [56] - it is clear that these issues are closely related. Further, a similar approach underlies the decision in Segal v Fleming. The Court rejected an argument based on the negligent failure of the solicitor to include an appropriate clause in the sale agreement to Mr Tolz, which had occurred in August 1989, outside the limitation period. That failure bore some similarity to the failure to commence proceedings in time, because it was followed by an existing but diminishing possibility of remedy thereafter: Segal at [32] and [33]. 361 Ignorance that a cause of action has accrued does not, absent statutory suspension, prevent time running: see Cartledge v E. Jopling & Sons Ltd [1963] AC 758, a personal injury case and Forster v Outred & Co in relation to professional negligence. However, where a claim is made for pure economic loss, knowledge of the defect may be relevant to the occurrence of actual loss. Thus, where a defect in title is unknown, a property will retain its market value until the existence of the defect is disclosed. 362 This approach is consistent with that adopted in Bryan v Maloney (1995) 182 CLR 609. In 1979 Mr Bryan built a house in Hobart for a Mrs Manion. The footings were inadequate and the house was thus defective. Mrs Manion sold it to the Quittendens who in turn sold it to Ms Maloney in 1986. Cracks began to appear in the walls some six months after the last purchase. In the joint judgment, Mason CJ, Deane and Gaudron JJ held that there was a duty owed by the builder to the purchaser and that the loss suffered was "the economic loss sustained by the owner of a house by reason of diminution in value when the inadequacy of the footings first became manifest …": p 626. 363 In Segal, it was assumed that the value of Mr Fleming's interest in lot 1 was diminished by the right of way in favour of lot 2. Mr Tolz knew about the right of way when he purchased lot 2 in 1986. Presumably the value of lot 2 reflected the absence of a right of way over lot 1. Mr Tolz sold the land in 1994, apparently on the basis that a right of way continued to exist. However, the economic loss relied upon in Segal was assessed by reference to the value of lot 1, which remained with Mr Fleming and his sister. 364 Whether Forster v Outred & Co is ultimately reconcilable with this line of authority and whether the existing state of the case law provides a coherent development of principle are matters which are not without their difficulties. It is obviously desirable that the law operates consistently, so that like situations are determined according to a single principle. However, it is necessary to resist the temptation of elegance and simplicity if important distinctions are thereby obscured. There will often be a significant difference between a case where a solicitor has failed to obtain a specific benefit for a client, and one where the client has been allowed to subject himself or herself to a legal obligation which, absent negligence, might have been avoided. The present case involved an attempted acquisition of a benefit which was not realised. However, the benefit remained available, so that the breach was capable of being remedied for some time after it occurred. In this sense it bore a similarity (but no more) to cases in which an interest in property was retained or obtained, but without the interest being noted on the register. Because it is not necessary to determine these matters of principle in this case, I would refrain from doing so. **********

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